Economics of Enterprise Answers

The following diagram shows an aggregate demand curve and an aggregate supply curve.



(a) Label the two axes.

(b) Give three reasons why the AD curve is downward sloping.

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The Reserve Bank of Australia is preparing to reduce interest rates in the near future. Why does the Bank want to do this? What is the Bank’s overriding target?
If the bank does raise interest rates how would it affect the Australian economy?

If you wanted to increase aggregate demand how would you do it for:
Consumption demand
Investment demand
Net exports
Which one of these types of expenditure also have an effect upon the Aggregate supply side of the economy?

(a) When the economy approaches full employment, why does demand-pull inflation become a problem?

When the economy is heading into a recession what economic policy instruments can the government and the central bank use to prevent this from occurring? Will these instruments work to prevent the onset of recession?

(a) What is the difference between the balance of trade and the current account deficit?
(b) Can a country continually have a current account deficit and continue to borrow from the rest of the world?
(c) How can a country reduce its current account deficit?
(d) Is a depreciation in a country’s exchange rare necessarily a bad thing? Explain

Assume an economy operates on the middle part of its aggregate supply curve. State the direction of effect on aggregate demand or aggregate supply for each of the following changes in conditions. What is the effect on the price level, real GDP and employment?

(a) The price of crude oil rises significantly
(b) Spending on welfare and aged pensions doubles
(c) The value of the currency falls on the foreign exchange market. i.e the currency depreciates
(d) The Government halves the goods and services tax (GST) on all consumer goods
(e) The Government announces rises in company tax.

The following diagram shows an aggregate demand curve and an aggregate supply curve.


Show a situation of ongoing demand pull inflation
. Show also a situation of ongoing cost push inflation
Which inflation is harder to eliminate

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D&P Co. has a capital budget of $2,000,000. The company wants to maintain a target capital structure that is 35% debt and 65% equity. The company forecasts that its net income this year will be $1,800,000. If the company follows a residual dividend policy, what will be its total dividend payment?
Answer

$100,000

$200,000

$300,000

$400,000

$500,000