Question 1 – 20 marks

Measuring GDP and Economic Growth

The table lists some macroeconomic data for a country in 2015.

• Calculate the country’s GDP in 2015. Then explain the approach (expenditure or income) that you used to calculate GDP.  (4 marks)

An economy produces only three commodities – fish, crabs and coconuts. The base year is 2014, and the table gives the quantities produced and the prices.

• Calculate chain volume measure of real GDP in 2014 and 2015 expressed in base-year prices. Then, calculate the real GDP growth rate between 2014 and 2015.  (6 marks)

Jobs and Inflation

Australian Bureau of Statistics reported the following data for 2015:

Labour force participation rate: 69.6 per cent

Working-age population (in thousands people): 18,429,726

Employment-to-population ratio: 65.2

• Calculate the labour force. (2 marks)

• Calculate the employment. (2 marks)

In New South Wales in October 2015, the labour force was 3,803,200 and 200,500 people were unemployed. In November 2015, the labour force decreased by 300 and the number employed increased by 2,900.

• Calculate the unemployment rate in November 2015. (2 marks)

CPI and Inflation

The Lucky Country reported the following CPI data:

June 2010  201.9

June 2011  207.2

June 2012  217.4

(f).      Calculate the inflation rates for the years ended June 2011 and June 2012. How did the inflation rate change in 2012? (2 marks)

(g).      Why might these CPI numbers be biased? (2 marks)

Question 2 – 20 marks

Quantity Expansion (QE) of Money in the European Union (EU) 

On March 9 2015, the European Union (EU) commenced quantity expansion of money, Euro (€). The European Central Bank (ECB) has increased the quantity of money by 60 billion euro every month in the open market in an attempt to support the economy of EU countries. The large increase in the quantity of money is expected to have significant impacts on a range of economic sectors in the EU and global financial markets.

• Analyse how the quantity expansion of euro money is likely to affect money supply, interest rate, investment and consumption, and economic growth in the EU. Draw relevant graph(s) for your analysis.  (5 marks)

• Discuss how the quantity expansion of euro money would change the value of euro, exchange rate (depreciation or appreciation) against other currencies, and exports and imports in the EU. How would this contribute to EU’s current account balance and would this improve the competitiveness of the EU economy in the global market?  (5 marks)

The United States is likely to Raise Interest Rate soon

The U.S. Federal Reserve chairman, Dr Janet Yellen, has signalled that the United States is likely to raise its interest rate as US economic indicators has improved. On the other side of the world, however, the interest rates in many other countries including the EU and Australia are on hold at their lowest level ever.

• Explain, in the short run, how and why an increase in US interest rate is likely to change the flow of funds between the United States and Australia. (2 marks)

• Using a graph, explain how an increase in US interest rate is likely to affect loanable funds supply and interest rate in Australia. Also, analyse how the change in loanable funds supply and home loan interest rate are likely to influence housing demand, house prices, and household debt burden in Australia.  (5 marks)

• Discuss how and why an increase in US interest rate is likely to affect the value of Australian dollar and exchange rate (depreciation or appreciation) against the US dollar. Also, discuss how the change in exchange rate is expected to influence Australia’s exports, imports and the current account balance (improve or worsen). (3 marks)

Question 3 – 20 marks

Exchange Rate and Balance of Payments

In October 2012, the exchange rate was 82 Japanese yen per US dollar.  As a result of Abenomics in Japan since late 2012 and economic recovery in the US, the exchange rate rose to 114 Japanese yen per US dollar in March 2016.

• Draw a graph and explain what would have happened to the quantity of US dollar supplied and the US exchange rate? What would have happened to the interest rate in the United States? Would people now plan to buy or sell US dollar in the foreign exchange market?   (4 marks)

• What would have happened to the quanity of Japanese yen supplied? Would people now plan to buy or sell Japanese yen in the foreign exchange market?   (2 marks)

In July 2015, Australian dollar is trading at US$0.75 per Australian dollar and the interest rate in Australia is currently 2 per cent a year. It is forecast that the US will increase its interest rate some time later this year.

• If the interest rate in the US increases to 3 per cent a year, how is it likely to affect the flow of funds between Australia and the United States and the exchange rate of US dollar against Australian dollar (depreciation or appreciation)? What is likely to happen to the current account balance of the United States?  (6 marks)

Balance of Payments

The table gives some information about the US international transactions in a year.

• Explain and calculate the current account balance. (2 marks)

• Explain and calculate the capital account balance. (2 marks)

• Did the US official reserves increase or decrease? Explain. (2 marks)

• Was the US a net borrower or a net lender in this year? Explain your answer. (2 marks)

Question 4 – 15 marks (MICROECONOMICS):

Part A:  Answer the following questions.

Korea imports a large quantity of beef. With no beef trade, Korea’s equilibrium price for beef was $8 million per kilo tonne and equilibrium quantity was 375 kilo tonne. If Korea opens its beef market to trade with no tariff, domestic demand would be 625 kilo tonne and domestic supply would be 125 kilo tonne at the world price of $4 million per kilo tonne. However, Korea currently imposes 40 per cent tariff rate on all imported beef. With 40 per cent tariff, Korea’s domestic supply and domestic demand were 250 kilo tonne and 500 kilo tonne respectively in 2013. Assume that intercept of supply curve is $2 million and demand curve is $15 million per kilo tonne.

• Analyse the effects of 40 per cent tariff rate on the price of beef in Korea and Korea’s beef imports in comparison with no tariff case. Provide numeric details. (2 marks)

• Draw a graph and clearly show how the areas of gains and losses from the trade with 40 per cent tariff rate would change before and after the tariff with brief explanation. Then, calculate the actual value of change in consumer surplus, producer surplus, tariff revenue and the amount of deadweight loss. Show your calculation.  (8 marks)

Part B:  Answer the following question.

• ProPainters hires students at $250 a week to paint houses. It leases equipment at $500 a week. The table sets out its total product schedule. Calculate and construct ProPainters’ cost schedules – that is, total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC) and marginal cost (MC) per house painted. Briefly explain how you calculate each cost schedule and show your calculation.  (5 marks)