7.2 Definition, nature and direction of income and wealth

MC Concerning the exchange rate for the A$, which statement is least correct?

A. A rise in the value of the A$ against the US$ would make our exports more attractive to US buyers.

B. A rise in the value of the A$ against other currencies could be caused by an increase in our sales of exports due to stronger economic activity abroad.

C. Stronger levels of consumer confidence in Australia can lead to an increase in imports and a weaker A$.

D. The value of the A$ is determined in the foreign exchange market by the number of buyers of the A$, relative to the number of sellers.

Resourceseses Resources Digital documents Multiple choice answer grid (doc-37962) Multiple choice answers (doc-37963) 6.8 Section B: Extended response questions Question 1 (5 marks) a. Explain what is meant by a trade deficit. (1 mark) b. Identify and outline two events that could cause Australia to run a trade deficit in the future. (2 marks) c. Explain how China’s recent trade barriers on some Australian exports would be likely to affect our trade balance. (2 marks) Question 2 (2 marks) Outline how free international trade can slow inflation and improve material living standards. (2 marks) Question 3 (4 marks) Between March 2020 and March 2022, the US consumer confidence index fell from 101 points to 59 points. Explain how you would expect this to affect each of the following: a. Australia’s trade balance b. The US trade balance c. Australia’s level of AD, d. Australia’s GDP, employment and income. (4 marks) Question 4 (13 marks) a. Contrast the policies of trade protectionism, free trade and trade liberalisation. (3 marks) b. Explain whether the Australian government fully adopted the policy of free trade. (4 marks) c. The Australian car industry used to enjoy high levels of protectionism from imports including high tariffs, import quotas and subsidies. i. Outline the likely reasons for this protection, noting the highest level of tariff protection that was previously given to the car industry. (1 mark) UNCORRECTED PAGE PROOFS ii. Describe the changes in the level of tariff protection for Australia’s car industry. (2 marks) iii. The manufacture of cars in Australia ceased in 2017. Explain why you think this happened, along with the main macroeconomic effects of this closure. (3 marks)

A few years ago, the then US President Donald Trump increased tariffs on billions of dollars of Chinese imported goods going into the US. Explain how this policy action by the US would be likely to affect each of the following.

a. The purchasing power of US incomes and the cost of living in the US

b. The value of US exports

(2 marks)

(2 marks)

c. The unemployment rate in the US (2 marks) d. The level of GDP and average per capita incomes in the US (2 marks) e. Australia’s exports of mineral commodities (2 marks)

Question 6 (4 marks)

Explain how Australia’s adoption of trade liberalisation has probably helped to: a. slow our inflation rate (2 marks) b. increase our productive capacity, employment and average incomes. (2 marks)

Question 7 (4 marks)

a. Contrast the terms absolute cost advantage and comparative cost advantage. (2 marks) b. Assume that Australia has an absolute cost advantage in the production of both wheat and wool. Explain whether this necessarily means that we should produce both these goods equally. (2 marks)

Question 8 (6 marks)

Australian government has adopted the policy of trade liberalisation. Given this: a. Explain why it is also necessary for the government to reduce the rate of company tax. (2 marks) b. Explain why it is also necessary for the government to lift the productivity of workers and slow wage rises. (2 marks) c. Explain why it is also necessary for the government to improve the quality of our national infrastructure. (2 marks)

Question 9 (6 marks)

Discuss the advantages and disadvantages for a government that adopts the policy of free trade. (6 marks)

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7

The distribution of income and wealth (Option 3)

UNIT 2 AREA OF STUDY 2 Applied Economic Analysis of Local, National a nd International Economic Issues OPTION 3: The distribution of income and wealth OUTCOME 2 Explain the factors that affect two economic issues at a local, national and international level and evaluate actions to address the issues. LEARNING SEQUENCE 7.1 Overview ......................................................................................................................................................................2 7.2 Definition, nature and direction of income and wealth .............................................................................. 3 7.3 Measures of Australia’s distribution of income and wealth ......................................................................7 7.4 The reasons why the distribution of income and wealth is an important issue .............................18 7.5 Economic factors affecting income and wealth inequality in Australia .............................................24 7.6 Different perspectives about the distribution of income and wealth ................................................. 33 7.7 The Australian government’s response to address inequality in the distribution of income and wealth ................................................................................................................................................38 7.8 Review ........................................................................................................................................................................47 UNCORRECTED PAGE PROOFS

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7.1.1 Introduction Have you ever wondered why some people are highly paid, feel financially secure, own luxury cars and live in uncrowded leafy streets, while others earn very low wages, worry how they will pay their next power bill, own little other than a few personal possessions, and live with noise and congestion near industrial areas? This issue relates to the problem of inequality in the way Australian income and wealth are shared or distributed. In this option, we will look at the nature, causes, measurement, effects of inequality in income and wealth, and government policies designed to help narrow the gap. 7.1.2 What you will learn KEY KNOWLEDGE Use each of the following points from the VCE Economics Study Design as a heading in your summary notes. • the definition of the selected economic issue, including relevant measures and statistical indicators • the reasons the issue is of importance to the economy at a local, national and international level • the economic factors influencing the extent of the selected economic issue • the different perspectives of households (consumers and workers), business, government and other relevant economic agents regarding the selected economic issue KEY SKILLS • define key economic concepts and terms and use them appropriately • gather, synthesise and use economic information from a range of sources to analyse economic issues • identify trends, patterns, similarities and differences in economic data and other information to draw conclusions • evaluate the economic responses undertaken to address economic issues Source: VCE Economics Study Design (2023–2027) extracts © VCAA; reproduced by permission. Resources UNCORRECTED PAGE PROOFS

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Digital document Key terms glossary (doc-37951)