VCE-ECON-U34 E1.1 Practice Exam 1: Question Paper

A) The total value of goods and services produced by Australian firms anywhere in the world
B) The total market value of all final goods and services produced within a country’s borders in a given period
C) The income of all Australian residents
D) The total value of all transactions in an economy

A) GDP = C + I + G + (X – M)
B) GDP = Wages + Rent + Interest + Profit
C) GDP = Value added at each stage of production
D) GDP = Total revenue of all firms

A) Includes the value of services
B) Is adjusted for inflation — it measures the actual volume of output, not just the higher money value due to price rises
C) Is measured in foreign currency
D) Excludes government spending

A) The seasonal variation in economic activity
B) The pattern of alternating periods of expansion (growth) and contraction (recession) in real GDP
C) Government budget cycles
D) The cycle of company profits

A) Zero unemployment
B) The rate of unemployment consistent with stable inflation — including frictional and structural unemployment but not cyclical
C) The current rate of unemployment
D) The rate determined by the minimum wage

A) Workers changing jobs voluntarily
B) Insufficient aggregate demand during economic downturns — falls as the economy recovers
C) Skills mismatches between workers and available jobs
D) Demographic changes in the working age population

A) The level of GDP
B) Changes in the price of a representative basket of goods and services consumed by households — a measure of inflation
C) The cost of producing goods
D) Changes in asset prices

A) Borrowers
B) Fixed-income earners and creditors (savers) — real purchasing power of fixed income falls; real value of savings erodes
C) All economic participants equally
D) Only the government

A) GDP and unemployment
B) Inflation and unemployment — suggesting a short-run trade-off
C) Interest rates and investment
D) Exchange rates and exports

A) A fall in unemployment and rise in inflation
B) A rise in unemployment, a fall in GDP, and likely a fall in inflation
C) A rise in both GDP and inflation
D) A fall in imports and a rise in the current account surplus

A) The GDP deflator is less accurate
B) The GDP deflator covers all goods and services in GDP (including investment goods and exports); CPI covers only consumer goods bought by households
C) The CPI is broader in coverage
D) The GDP deflator measures only services

A) Rapid economic growth combined with low inflation
B) Simultaneous high inflation and high unemployment — defying the original Phillips curve trade-off
C) Slow growth combined with low unemployment
D) Rapid inflation with full employment

A) A rise in the interest rate reduces GDP
B) A 1 percentage point rise in unemployment is associated with approximately 2-3 percentage points less GDP growth
C) Inflation and GDP growth are directly related
D) Government spending multiplier equals 1

A) The volume of Australia’s trade
B) The ratio of export prices to import prices — Australia’s ability to buy imports with a given volume of exports
C) Trade agreements with other countries
D) The current account balance

A) The difference between domestic and foreign output
B) The difference between actual real GDP and potential real GDP — positive when economy is running above capacity; negative (recessionary gap) when below
C) The gap between public and private sector output
D) The difference between nominal and real GDP

A) Caused by technological change reducing demand for specific skills
B) The short-term unemployment that occurs when workers are between jobs — voluntarily searching for a better match
C) Unemployment during a recession
D) Unemployment caused by inadequate education

A) $25,000
B) $65,000-$70,000 AUD
C) $100,000
D) $150,000

A) Australia having lower productivity
B) Australians working fewer hours per year on average — Australia has higher labour productivity but less annual hours worked
C) Australia’s smaller population
D) Australia’s higher tax rates

A) The cyclical pattern of unemployment
B) The tendency for cyclical unemployment to become structural — long-term unemployed lose skills, connections and motivation, making the natural rate of unemployment permanently higher
C) Seasonal unemployment
D) The relationship between inflation and unemployment

A) The maximum possible GDP if all resources were used
B) The level of real GDP consistent with full employment and stable inflation — the sustainable non-inflationary growth path
C) Future projected GDP
D) GDP including the underground economy

Explain the three methods of measuring GDP and explain why they should theoretically give the same result.

Explain the difference between nominal and real GDP. Why is real GDP growth a better measure of economic improvement?

Describe the business cycle and explain how different sectors of the Australian economy are affected by cyclical changes.

Explain the causes and consequences of inflation. Distinguish between demand-pull and cost-push inflation.

Describe the relationship between the business cycle and unemployment. How do the different types of unemployment behave over the cycle?

Explain what happened to the Australian economy during the COVID-19 period (2020-2022) in terms of GDP, unemployment and inflation.

Explain what GDP measures and its limitations as an indicator of economic welfare.

Describe the current state of the Australian economy (2023-24). What are the main challenges facing policymakers?

Extended Response 1: GDP and Economic Wellbeing

Extended Response 1: GDP and Economic Wellbeing (a)
Critically evaluate GDP per capita as a measure of a nation’s economic wellbeing. What alternative or complementary measures would provide a more complete picture?

Extended Response 1: GDP and Economic Wellbeing

Extended Response 1: GDP and Economic Wellbeing (b)
Explain the phenomenon of ‘jobless recoveries’ that have occurred in some advanced economies after recessions.

Extended Response 2: Inflation and Unemployment

Extended Response 2: Inflation and Unemployment (a)
Explain the causes of Australia’s inflation surge of 2021-2023 and evaluate the Reserve Bank’s monetary policy response.

Extended Response 2: Inflation and Unemployment

Extended Response 2: Inflation and Unemployment (b)
Explain the distinction between cyclical and structural unemployment. Why is structural unemployment more difficult to address?