Course revision - Short answer
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VCAA Sample Written Examination 2023
SECTION A – Multiple-choice questions
SECTION B – Written responses
Question 1 (11 marks)
Consider the following information about a hypothetical country’s production possibilities.
Production combination | Production of wheat | Production |
A | 6000 | 0 |
B | 5500 | 100 |
C | 4500 | 350 |
D | 3000 | 550 |
E | 1000 | 650 |
F | 0 | 700 |
a. Using the data in the table, construct a suitably labelled production possibility frontier (PPF) diagram. 3 marks
bi. Assume that the economy is currently producing 4000 tonnes of wheat and 300 000 bottles of wine. On the PPF, label the current combination of wheat and tobacco as point X. 1 mark
bii. Explain whether this economy has achieved productive efficiency. 2 marks
c. Imagine that changes in the market result in a reallocation of resources such that combination D is achieved instead of combination B. Evaluate whether this reallocation of resources might result in a more allocatively efficient outcome.5 marks
Question 2 (15 marks)
Crop farmers in northern New South Wales are anticipating entire crops will be lost after floodwaters completely submerge hundreds of hectares of soybean, rice, cane and macadamia farms.
a. Based on this information, construct a suitably labelled demand and supply diagram to illustrate the predicted impact on the market for soybeans. 3 marks
b. Describe how the market for soybeans will move from a temporary state of disequilibrium to a new equilibrium following the changes outlined above. 3 marks
c. For one of the crops referred to above, distinguish between the substitution effect and the change in the price of a substitute with reference to their respective effects on the demand curve. 3 marks
d. Explain how Australia’s market economy answers the three basic economic questions.6 marks
Question 3 (18 marks)
Consider the following graph.
a. Analyse how the trend in the inflation rate since January 2021 is likely to have affected each of the following: purchasing power, international competitiveness, spending and investment decisions, and wages growth.8 marks
b. Explain why deflation may be associated with an increase in the unemployment rate. 2 marks
c.Distinguish between hidden unemployment and underemployment. 3 marks
d. Explain how the trend in the inflation rate has affected the use of conventional monetary policy since the beginning of 2022. 3 marks
e. Evaluate the extent to which the government has achieved the goals of low and stable inflation, full employment, and strong and sustainable economic growth in the last 12 months. 6 marks
Question 4 (27 marks)
Consider the following graph.
a. Analyse the likely impact of the trend in commodity prices, shown in the graph, on Australia’s terms of trade. 2 marks
b. Explain why an increase in commodity prices is usually associated with an increase in the value of the Australian dollar. 2 marks
c.Explain why an increase in the terms of trade may make it harder for the Reserve Bank of Australia (RBA) to achieve its goal of low and stable inflation.3 marks
d. Analyse the impact on Australia’s international competitiveness and living standards of each of the following budgetary policy initiatives targeting aggregate supply:
- training and education. 6 marks
- research and development. 6 marks
- subsidies. 6 marks
- infrastructure. 6 marks
- tax reform. 6 marks
e. Explain how trade liberalisation may affect the achievement of the goal of strong and sustainable economic growth in the short term and in the long term. 4 marks
f. Analyse how an increase in Australia’s skilled migrant intake may boost Australia’s productive capacity and economic recovery.4 marks
g. Analyse the short-term and long-term effects of one market-based environmental policy on aggregate supply and living standards.6 mark
Note that questions are progressively being added to this section of the site over the course of 2023
To focus on questions relating to specific parts of your course (e.g. full employment, monetary policy, market structures, etc.) visit the Test Yourself section of the site under the relevant topic headings
General exam revision questions - 2 mark questions
Explain how advances in computer technology contributes a lower rate of inflation. 2 marks
Describe the trend movement in the participation rate since late 2021. 2 marks
Outline how a loosening of monetary policy in the USA is likely to impact on the value of the Australian dollar (AUD). 2 marks
Define the terms of trade. 2 marks
Define public debt. 2 marks
In the early days of Covid-19, some Australian firms experienced a significant increase in export demand. Outline how this type of transaction has a favourable impact on the current account in Australia’s balance of payments. 2 marks
In Australia, if the rate of growth in real GDP falls from one year to the next, outline whether there has been a decrease in the real value of goods and services produced over that time. 2 marks
Describe how an increase in the Consumer Price Index (CPI) might negatively impact on Australia’s net export demand. 2 marks
Describe how growth in the labour force participation can cause the unemployment rate to rise. 2 marks
Legalisation of marijuana will increase supply as growers will no longer fear breaking the law. However, outline how it is possible for the price of marijuana to rise following the legalisation of marijuana. 2 marks
Describe one reason that helps to explain why lower interest rates help to reduce the rate of unemployment. 2 marks
Outline how a higher exchange rate exerts upward pressure on the rate of unemployment. 2 marks
Describe how higher petrol prices are likely to influence headline and underlying rates of inflation. 2 marks
Outline how monetary policy’s blunt nature might limit its ability to reduce unemployment. 2 marks
General exam revision questions - 3 mark questions
Explain how trade liberalisation can contribute to a lower inflation rate. 3 marks
Explain how a lower unemployment rate reduces pressure on the cyclical budget deficit. 3 marks
Explain why a high value of the Australian dollar causes tradables inflation to fall relative to non-tradables inflation. 3 marks
Explain how slower growth in China and stronger growth in mining investment might contribute to a decline in Australia’s terms of trade. 3 marks
Explain how a high exchange rate can change relative prices and alter the allocation of resources. 3 marks
Describe how higher levels of disposable income and the war in Ukraine contributed to higher fuel prices. 3 marks
Describe how strong growth in immigration might influence wages growth and employment in Australia. 3 marks
Distinguish net foreign debt (NFD) from net foreign equities (NFE). 3 marks
Distinguish a producer a subsidy from a consumer subsidy in terms of the way they affect markets. 3 marks
Outline how an increase in the Trade Weighted Index (TWI) helps to reduce cost inflationary pressures. 3 marks
Describe how the cyclical component of the budget can contribute to a deterioration of the budget outcome .3 marks