2018 PRELIMINARY EXAM

Economics
Total marks – 80
Section I Pages 2–8
20 marks
• Attempt Questions 1–20
• Allow about 30 minutes for this section

General Instructions Section II Pages 9–14

• Reading time – 5 minutes
20 marks
• Working time – 2 hours 10 minutes
• Attempt Questions 21–22
• Write using black pen
• Allow about 30 minutes for this section
• Board-approved calculators may be
used Section III Page 15–16
20 marks
• Attempt EITHER Question 23 or
Question 24
• Allow about 35 minutes for this section

Section IV Page 17
20 marks
• Attempt EITHER Question 25 or
Question 26 • Allow about 35 minutes for this section
Section I

20 marks
Attempt Questions 1–20
Allow about 30 minutes for this section

Use the multiple­choice answer sheet for Questions 1–20.

1 Which market structure is characterised by a few sellers?

(A) Perfect competition

(B) Monopolistic competition
(C) Monopoly
(D) Oligopoly

2 Which statement best explains the economic role of scarcity?

(A) People want less than they can afford.

(B) Peoples wants are unlimited.
(C) Peoples wants are limited.
(D) People never have choices.

3 Which of the following is true of the supply curve?

(A) It is vertical when the supply for a good is relatively elastic

(B) It is downward sloping to represent the inverse relationship of price and supply
(C) It is upward sloping initially and then moves downward
(D) It is upward sloping and it has a positive relationship with price and quantity
supplied

4 What would the Reserve Bank of Australia (RBA) likely do if they wished to encourage
spending in the economy during a time of an economic downswing?

(A) Purchase newly issued Commonwealth Government Securities

(B) Sell newly issued Commonwealth Government Securities
(C) Purchase previously issued Commonwealth Government Securities
(D) Sell previously issued Commonwealth Government Securities

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4 What happens to elasticity of demand for a good over time?

(A) It tends to become more inelastic as consumers become more accustomed to the good
(B) It tends to become more inelastic as consumers buy goods in bulk
(C) Elasticity remains constant over time
(D) It tends to become more elastic as consumers have time to identify substitutes if the
price rises

5 The following information is required to answer the question below.

Leakages/injections Billions $
Savings 60
Investment 30
Taxation 80
Government Spending 90
Imports 30
Exports 40

Which of the following shows three true statements?

Statement 1 Statement 2 Statement 3

(A) The economy will contract. There is a trade surplus. The budget is in defici
(B) The economy will expand. There is a trade deficit. The budget is in surplu
(C) The economy will contract. There is a trade surplus. The budget is in surplu
(D) The economy will expand. There is a trade deficit. The budget is in defici

6 In which situation would a price floor be set?

(A) To maintain price equilibrium in an established market

(B) To maintain quantity equilibrium in an established market
(C) To prevent a price from rising too high
(D) To prevent a price from falling too low

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7 Which of the following tribunals now determine minimum wages in Australia?

(A) Australian Fair Pay Commission

(B) Australian Industrial Relations Commission
(C) Fair Work Commission
(D) Employment Advocate

8 The table shows selected data for an open economy.

Savings = $100m Government taxation = $100m

Government expenditure = $140m Exports =
Investment = $95m Imports = $50m

What is the value of exports in this economy if it is in equilibrium?

(A) $50m
(B) $25m
(C) $15m
(D) $170m

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9 The diagram shows the demand curve for a product.

What is the elasticity of demand for the product between the price range of $60 to $20?

(A) Elastic
(B) Unitary
(C) Inelastic
(D) Perfectly inelastic

10 Which of the following would be present if the marginal private costs were less than the
marginal social costs in the consumption of a particular good?

(A) Interest rate increases

(B) Economic growth
(C) Negative externalities
(D) Positive externalities

11 How are goods produced to satisfy immediate wants defined?

(A) Public goods

(B) Capital goods

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 (C) Consumer goods
(D) Producer goods

Use the table below to answer questions 13-14.

Taxable income Marginal rate of tax on this income

0 – $18,200
$18,201 – $37,000
$37,001 – $80,000
$80,001 – $180,000
$180,001 and over
Nil
19c for each $1 over $18,200
$3,572 plus 32.5c for each $1 over $37,000
$17,547 plus 37c for each $1 over $80,000
$54,547 plus 45c for each $1 over $180,000

12 What amount of income tax would pay if you earn $90,000?

(A) $21,247
(B) $21,672
(C) $18,000
(D) $18,200

13 What is the marginal rate of tax for someone earning $90,000?

(A) 19%
(B) 32%
(C) 80%
(D) 37%

14 Which of the following are characteristics of public goods?

(A) Excludable and transferable

(B) Transferable and rival
(C) Non-rival and non-excludable
(D) Rival and excludable

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15 Use the following information to answer the question.

