HSC Economics Question Thread

[birdwing341]

If wages growth is low: there is less cost for businesses to pay for labour, and there will be less of an impact on production costs; wages are a large (the largest?) cost of production. Input costs are low --> Price increases aren't passed on to consumers (because there is no price increase)
Likewise, if there is low inflation, there is no need for wages to increase (no need to accommodate for increase in prices since there is no increase)

As far as I know, low wage growth isn't the reason for prices to change, if thats what you mean? Low wage growth is the result of low growth/inflation/demand (as far as I know..) kind of like the opposite of the wage-price spiral

As for what causes low wage growth is usually low inflation, low demand for labour & low labour productivity.. basically there is no increase in wages because there's no need for it

Woah good stuff Brontem

Just clarifying - wages are 70% of firms input costs. That's a good stat to drop in essays and stuff.

Hey guys, can someone explain to me the relationship of low wage growth and deflation? and the factors causing low wage growth?

Would low wage growth mean consumers have a lower APC/MPC which reduces their confidence in purcahasing goods and services, which puts pressure on firms to reduce their prices to stimulate demand ?

Thanks

To answer the second part of the question, MPC depends on the state of wage growth in comparison to inflation (as is in the normal situation). Thus when Wage Growth > Inflation, consumers MPC will be lower (because their real incomes are increasing and they don't need to spend as much money on new things), and if Wage Growth < Inflation, consumers MPC will be higher (likewise in this situation real incomes are decreasing and consumers will be more inclined to spend more money on staples).

Please correct me if I'm wrong haha haven't started eco revision yet. But hope it makes sense

[Spencerr]

Hey guys, can someone explain to me the relationship of low wage growth and deflation? and the factors causing low wage growth?

Would low wage growth mean consumers have a lower APC/MPC which reduces their confidence in purcahasing goods and services, which puts pressure on firms to reduce their prices to stimulate demand ?

Thanks

Hey there,
Low wage growth means that incomes are growing slowly and may come as a result of a slowdown in economic growth, as the demand and thus price for labour is derived from the demand for goods and services. In times of slow eocnomic growth, there is always the possibility that deflation could occur if demand for goods and services fall. However, I believe that there is no direct link between wage growth and deflation ceteris paribus because there are too many factors at play. Although on the other hand, high wage growth can prompt inflationary pressures as disposable incomes and consumption (AD) may increase faster than the relatively inelastic productive capacity (AS) of an economy, resulting in more money chasing the same amount of goods/services.

Brontem, gave a clear outline of what affects wages growth but to add on:
- Slowdown in economic growth reducing the demand for goods and services, and thus the demand for labour
- Complacency in workers (less workers are pushing for higher wages because they are comfortable with their current wages. Like the current situation, where wages are growing historically slowly because less people are willing to bargain for higher wages.)
- Increasing supply of labour also reduces the bargaining power of workers for higher wages
- lower productivity of workers in tandem with the increasing relative cost of workers to capital (machinery which is more efficient and cost effective)

In response to APC, MPC. If you consider certeris paribus, birdwing is pretty much on track. However this is also a bit iffy, because higher wage individuals have a greater APS than APC whereas lower income individuals have a higher APC than APS but INFLATION does play a part.
However, I would caution against linking slow wage growth and consumer confidence. Empirically, given the current slow wage growth (2.1% according to the WAGE PRICE INDEX), consumer confidence is on an upwards trend. In fact, slow wage growth would depress inflationary pressures (as evident in the 1.5% underlying and 1% head line inflation), which makes goods and services cheaper, hence spending and consumer confidence would be higher (low inflation = strong consumer and business confidence)

[Deng]

Hey guys, i was wondering for eco what is the minimum knowledge of graphs and theories we need to know for the whole course e.g AD/AS, J-curve, pitchford thesis, twin deficit etc

Thanks

[brontem]

Hey guys, i was wondering for eco what is the minimum knowledge of graphs and theories we need to know for the whole course e.g AD/AS, J-curve, pitchford thesis, twin deficit etc

Thanks

Off the top of my head:
Supply/demand for AUD
Phillips curve
Lorenz curve
AS/D curve
Labour market curve (the wage one)
Positive/negative externalities
Tariff/quota/subsidy
(It really does depend on the question; you obviously don't need them if they're irrelevant)

And for theories; pitchford thesis, twin deficit argument, crowding out theory, wage-price spiral, the HDI factors, gini coefficient, and history is good like when the exchange rate was floated, and making the link between changes because of the mining boom, gfc, when certain MER policies happened

Those are all of the "extra" ish ones/easily forgotten ones I can think of.. obviously the business cycle/ demand and supply/how the cash rate works/budget outcomes/calculations are pretty ingrained by now

[hermansia12]

Hey guys, i was wondering for eco what is the minimum knowledge of graphs and theories we need to know for the whole course e.g AD/AS, J-curve, pitchford thesis, twin deficit etc

Thanks

Hi Deng,

Definitely know the supply and demand curves and understand the effects and how the shifts in supply and demand work. Also know how this works with regards to the exchange rate supply and demand. Another vital concept is the injections = Leakages I.e aggregate supply is aggregate demand.

