QCAA Economics Macroeconomic objectives and theory

Incorrect. An increase in savings means less money is spent on consumption, which decreases aggregate demand and lowers national income.

Incorrect. Since disposable income is either saved or consumed ($Y_d = C + S$), an increase in savings directly implies a decrease in consumption.

Incorrect. The reduction in aggregate demand caused by increased savings would lead firms to produce less, which typically increases unemployment rather than decreasing it.

An increase in real wages raises production costs for firms, which decreases aggregate supply and shifts the AS curve to the left, not the right.

A leftward shift in the AS curve results in a higher price level due to cost-push inflation, rather than reducing the price level.

The balance of payments relates to international transactions, not the core condition for domestic macroeconomic equilibrium in the Keynesian model.

This describes a balanced government budget, which is a fiscal policy state rather than the condition for overall macroeconomic equilibrium.

If aggregate demand exceeds aggregate supply, there will be unplanned inventory depletion, prompting firms to increase production. Equilibrium requires aggregate demand to equal aggregate supply.

When income is below equilibrium, aggregate expenditure exceeds current production, meaning inventories are falling, not rising.

While it is true that inventories are falling, this depletion signals firms to increase production to meet demand, rather than decrease it.

Inventories are falling, not rising. Furthermore, if inventories were actually rising, it would prompt firms to decrease production, not increase it.

While employment and inflation would increase, this option is incomplete. Real GDP would also increase because the economy is only 'close to' capacity, meaning there is still some room for output growth.

While employment and real GDP would increase, this option ignores inflation. Because the economy is nearing its productive capacity, increased demand will bid up prices, causing demand-pull inflation.

While real GDP and inflation would increase, this option is incomplete. Employment must also rise in order to produce the additional output.

Oil is a key input for many industries, so higher oil prices directly increase production and transportation costs, causing cost-push inflation.

Electricity is a fundamental operational cost for businesses, so higher electricity prices increase production costs and contribute to cost-push inflation.

Higher highway tolls increase transportation and distribution costs for businesses, which contributes to cost-push inflation.

This is only true during a recession; during an economic boom, automatic stabilizers act to dampen the economy by decreasing aggregate demand.

This is only true during an economic boom; during a recession, automatic stabilizers act to stimulate the economy by increasing aggregate demand.

Automatic stabilizers do not keep aggregate demand perfectly constant; instead, they mitigate the magnitude of fluctuations by actively changing aggregate demand in the opposite direction of the economic trend.

This is the absolute difference in index points ($112.0 - 110.0 = 2.0$), not the percentage change required to find the inflation rate.

This is an incorrect calculation. The inflation rate must be calculated using the percentage change formula between June 2020 and June 2021.

This is an incorrect calculation. The correct inflation rate is found by calculating the percentage change from June 2020 to June 2021.

A global shift towards renewable energy would reduce, not increase, the demand for carbon-intensive fossil fuels like coal.

Even if the demand for natural gas decreased, this would cause its price to fall, not rise, according to the law of demand.

If the demand for natural gas were to increase as a transition fuel, its price would rise, not fall, assuming supply remains constant.

A decrease in labor productivity primarily affects the supply side of the economy, shifting the short-run aggregate supply (SRAS) curve to the left rather than increasing aggregate demand.

An increase in the cash rate raises borrowing costs, which typically discourages consumer spending and business investment, leading to a decrease in aggregate demand.

A decrease in business confidence makes firms less likely to invest in new projects or capital, which reduces the investment ($I$) component of aggregate demand.

This option describes a negative supply shock. Simplifying regulations reduces compliance costs for businesses, which increases (shifts right), rather than decreases (shifts left), aggregate supply.

A movement along the aggregate supply curve is caused by a shift in aggregate demand. Regulatory reform is a non-price determinant of supply that shifts the entire AS curve.

This outcome describes a decrease in aggregate demand. Supply-side reforms, such as deregulation, shift the AS curve to the right, leading to an increase in GDP rather than a decrease.

An increase in real GDP typically reduces government spending on transfer payments (like unemployment benefits) and increases the budget balance, rather than decreasing it.

Taxation revenue increases, not decreases, when real GDP rises because higher incomes and corporate profits generate more tax collection.

Although government spending on automatic stabilizers might decrease, this combined with higher tax revenues would lead to an increase in the budget balance, not a decrease.

A reduction in tax rates requires deliberate government action or legislation, making it a discretionary fiscal policy rather than an automatic stabiliser.

Changing the GST rate requires new legislation or government action, which is an example of discretionary fiscal policy, not an automatic one.

Increasing infrastructure spending requires deliberate government planning and approval, making it a discretionary fiscal policy.

Incorrect. While taxation reduces disposable income and thereby affects spending and saving, it is a secondary factor compared to the total amount of income a household earns.

Incorrect. Interest rates influence the decision of whether to save or spend, but the total capacity to do either is primarily dictated by a household's income level.

Incorrect. Exchange rates impact the prices of imported goods and foreign travel, but they have a minimal direct effect on a household's overall capacity to spend or save.

During an economic contraction, central banks typically lower interest rates to stimulate economic activity, rather than increasing them.

While cyclical unemployment does increase during a contraction, business confidence decreases because of falling demand for goods and services.

A contraction leads to an increase in cyclical unemployment, not a decrease, and often results in a lower labor force participation rate as discouraged workers stop looking for jobs.