Multiplier question (1 Viewer)

[christopher8827]

How do I do this question from the 2010 HSC?

http://db.tt/9oGK6taE

can someone also explain question 8 for me too?

http://db.tt/EzLLnHVJ

I don't know why the correct answer is B. I assumed C was correct because it can be reasoned that:
Reduced import quota = increases competition, making domestic producers more competitive, increasing international competitive.
Low inflation = high inflation results increased prices for exports compared to imports, reducing international competitiveness. Therefore, low inflation should improve international competitiveness.

For B:
improved infrastructure = more exports since less bottlenecks?
Lower labour costs = ?

 

[NBGHHS]

For that multiplier question, you should know a formula that is often skipped as it is apparently 'not now part of the syllabus' but yo should remember it just in case.

MPC = the change of consumption each year/ change of income each year

from the table we know that consumption changes by 100 each year
and then we also know that income = consumption+savings
so by looking into it, we see that income changes by 200 each year (adding consumption and savings of each year and finding difference in each year)
so it ends up being MPC = 100/200, which is 0.5

And K = 1/1-MPC

Therefore K = 1/ 1-0.5
Which ends up being 2
D is the answer


not too sure about Q8, lemme get back to you on that one

 

[Aesytic]

the first one the answer is D because from each year, you can see that consumption and savings have both increased by 100 each, so the MPC and the MPS are both 0.5 i.e. for every extra dollar earned, 50% of it is used for consumption and 50% is saved. since the multiplier = 1/MPS, .'. multiplier = 1/0.5 = 2

for the next one, the answer isn't C, because a reduced quota actually means they let less cars in i.e. it means MORE protection rather than LESS. this leads to domestic industries being allowed to raise prices higher, since there is less competition from imports, leading to domestic industries actually being less competitive

for B, lower labour costs means that the costs of production for businesses are lower, since they have to pay less in the form of wages. this allows them to lower the price of their products, while still maintaining their profit margins, making them more internationally competitive.
improved infrastructure also means more efficient production of goods and services e.g. for our mining sector, if we have improved transport of these resources, then we're able to transport more minerals in one trip from the mine to the wharf or wherever, which means less overall trips between the mine and the wharf. this saves fuel, which lowers production costs, and has the same effect as lower labour costs. this is just a crude example, but i hope you get what i mean...

 

[NBGHHS]

DOUBLE POST: sorry, i understand question 8

by process of elimination

C is not the answer, the level of import quotas has no influence on our int. competitiveness.
D is not the answer, Appreciation means that foreigners will have to pay more of their currency to buy Aust exports (as those countries pay our producers in our currency).

Now, when you are down to just two of them being possible answers - you start looking at the MOST LIKELY option

Structural change wont necessarily bring upon an increase in our international competitiveness. Further, our interest rates have nothing to do with international competitiveness, its got to do with how attractive australia is for investment.

So it narrows it down to b
Where lower labour costs allows larger output as it is more attractive for employers to employ and therefore more workers means higher productivity, and of course infrastructure improvements stop the supply constraints of australia

 

[christopher8827]

Thanks for your answers!

 

[RishBonjour]

didn't read the above answer but for question 8.
its B because

A:not correct as higher interest rates will decrease IC (exchange rate appreciates)
C:, lower inflation, yes that would increase IC, BUT, REDUCED import quotas on foreign cars. That means, less imports on foreign cars, thus protection increases--> reduces rate of structual change and allocative efficiency in our economy so it will reduce IC in the long run (since resources from efficient sectors will tend to move here now due to profit motives).
D: similar to A

B:I think the guy above explained it perfectly.


and for all multiplier questions
remember, change in consumption/change in income is the MPC. which you use with the formula in chapter 7 and you should get your answer

good luck.

 

[RishBonjour]

DOUBLE POST: sorry, i understand question 8

by process of elimination

C is not the answer, the level of import quotas has no influence on our int. competitiveness.
D is not the answer, Appreciation means that foreigners will have to pay more of their currency to buy Aust exports (as those countries pay our producers in our currency).

Now, when you are down to just two of them being possible answers - you start looking at the MOST LIKELY option

Structural change wont necessarily bring upon an increase in our international competitiveness. Further, our interest rates have nothing to do with international competitiveness, its got to do with how attractive australia is for investment.

So it narrows it down to b
Where lower labour costs allows larger output as it is more attractive for employers to employ and therefore more workers means higher productivity, and of course infrastructure improvements stop the supply constraints of australia

It actually has a LOT to do with international competitiveness if you consider its effect on exchange rates (which has been VERY direct in recent years)

e.g. RBA cut cash rates in April 30, and AUD went below parity with US from 104 US cents in like 1 day.
that in turn increases our international competitiveness. (but this was more speculative, just giving an example of IR--> exhcange rate --> our international competitiveness

 

[NBGHHS]

It actually has a LOT to do with international competitiveness if you consider its effect on exchange rates (which has been VERY direct in recent years)

e.g. RBA cut cash rates in April 30, and AUD went below parity with US from 104 US cents in like 1 day.
that in turn increases our international competitiveness. (but this was more speculative, just giving an example of IR--> exhcange rate --> our international competitiveness

Yeah i guessed that i was wrong on that point. So, basically, the interest rates are directly impacting the exchange rate, which in turn impacts int. comp.?

 

[OzKo]

Yeah i guessed that i was wrong on that point. So, basically, the interest rates are directly impacting the exchange rate, which in turn impacts int. comp.?

Yup, that's the logic.

 

[MasonT]

Keep in mind interest rates and exchange rates are theoretically linked. If you see interest rates fall, exchange rate falls ... well in theory anyway