VCE-ECON-U34 E5.1 Practice Exam 5: Question Paper

A) Adding up all spending on final goods and services
B) Summing all factor incomes earned in production — wages, rent, interest and profit
C) Adding value added at each stage of production
D) Subtracting imports from exports

A) Counting only the value of final sales
B) Summing the value added at each stage of production, not the full sale value at each stage
C) Ignoring intermediate goods entirely
D) Adding total revenue of all firms

A) Excludes government spending
B) Measures the income earned by a country’s residents and firms, including net income from abroad, rather than output produced within its borders
C) Is always larger than GDP
D) Only includes income from exports

A) Not working and not looking for work
B) Without work, actively seeking work, and available to start work in the reference week
C) Working part-time but wanting more hours
D) Retired and not seeking work

A) The unemployment rate divided by the population
B) The labour force (employed plus unemployed) as a percentage of the civilian population aged 15 and over
C) The employed population as a percentage of total population
D) The number of hours worked per person

A) People who are unemployed and seeking full-time work
B) Part-time workers who want and are available to work more hours than they currently have
C) People who have left the labour force
D) The long-term unemployed only

A) The unemployment rate alone
B) The unemployment rate plus the underemployment rate — a broader measure of spare capacity in the labour market
C) The participation rate minus the unemployment rate
D) The number of discouraged workers only

A) Removes typical calendar and seasonal patterns but can still show short-term volatility
B) Smooths out both seasonal and irregular short-term fluctuations to reveal the underlying medium-term direction
C) Are identical measures
D) Only apply to inflation figures

A) Includes all items in the CPI basket equally
B) Removes the most volatile price movements (e.g. petrol, fruit and vegetables) to reveal the more persistent, ongoing inflation trend
C) Is always higher than headline inflation
D) Measures only import prices

A) Rising costs of imported raw materials
B) Aggregate demand growing faster than the economy’s productive capacity, pulling prices upward
C) A negative supply shock
D) A fall in consumer confidence

A) A boom in consumer spending
B) A rise in the cost of key production inputs (e.g. oil, wages) that firms pass on as higher prices, independent of demand conditions
C) A rise in the exchange rate
D) A cut in interest rates

A) A slowdown in the rate of inflation while prices still rise
B) A sustained fall in the general price level — negative inflation
C) A rise in unemployment only
D) A fall in the exchange rate

A) Prices falling in absolute terms
B) A slowdown in the rate of inflation — prices are still rising, but more slowly than before
C) A rise in unemployment
D) The same as deflation

A) Are currently employed but dissatisfied with their job
B) Want work but have stopped actively searching because they believe no suitable jobs are available, and so are classified as not in the labour force
C) Are unemployed and actively searching
D) Have retired voluntarily

A) The unemployment rate
B) Business confidence surveys and building approvals — which tend to change before overall economic activity turns
C) GDP growth for the previous quarter
D) The current inflation rate

A) Reducing consumption
B) Increasing planned expenditure at every price level, shifting AD to the right
C) Reducing the money supply
D) Increasing potential output

A) The current price level
B) The economy’s productive capacity — the quantity and quality of labour, capital, land and technology available
C) The level of consumer confidence
D) Government spending decisions

A) The level of unemployment benefits
B) Changes in wage rates for a fixed quantity and quality of labour, excluding compositional shifts in the workforce
C) Total wages paid across the economy
D) The minimum wage rate only

A) Zero unemployment
B) The situation where cyclical unemployment is zero and the unemployment rate equals the NAIRU (frictional plus structural unemployment only)
C) Everyone of working age is employed full-time
D) The participation rate equals 100 percent

A) Rise by 8 percent
B) Fall by approximately 2 percent — purchasing power of wages declines
C) Rise by 2 percent
D) Remain unchanged

Explain how the Australian Bureau of Statistics defines and measures the unemployment rate, and outline two limitations of this measure as an indicator of labour market health.

Using the aggregate demand and aggregate supply (AD-AS) model, explain how a fall in consumer confidence would affect the equilibrium price level and real GDP in the short run.

Explain the difference between leading, coincident and lagging economic indicators, and explain why this distinction is useful for policymakers.

Explain why the RBA focuses on underlying (trimmed mean) inflation rather than headline CPI inflation when setting monetary policy.

Explain the main economic and social costs of unemployment for individuals and the wider economy.

Explain the difference between GDP and GNI (Gross National Income) and explain why this distinction is particularly relevant to Australia.

Describe how Australia’s macroeconomic conditions (inflation, wages growth and unemployment) changed between the pre-COVID period (2015-2019) and the post-pandemic period from 2022 onward.

Explain how the multiplier and accelerator effects can interact to amplify fluctuations in the business cycle.

Extended Response 1: Measuring the Australian Economy

Extended Response 1: Measuring the Australian Economy (a)
Discuss the strengths and weaknesses of GDP, the unemployment rate and the CPI as indicators of Australia’s economic performance and living standards, using examples.

Extended Response 1: Measuring the Australian Economy

Extended Response 1: Measuring the Australian Economy (b)
Explain why economic statistics such as GDP are typically revised after their initial release, and what this means for using them to guide economic policy.

Extended Response 2: The Cost-of-Living Squeeze

Extended Response 2: The Cost-of-Living Squeeze (a)
Explain how rising inflation combined with slower wages growth created a cost-of-living squeeze for many Australian households in 2022-23, and identify which groups were most affected.

Extended Response 2: The Cost-of-Living Squeeze

Extended Response 2: The Cost-of-Living Squeeze (b)
Explain why the RBA and Treasury monitor both the unemployment rate and the broader labour force underutilisation rate when assessing spare capacity in the labour market, and what this means for wages growth.