Assessment criteria for Written Assessment Items 2 & 3
i) Use DADA acronym in structuring your answers to all questions in economics. (Definitions: define the key terms ; Assumptions: list or make assumptions as required; Diagrams: draw relevant graphs/tables and explain; and original Analysis: apply the theory to real life economic examples and explain) Read the notes on how to answer questions, write essays and analyse case studies in economics.
ii) Concepts and key terms must be defined accurately and completely.
iii) The assumptions upon which the analysis is based must be stated at the outset.
iv) Diagrams must be drawn properly, correctly labelled and the relations they depict explained.
v) Answers must be complete, addressing the specific tasks nominated in the questions.
vi) Critical Analysis should be provided by relating economic theory to real-life economic examples and the case study on Fiscal Policy: All risky political business left for after the election.
vii) Sources must be acknowledged in-text and a list of references provided.
viii) Where a question has more than one part, so too should the answer. Ensure complete coverage.
ix) Students should refer to more than two textbooks and other on-line resources, articles, news items related to the questions in the case study.
x) Plagiarism is a real concern, therefore, please remember to reference in-text and also provide a Reference list.
xi) You must work on the assignment questions progressively each week—which will prevent you from asking for extensions. So please follow a weekly study schedule.
xii) Remember an extension is not a gift, it is a burden.
Assessment Item 2 – Short Answer Questions
Due date: 28 April, Monday of Week 9 ASSESSMENT
Part A: Weighting: 30 %(2 marks for in-text referencing, presentation,
clarity of explanation and evidence of reference list
marks and 28 marks for the answer)
Length: Approximately 2,000-2,500 words (Approximately. 500-
600 words each question, excluding graphs, tables and
reference list)
It is a progressive assignment based on topics studied in
week’s 5-8 covering chapters 21 to 24.
Please attempt each question on a weekly basis which
will prevent you from asking for extensions.
This assessment item relates to course learning outcomes 3 – 5 as listed in the course profile.
Question 1:
Refer to Chapter 21
(a) Michael is an Internet service provider. On 31 December 2011, he bought an existing business with
servers and a building worth $400,000. During his first year of operation, his business grew and he
bought new servers for $500,000. The market value of some of his older servers fell by $100,000.
(i) What was Michael’s gross investment, depreciation and net investment during 2012? (1 mark)
(ii) What is the value of Michael’s capital at the end of 2012? (1 mark)
(b) Lori is a student who teaches golf on the weekend and in a year earns a net income of $20,000
after paying her taxes. At the beginning of 2012, Lori owned $1,000 worth of books, CDs and golf
clubs and she had $5,000 in a savings account at the bank. During 2012, the interest on her savings
account was $300 and she spent a total of $15,300 on consumption goods and services. There was
no change in the market values of her books, CDs and golf clubs.
(i) How much did Lori save in 2012? Explain. (1mark)
(ii) What was her wealth at the end of 2012? Explain. (1mark)
(c) Refer to Chapter 21
Use the table to answer the following 3 problems. Table-1 shows an economy’s demand for loanable
funds and the supply of loanable funds schedules, when the government’s budget is balanced.
Real interest rate
Per cent per year
Loanable funds
Demanded (2009/10)
Billions of $
Loanable funds
Supplied (2009/10)
Billions of $
4 8.5 5.5
5 8.0 6.0
6 7.5 6.5
(a) Suppose that the government has a budget surplus of $1 billion. What is the real interest rate, the quantity of investment and the quantity of private saving? Does any crowding out occur? Explain. (1 mark)
(b) Suppose that the government has a budget deficit of $1 billion. What is the real interest rate, the quantity of investment and the quantity of private saving? Does any crowding out occur? Explain. (1 mark)
(c) Suppose that the government has a budget deficit of $1 billion and the Ricardo–Barro effect occurs, what are the real interest rate and the quantity of investment? Explain. (1 mark)
Total = 7 marks
Question 2:
Refer to Chapter 22
(a) What are the official measures of money? (1 mark)
(b) Explain with reason if visa card, coins and cheque’s are money? (1.5 mark)
(c) Explain the key functions of money? (1.5 marks)
(d) Explain the factors that determine the demand for and supply of money, and show how a change in the supply of money (increase/ decrease) can cause a change in the equilibrium interest rate. (3 marks)
Total = 7 marks
Question 3:
Refer to Chapter 23
(a) What are the factors that determine the change in the demand for, and supply of foreign exchange in the foreign exchange market? Illustrate and explain (3 marks)
(b) On 3rd of August 2010, the U.S. dollar was trading at 86 yen per U.S. dollar on the foreign exchange market. On 13 September 2010, the U.S. dollar was trading at 83 yen per U.S. dollar.
(i) What events in the foreign exchange market might have brought this fall in the value of the U.S. dollar? Explain. (2 marks)
(ii) Did the events change the demand for U.S. dollars, the supply of U.S. dollars, or both demand and supply on the foreign exchange market? Explain. (2 marks)
Total = 7 marks
Question 4:
Refer to Chapter 24
(a) Future Looking a Little Less Golden: “The risk of weaker growth, possibly recession, looms over the global economy in 2012. The intensification of the European sovereign debt crisis and
home-grown issues in China, are undermining the growth outlook. The copious quantities of government stimulus in recent years are now the problem, not the solution”. Source: The Age, 27 December 2011.
(i) Why was there a risk of global recession in 2012? (1 mark)
(ii) Illustrate the effects of recession on Australia’s short-run macroeconomic equilibrium. (1 mark)
(iii) Why the large stimulus packages were used by the Australian governments in 2009, as a response to the last global recession now the problem, and not the solution? (1 mark)
(b) Using aggregate demand (AD) and aggregate supply (AS) model illustrate and explain the short run equilibrium situations (2 marks)
(c) Illustrate and explain the key reasons as to why real GDP fluctuates around the potential GDP. (2 marks)
Total = 7 marks

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