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Hello

I did a NEAP test my teacher provided, and I lost marks on this question. I approached teacher and asked for clarification, but I didn't understand the answer/ wasn't 100% in agreement

QUESTION: Explain how the trend in exchange rate performance over the past 3 years will impact upon rate of economic growth in Australia.

MY ANSWER: The increase of the AUD over the last 3 years, peaking at 98 cents against the US will dampen economic growth. This can be attributed to the increase in the cost of our X compared to other nations producing similar g+s. Australian g+s will no longer be price competitive, and so the demand for Australian exports willd increase. Exports are an integral part of AD, and will also affect 1 in 5 local jobs (1 in 4 in rural areas). If X decreases unemployment in export orientated jobs will increase over the medium term, as demand falls. This decrease in output and production as a result will lower GDP and economic growth. However because of China's immense demand and the ability of Australia to supply large scale amounts it has not been an issue as yet.

I got 2 out of 4 marks....should I have gotten higher?

Comments by teacher: What will happen to exporters? Importers What about the Terms of Trade

My query: Was the marking too lenient? Harsh? I believe 1/3 of my answer kept talking about exporters and how it will affect jobs etc. Also, I don;t think Terms of Trade is relevant to that answer...if it was maybe I should have lost 1 mark not 2. Terms of trade as I udnerstand it is the value of X relative to M or vice versa....doesn't have any other effect on growth which is DIFFERENT to that I mentioned.

Another question from NEAP multiple choice A fall in the workforce participation rate would most likely lead to

  • A a decrease in the level of transfer income paid by Govs
  • B higher levels of voluntary unemployment (Nope? Think this doesn't COUNT as unemployment)
  • C an increase in the number of job vacancies
  • D an increase in the number of people seeking full time job training (not relevant?) ANSWER: B...I rote C

Another Question from NEAP In the instance of the Fed Gov allocating a cash subsidy to a company in the telecommunications industry, the most likely effect will be

  • A an increase in investment in plant and equip
  • B a decrease " "
  • C a decrease in telecommunication charges and an increase in investment in plant and equip
  • D an increase " "

My issue is, depending on the company, ANY of those are possible. We all know subsidies= doesn't encourage efficacy, HENCE my reasoning was why would a company invest in plant and equip....some companies may accept subsidies but jack up prices to earn a profit.

ANSWER: C

This Question is from IARTV (CSE) The following choices indicate an economic policy change and an economic objective. In which instance is the policy change not likely to produce the stated outcome

  • A: A reduction in interest rates and a higher level of eco growth (nope, this causes INCREASE in growth)
  • B An increased level of privisation and a more equitable distribution of income (it goes both ways, in short term NO because profits go to wealthy....in long term yes because more efficient-->more jobs)
  • C a reduction in R&D expenditure and a lower NFD
  • D An increased budget surplus and a lower level of unemployment (possibly. Because budge surpluses=contractionary stance-->less stimulus-->higher unemployment.....yet over 10 years we kept having surpluses and a decreasing unemployment level

I think it could be eitehr B or D.........teacher didn't have answers at the time

A low inflation rate would be compatible with a relatively low rate of unemployment if

  • A interest rates were at relatively low levels
  • B there was relatively low rate of economic growth
  • C Labour force participation rate increased substantially
  • D the RBA adopted a very contractionary monetary policy stance

Teacher said it was D, but a VERY contractionary stance=slows spending-->higher unemployment because Interest rates go up,I chose B (not the BEST answer i reckon), because economic growth can be low thus lower inflation and RELATIVELY low unemployment. the option didn't say VERY low economic growth, so I thought this could be the answer.

Thank you so much for any help, and please provide answer by answer explanation via process of elimination

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 Here's why I don't like VCE Economics. You'll be marked for keywords. For your first question, you need to quote those terms (which are basically another way of explaining what you had described perfectly well, with commonsense), in order to get the marks. Those keywords, as you say, add nothing to your answer. You have the concepts right, and unfortunately, you're penalised. Part of VCE Economics is learning the jargon. – Collin Li♦ Oct 20 at 7:53
Thanks Collin. Your answers have been very helpful, and have helped clear things up! Yes, my teacher does emphasise the need to define key words, but in that question, like you said it was all commonsense! – asa.hoshi Oct 20 at 9:22

2 Answers

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Workforce participation: Higher unemployment rate means there are more workers trying to get work, which means their bargaining power is reduced (more supply of labour). This worsens the deal for workers, and causes some workers to leave the workforce (i.e: voluntary unemployment -- which you're right, it doesn't count as unemployment, but that's not what it's saying here).

Cash subsidy: It will lower the costs of supply for the company -- hence it will shift out the supply curve, and lower telecommunication charges.

Economic policy and economic objective Q: Your analysis of B is great, but it will eventually lead to the stated outcome, so that should eliminate it. I like D the most. You go with your "comparative statics analysis", which is about "what happens if I just change this" (i.e.: "surpluses=contractionary stance-->less stimulus-->higher unemployment" like you said). The evidence you have could be polluted by all these other external factors and variables, and hence holds very little weight in an economic debate.

Low inflation rate: D makes the most sense because it means that the economy is doing well (high AD), and the RBA is trying to dampen inflationary pressures (successfully). This is a high time of an economy. Low economic growth corresponds to less unemployment (less workers needed) -- to shut down B.

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You didn't mention domestic demand being shifted towards foreign goods because they are cheaper.

"Australian g+s will no longer be price competitive, and so the demand for Australian exports willd increase."

WTF? -1 mark there

"Comments by teacher: What will happen to exporters? Importers What about the Terms of Trade" To the teacher: who gives as crap about the terms of trade? the questions asks about the rate of economic growth.

"ports are an integral part of AD, and will also affect 1 in 5 local jobs (1 in 4 in rural areas)."

i don't like that statistic, no source was provided, and it probably doesnt take into account 2nd, 3rd, ... nth order effects.

Those MC questions are the worst i've ever seen. I hope this is not reflection of the syllabus.

"A low inflation rate would be compatible with a relatively low rate of unemployment if" Answer: A

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Thanks for first bit of info,regarding domestic demand shifting towards foreign goods.That quoted part "...demand for Australian X will increase"was a typo on my BEHALF,so give me that one mark back:P Regarding the ToT, I didn't think it has anything to do with economic growth. Regarding my statistic, it was from my textbook :(, ir provides no source, but I would obviously trust it, so what do I do in this situation? It is a useful statistic because. Those MC & their associated difficulty, I'm happy to say will NOT appear on the exam, it's an independent company & hardest I've ever done! – asa.hoshi Oct 20 at 13:39

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