Both the following figures (Figure 1 and Figure 2) have interest rate on the vertical axis. Which interest rate does the RBA target using its monetary policy (the interest rate in Figure 1 or in Figure 2)? What is the interest rate directly targeted by the RBA called? [0.5 + 0.5 mark] [max 30 word limit]

Figure 1:

Figure 2: 

Outline the phases of the business cycle and explain why business cycles have generally become less severe in Australia since the 1990s. Only give the reasons we discussed in class. [max 70 word limit]

Answer this question based on the above figure:

a) At which point in the above Figure is the economy in equilibrium? [0.5 mark]

b) What happens if the economy is at point K? [0.5 mark]

c) What happens if the economy is at point L? [0.5 mark]

d) At which point in the above Figure is the economy in a recession? [1 mark]

e) Suppose that investment spending increases by $10 million. What will happen to the AE line (the AE line stays where it is, the AE line shifts up or the AE line shifts down). [0.5 mark]

f) Will the real GDP increase, decrease or stay unchanged because of investment spending increasing by $10 million? If real GDP changes, by how much will it change (assume that the MPC is 0.9). [0.5 + 0.5 mark] 

Suppose that the bank has the following balance sheet:

If the bank’s reserve ratio is 0.1, what is the additional amount the bank can loan out at most? Suppose that the bank intends to loan out the maximum amount it can. Assume that whoever took out the loan transfers this amount to a person who has a savings account at another bank. Show the immediate impact of the loan on the bank’s balance sheet. 

You don’t need to draw a table for the balance sheet, just discuss what happens to each component of the balance sheet.  [max 80 word limit]

Use the Figure above to answer parts (a) and (b) below. The green line represents actual output and the blue line represents the potential.

(a) Which point on the figure (P1, P2, P3, P4) is depicted by the following AD-AS diagram? Where will the other points lie, explain in words. [0.5 + 0.5 mark]

(b) If the economy is at point P4, then what should the RBA do? Explain in words. [1 mark]

The table below shows the number of labour hours required to produce a digital cameras OR a kilogram of wheat in China and South Korea. 

Answer each question below using the table above:

a.    Which country has an absolute advantage in the production of digital cameras? [0.25 marks]

b.    Which country has an absolute advantage in the production of wheat? [0.25 marks]

c.    What is China’s opportunity cost of producing one digital camera? [0.25 marks]

d.    What is South Korea’s opportunity cost of producing one digital camera? [0.25 marks]

e.    If each country specialises in the production of the product in which it has a comparative advantage, who should produce digital cameras? [0.5 marks]

Suppose that the following table represents the goods and services produced in a very simple closed economy in 2018. Assume that steel is used as an input in the production of cars. Using that information, calculate the GDP for the year 2018. Show and explain all the steps.

If a disease affected apple trees in Australia and significantly reduced the availability of apples for a year, what affect would this have on the CPI and would using the CPI to calculate the rate of inflation produce an accurate representation of the rate of inflation in that year? 

The Australian Bureau of Statistics counts as ‘employed’, those people who work part-time but would prefer to work full-time. Suppose the people who had part-time jobs, but wanted full-time jobs, were counted as ‘unemployed’. Explain how the unemployment rate and the labour force participation rate would change. 

Looking at the following table, what is the rate of growth of real average hourly earnings from 2016 to 2017?