Year Unemployed (million) Employed (million)

2016 6 28
2017 5 27

What is the rate of unemployment in this economy for 2017?

(A) 15.6%
(B) 15.2%
(C) 17.3%
(D) 17.6%

16 Which of the following institutions would investigate price collusion amongst petrol
stations?

(A) Reserve Bank of Australia (RBA)

(B) Australian Prudent Regulatory Authority (APRA)
(C) Australian Securities Exchange (ASX)
(D) Australian Competition and Consumer Commission (ACCC)

17 The following diagram shows a firm’s long run average cost curve (LRAC).

Which situation best demonstrates the movement in the firm’s output from A to B?

(A) The firm experiences internal diseconomies of scale

(B) The firm experiences external diseconomies of scale

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 (C) The firm experiences internal economies of scale
(D) The firm experiences external economies of scale

18 Which TWO taxes are regressive in nature?

(A) PAYG GST

(B) GST Excise Duty

(C) Excise Duty Company Tax

(D) Company Tax GST

19 Which of the following factors is most likely to cause structural unemployment?

(A) Increase in the level of tariff protection

(B) Decrease in training and development
(C) Rising school retention rates
(D) A downward trend in GDP per capita

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2 0 1 8 P R E L I M I N A R Y E X A M I N AT I O N

Economics
Section II

20 marks
Attempt Questions 21–22
Allow about 30 minutes for this section

Answer the questions in the spaces provided. These spaces provide guidance for the expected
length of response.

Extra writing space is provided on page 14. If you use this space, clearly indicate which
question you are answering.

Please turn over

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Question 21 (10 marks)

(a) Distinguish between primary and secondary financial markets.

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(b) Outline the role of the Australian Prudential Regulatory Authority (APRA).

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(c) Describe the factors affecting the demand for funds in financial markets.

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Question 21 (continued)

(d) Explain the influence of the cash rate on the Australian economy.

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End of Question 21

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Question 22 (10 marks)

(a) Complete the following equation:

Average Propensity to Consume + Average Propensity to Save = __________

(b) Outline TWO sources of income incurred through the factors of production.

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(c) Describe TWO factors that influence individual consumer choice.

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Question 22 continues on the next page

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Question 22 (continued)

(d) Analyse how major exchanges are represented as flows of money in the FIVE
sector circular flow model.

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End of Question 22

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Section II Extra writing space

If you use this space, clearly indicate which question you are answering.

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Section III

20 marks
Attempt EITHER Question 23 or Question 24
Allow about 35 minutes for this section

Answer the question in the Section III Writing Booklet. Extra writing booklets are
available.

Your answer will be assessed on how well you:

▪ demonstrate knowledge and understanding relevant to the question and use the
information provided
▪ apply relevant economic terms, concepts, relationships and theory
▪ present a sustained, logical and cohesive response

Question 23 (20 marks)

‘We choose to focus on growing our economy, in particular by investing in infrastructure, to

secure more and better paying jobs, and create an environment where people and businesses
are enabled and empowered. Encouraging businesses to grow, and investing in key
infrastructure will boost job creation and help deliver much needed pay rises for Australians.’
Federal Government Budget Document Overview 2017

Source: Australian Federal Government Fiscal Outlook, Budget Paper Number One.

Assess the role of the Federal Budget in stabilising the level of economic activity in the
Australian economy.

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Question 24 (20 marks)

“Three inner-Sydney districts contributed a quarter of Australia's GDP growth in

2015-16….”
“Sydney's CBD area, the inner northern suburbs and the Ryde district together delivered 24
per cent of gross domestic product growth in 2015-16 in Australia,”

SMH Feb 2017, Matt Wade

Assess the role of the Reserve Bank of Australia in stabilising the level of economic activity in
the Australian economy.

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Section IV

20 marks
Attempt EITHER Question 25 or Question 26
Allow about 35 minutes for this section

Answer the question in the Section IV Writing Booklet. Extra writing booklets are
available.

Your answer will be assessed on how well you:

▪ demonstrate knowledge and understanding relevant to the question
▪ apply economic terms, concepts, relationships and theory
▪ present a sustained, logical and well-structured answer to the question

Question 25 (20 marks)

Examine the role of labour market institutions and the impact of labour market trends
on the Australian economy.

OR

Question 26 (20 marks)

Examine the factors affecting supply and demand and the impact this has on the price
mechanism.

End of paper

Copyright information
*Graphic for Q10 courtesy – managerial-economics-club.com

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