Eco Qs plz answer... took me ages to write (1 Viewer)

[poWerdrY]

yeh, heres a few questions i really hope you guys can help me in and also a small explanation for each question (especially the first two) would be awesome. thanks in advance

This refers to Q 1 and 2
Year CPI (base yr=100) Money Income $
1 100 200
2 125 300
3 150 360
4 190 500

1) Annual inflation in Year 3 is-
a) 10%
b) 20%
c) 25%
d) 40%

2) Real income in Year 2 compared to the base year is-
a) $240
b) $250
c) $300
d) $360

3) The sale of Commonwealth Government Securities by the Reserve Bank to the money market will tend to-
a) increase the liquidity of the money market and raise the case rate
b) increase the liquidity of the money market and lower the case rate
c) decrease the liquidity of the money market and raise the cash rate
d) decrease the liquidity of the money market and lower the cash rate

4) In a long run production time period:
a) all factors of production are variable
b) all factors of production are fixed
c) a firm cannot increase its output

5) Real interest rates must fall if:
a) the rate of inflation falls
b) the nominal interest rates rise
c) the rate of inflation rises and nominal interest rates fall
d) the rate of inflation falls and nominval interest rates rise

6) The Fovernment imposes a tax of $1.00 per unit on the sale of widgets. The price elasticity of demand for widgets is greater than zero but less than unity. The increase in price resulting fromt the impotition of the tax will be:
a) $1.00 per unit
b) zero
c) less thatn $1.00 per unit
d) more than $1.00 per unit

 

[poWerdrY]

awww, the graph for Q 1and 2 came out crap, it was supposed to have spaces

 

[onebytwo]

yeh, heres a few questions i really hope you guys can help me in and also a small explanation for each question (especially the first two) would be awesome. thanks in advance

This refers to Q 1 and 2
Year CPI (base yr=100) Money Income $
1 100 200
2 125 300
3 150 360
4 190 500

1) Annual inflation in Year 3 is-
a) 10%
b) 20%
c) 25%
d) 40%

2) Real income in Year 2 compared to the base year is-
a) $240
b) $250
c) $300
d) $360

3) The sale of Commonwealth Government Securities by the Reserve Bank to the money market will tend to-
a) increase the liquidity of the money market and raise the case rate
b) increase the liquidity of the money market and lower the case rate
c) decrease the liquidity of the money market and raise the cash rate
d) decrease the liquidity of the money market and lower the cash rate

4) In a long run production time period:
a) all factors of production are variable
b) all factors of production are fixed
c) a firm cannot increase its output

5) Real interest rates must fall if:
a) the rate of inflation falls
b) the nominal interest rates rise
c) the rate of inflation rises and nominal interest rates fall
d) the rate of inflation falls and nominval interest rates rise

6) The Fovernment imposes a tax of $1.00 per unit on the sale of widgets. The price elasticity of demand for widgets is greater than zero but less than unity. The increase in price resulting fromt the impotition of the tax will be:
a) $1.00 per unit
b) zero
c) less thatn $1.00 per unit
d) more than $1.00 per unit

with question one and two there is a formula that should be in your textbook. if you have to o'riley textbook, i would recall it being in topic 3, economic issues, under chapter 7, economic growth, on either the first or second page.

3/ selling CGS means the RBA is giving pieces of paper of some sort in return for money. this mans the money is moving out of the money market and into the hands of the RBA. the money mving out represents a decreasing money supply. when the money supply decreases you have an increase in interest rates. so the answer should be reduced liquidity and higher cash rate.

4/ ok, why are there only three choices? anyway, in the long term i think all factors are variable. im not sure.

5/ if interest rates fall then people tend to consume more and firms invest more, meaning the equation Y=C+I+G+X-M tends to rise, meaning more upward pressure on inflation. go with c.

6/ ?

 

[williamc]

1) Inflation = difference in CPI / previous year CPI

Therefore, 25/125 * 100= 20%. Answer B

2) Real GDP= Nomial GDP * CPI py/ CPI cy

ermmm wtf

3) = c as explained

4) = all could be right, im thinking a??

5) = Never heard the term real interest rates, but logically it is either c or d, I would think D. If real interest rates (interest rates, taking into account infaltion) are falling that means Inflation is decreasing and Interest rates are staying the same or rising unproportionaltly.. wait im lost.

6) ?? can't remember price elastisicity of demand much anymore..

 

[poWerdrY]

yeh, question 6 seems a bit dodgy

thanks guys, that was pretty nice of you guys to explain it and all. if i encounter them in tomorrows test, i should be able to answer them no problemo!

 

[onebytwo]

i think your right about question 5, williamc. i was thinking the reverse case.

 

[poWerdrY]

actually i think its C for questin 5, because doesn't inflation generally lower with an interest rise and increase with a interest rate drop? thats how the RBA affects inflation right? so a rise in inflation should lead to a drop in interest right?

 

[Conspirocy]

(1+r_n )=(1+r_r )(1+ρ)
Where: r_n = the nominal interest rate; r_r = the real interest rate; ρ= the inflation rate

1+ r_n = 1 + r_r + ρ + (r_r x ρ)

r_n = r_r + ρ + (r_r x ρ)

we normall set (r_r x ρ) as it is usually a small number

so r_n = r_r + ρ

or the nominal interest rate = the real interest rate + the inflation rate (usually the expected)

This is known as the Fisher Effect

Now the question asks

5) Real interest rates must fall if:
a) the rate of inflation falls --------> no because the nominal rate would either fall or the real interest rate would rise to satisfy the equation
b) the nominal interest rates rise -------->the real rate would need to rise to match the rise in the nominal rate - so no
c) the rate of inflation rises and nominal interest rates fall ---------> this looks correct; follow what happens
d) the rate of inflation falls and nominval interest rates rise

answer c or d could be correct; its a very silly question and the person who wrote it obviously didn't know what they were talking about

 

[Conspirocy]

for question 6

remember elastisity is

[change Quantity/ change price] x Price /Quantity

im a bit sketchy on this part but they have taken absolute values of the elsaticities im assuming

if that is the case

=1 means there would be a 1 to 1 change

<1 would mean there is a less than a 1 to 1 change

> 1 would mean there is more than a 1 to 1 change

so the answer would be (c)

 

[blakegman]

i would think 5 is C

 

[Marzaa]

whats the difference between nominal and real interest rates? Do we need to know the diff. for HSC

 

[KING CAL]

we did the interest rate stuff this year in prelim, real interest rate = the rate banks will lend to the society, and the CASH RATE is the rate they will lend to the govt, which is always lower.

the real interest rate is higher than the cash rate because it is higher risk, so the cash rate might be 6% but the real interest rate will be 8%.

I think that's what it is, but we did this a while ago so I might be wrong.

 

[Conspirocy]

i would think 5 is C

intuitively for 5 c would make more sense, but d is not incorrect if you follow the relationship strictly. however I would not worry about this question.

whats the difference between nominal and real interest rates? Do we need to know the diff. for HSC

nominal interest rate = (approximately) real interest rate + expected inflation rate

real interest rate = (approx) nominal interest rate - expected interest rate

therefore the difference between the two is obviously the expected inflation rate

they could never mark you wrong for that and its the safest way to answer it.

To answer the second part, I would find it highly unlikely that you need to know this for your hsc, but I would not rule it out completely

 

[iamsickofyear12]

The answer to question 4 is A

I can't be bothered with the rest.

 

[blakegman]

i would of thought the real interest rate was something to do with nominal interest rate less the rate of inflation

thats generally how 'real" figures go isnt it