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Fundamentals of Economics

Assessment Description

Unit Code

BCO104

Unit Title

Fundamentals of Economics

Assessment Title:

Assessment Task 4

Type of Assessment:       Written

Week & Day Due:              Midnight, Monday of Week 13

Length/Size/Amount:      As required (but no more than 3000 words)

Value:                                     60%

Question 1

How does an increase in savings impact the multiplier? Explain.

(6 marks)

Question 2

Describe the National Broadband Network in Australia. Using the Keynesian income expenditure model to identify the effect of NBN on the Australian economy in the next few

years. (6 marks)
Question 3  
Cd, W, J GDP=Cd+W
  E=AD1=Cd+J
190  
160 200

1

The graph above shows equilibrium level of GDP (in $ billions). Assume that full employment is achieved at a level of GDP of $200 billion.

  • Define the government expenditure multiplier?

(Marks: 2)

  • Is there an inflationary or a deflationary gap, and what is its size?

(Marks: 2)

  • By how much would government expenditure have to be changed in order to close this gap (assuming no shift in other injections or withdrawals)?

(Marks: 2)

Clearly explain your answer to each part.

Question 4

Using demand and supply model, examine the effect of the following events on the price charged by Qantas airlines:

  1. the global recession
  • higher fuel costs
  • the spread of Ebola virus

The answer must contain clear diagrams and explanations.

(6 marks)

Question 5

Describe the relationship between marginal cost and upward sloping supply curve. Is increasing marginal cost a realistic assumption?

(6 marks)

Question 6

Suppose the market demand facing a perfectly competitive industry is:

P=15-0.5Q

and the supply curve is the following:

P=2Q

Calculate the profit maximising output and price.                                                          (4 marks)

Suppose the following market demand is facing a monopoly:

P=15-0.5Q

and the supply curve is the following:

P=2Q

Calculate the profit maximising output and price.                                                          (4 marks)

2

Question 7

National Bank has $240 000 in deposits and $74 000 in liquid assets with the central bank. It has a liquidity ratio is 25%.

a. What is the value of this bank’s excess liquidity?

b. What is the value of the additional loans that can be made by National Bank?

c. What is the bank multiplier?

(6 marks)

Question 8

What actions can central bank take if the economy is experiencing a deflationary gap?

(6 marks)

Suppose central buys $100 worth of bonds from banks and money multiplier is 2. How much will the money supply increase (assuming that the extra cash does not leak out of the banking system)? Provide an account of the money creation process. You must show the first five steps in the money creation process in detail.

(6 marks)

Question 9

If functions of money can be satisfied by a variety of commodities, what gives the Australian notes and coins an esteemed status in monetary transactions?

(4 marks)

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