 Hsc tests usually throw a few of those questions in the multiple choice. Other popular question is the protection graphs (tariffs, quotas and subsidies) so make sure you have a clear understanding of it as it is usually these question that trips most students up too.

You should also know the basic formulas for unemployment rate,participation rate and Gini coefficient for multiple choice. The Lorenz curve is sometimes asked so know that too.

Another important theory is the Nairu- Non inflating rate of unemployment. This is the necessary amount of unemployment required for sustainable economic growth. It's given as 5-6% for Australia and its relationship with inflation. It can come in useful for the short answers and extended response analysis.

You should also have a good grip on all recent policies(preferably in all 6 of your economic issues) exchange rates, at least 1 trading bloc, 2 free trade policies and key facts from your case study.

This is the minimum as these are generally the most popular questions in the economics exams. However, anything in the syllabus is fair game for bostes so go over the syllabus. The syllabus is usually a copy and paste version of all the questions they will ask.

Furthermore remember everything in economics links so use that to your advantage in the exam.

Good luck

[isaacdelatorre]

Hey guys, i was wondering for eco what is the minimum knowledge of graphs and theories we need to know for the whole course e.g AD/AS, J-curve, pitchford thesis, twin deficit etc

Thanks

Hey here are some of the basic ones I recommend,

Topic 1:

• International/regional business cycle
• Methods of protection - tariffs, quotas, subsidies
• AD/AS - for both domestic and global - also use for economic issues and policies
• any theories/projections associated with your case study

Topic 2:

• Pitchford thesis
• Twin deficit Thesis
• Debt trap thesis

Topic 3:

• Keynesian general theory of employment, interest and money
• Keynesian cross diagram
• Multiplier theory - for both economic growth and decline
• Philips curve - long and short run
• NAIRU
• Okun's law
• Wage price spiral
• Deflationary spiral
• Lorenz curve
• Gini Coefficient
• Theories on why some demographics are more disadvantaged than others
• Tragedy of commons theory
• Externality theory and diagrams

Topic 4:

• Rationale for Macro and micro reform
• Crowding out theory
• DMO graph
• Theories on productivity growth

There may have been some I missed though so make sure you check textbook and syllabus - but apart from that make sure you know the content and can elaborate and argue for and against most of the dot points. Also have some trends and statistics ready to use in essays and short answers.

Good luck, hope this helps

[Nicki]

hey!

this might by a really silly question but i was just wondering
is there any difference between the 'net foreign debt' that is within the equation 'net foreign debt + net foreign equity = net foreign liabilities'
and the net foreign debt you see by itself e.g. when you have 'net foreign debt as a % of GDP' and 'net foreign liabilities as a % of gdp'
sorry if this doesn't make sense

thanks

[hermansia12]

hey!

this might by a really silly question but i was just wondering
is there any difference between the 'net foreign debt' that is within the equation 'net foreign debt + net foreign equity = net foreign liabilities'
and the net foreign debt you see by itself e.g. when you have 'net foreign debt as a % of GDP' and 'net foreign liabilities as a % of gdp'
sorry if this doesn't make sense

thanks

Hi There!

So like everything in maths and equations, units its important

If you're going to add the foreign debt as a percentage of GDP, you have to ensure that the other half of the equation, foreign equity is also as a percentage of GDP. The resulting net foreign liabilities is also as a percentage of GDP.  Likewise if it is the amount of net foreign debt in dollar form, all components of the equation need to hold that unit. Otherwise maths fails and the equation falls apart.

Hope this helps  

[Deng]

Hey here are some of the basic ones I recommend,

Topic 1:

• International/regional business cycle
• Methods of protection - tariffs, quotas, subsidies
• AD/AS - for both domestic and global - also use for economic issues and policies
• any theories/projections associated with your case study

Topic 2:

• Pitchford thesis
• Twin deficit Thesis
• Debt trap thesis

Topic 3:

• Keynesian general theory of employment, interest and money
• Keynesian cross diagram
• Multiplier theory - for both economic growth and decline
• Philips curve - long and short run
• NAIRU
• Okun's law
• Wage price spiral
• Deflationary spiral
• Lorenz curve
• Gini Coefficient
• Theories on why some demographics are more disadvantaged than others
• Tragedy of commons theory
• Externality theory and diagrams

Topic 4:

• Rationale for Macro and micro reform
• Crowding out theory
• DMO graph
• Theories on productivity growth

There may have been some I missed though so make sure you check textbook and syllabus - but apart from that make sure you know the content and can elaborate and argue for and against most of the dot points. Also have some trends and statistics ready to use in essays and short answers.

Good luck, hope this helps

The tragedy of common theorys sounds familiar but i cant remember what it was exactly, can you care to clarify ?

[hermansia12]

The tragedy of common theorys sounds familiar but i cant remember what it was exactly, can you care to clarify ?

The tragedy of commons is an economic problem whereby individuals tend to exploit shared goods and/or services (e.g the environment). This can cause a disequilibrium in supply and demand (as demand > supply). Price of the commodity increases above the equilibrium meaning that the market is inefficient since there is an over demand.

[Deng]

The tragedy of commons is an economic problem whereby individuals tend to exploit shared goods and/or services (e.g the environment). This can cause a disequilibrium in supply and demand (as demand > supply). Price of the commodity increases above the equilibrium meaning that the market is inefficient since there is an over demand.

Ah, yeah i remember now, environemntal management stuff. Thanks

[onepunchboy]

How many bilateral and multilateral trade agreements do we need to know? 1 each?

[Deng]

Hey guys, just some multiple choice which i dont particulary understand and would like some clarification

Also the tariff question in the 2011 hsc multiple choice, my laptop cant pull up the paper for some reason, hopefully theres only one, its something about changing the price of the tariff and revenue

Thanks

[Deng]

How many bilateral and multilateral trade agreements do we need to know? 1 each?

Syllabus says overiew of two each

[isaacdelatorre]

Hey guys, just some multiple choice which i dont particulary understand and would like some clarification

Also the tariff question in the 2011 hsc multiple choice, my laptop cant pull up the paper for some reason, hopefully theres only one, its something about changing the price of the tariff and revenue

Thanks

Hey Deng,

Here's what I think the answers should be, I might be wrong though so hopefully someone else can shed some light.

18. Growth rate of real GDP in Year 2 - A

For this question you have to calculate real GDP growth for year 1 and 2.

To do this you calculate AD by adding up C + I + G + (X-M) then you times this figure by 100/CPI in order to get the Real GDP for that year then using (Current-Previous)/Previous x 100 you can find the growth rate

Year 1:
Real GDP = (500 + 200 + 300 + 100 - 100) x 100/CPI
                 = 1000 x 100/100
                 = 1000
Year 2:
Real GDP = (550 + 250 + 300 + 200 - 200) x 100/CPI
                 = 1100 x 100/110
                 = 1000
Therefore Real GDP growth is 0%

7. Best policy response - D
From the table we can see that GDP growth has increased by 0.5%, inflation has increased by 1.1% and unemployment has decreased by 0.5% - through short run Philips curve, we know that economic activity is high and is reaching full capacity, so contractionary measures are necessary

The question also tells us that the inflation target is 2-3%, since the economy's inflation rate is .8% above the target; it must tighten economic activity in order to dampen spending and reduce inflation - this can be achieved through contractionary fiscal and contractionary monetary policy

14. Account for changes - D (not sure about this one)

For these types of questions, I suggest looking only at half and then narrowing your choices.
So looking at the first column "Reason for change in unemployment rate" we can see that the unemployment rate has decreased.

A is wrong as a global recession would increase unemployment since labour is a derived demand

B is wrong as fewer incentives to hire the l/t unemployed would result in an increase in unemployment since there is no reason to hire

Looking at the second column - the participation rate has decreased showing that either the labour force has decreased and/or the working population age has increased as participation rate = labour force/working age pop.

C is wrong as an increase in childcare subsidy payments would encourage stay at home mothers/fathers to rejoin the labour force thus increasing the participation rate

D is the right answer (I think) as an increase in consumer confidence would increase Consumption and AD thus increasing the demand for labour and decreasing unemployment. Increasing school retention rates would mean that there would be more students and less people dropping out and joining the workforce in the short/term. As students are not counted in the labour force the size of the labour force decreases whilst the working age population is the same.

17 - Monetary Policy - C
When the RBA purchases Commonwealth Government Securities they are increasing the supply of money in the overnight money market and effectively decreasing the cash rate of which banks should decrease interest rates (eventually). Through loosening monetary policy, Australian GDP rises as it is cheaper to borrow money and thus consumption and investment should increase.

On the other hand, a lower interest rate would deter overseas investors from putting their funds into Australian banks as there is a lower rate of return thus decreasing the demand for the Australia and causing a depreciation. Further increasing consumption and availability of credit could increase Import spending, increasing the supply of AUD on the FX market and causing a depreciation.

Hope this helps, not sure if these are right so hopefully someone else can give their view