At the national level, public debate has centred on the performance of the main monetary measure – GDP. Each year we must do better than the last; otherwise we are officially in recession…while GDP growth is important for raising living standards, it is not synonymous with happiness. The Weekend Australian, June 1-2 2013 a) Critically discuss the strengths and weaknesses of using GDP as a measure of welfare. (6 marks) b) Discuss at least two alternative measures of national welfare that have been put forward? What are the primary strengths and weaknesses of these alternatives? (4 marks) Question 2 – 10 marks The Building the Education Revolution (BER) review, headed by former UBS banker Brad Orgill, has been described as a 'whitewash' by former Treasury economists Tony Makin and John Humphreys, who argue in a new book that it failed to assess the program's underlying assumption that constructing halls and libraries in every primary school was efficient spending of money to avoid recession…The BER was announced by the Rudd government as its main response to the 2007-08 global financial crisis, intended to stimulate the economy and create jobs. It has been credited by Labor and others as a key element in Australia 2 avoiding the dramatic economic downturn experienced in the US and Europe. The bulk of the BER spending was $14 billion to build new or refurbished school halls, libraries and classrooms in primary schools…The Australian [newspaper] documented numerous complaints from schools of being forced to build unnecessary or unwanted buildings, and of inflated costs and commissions charged by construction companies, which led to the establishment of the Orgill review. The Australian, October 16 2014 a) Briefly discuss the case both for and against governments engaging in active economic stabilisation. (4 marks) b) Briefly discuss the relative merits of using monetary policy to stablise the economy, rather than fiscal policy. (4 marks) c) Evaluate the following statement: 'Fiscal policy is a very precise tool for controlling aggregate demand. If the government wants to increase aggregate demand by $5 billion, all it has to do is to carry out exactly $5 billion worth of government spending.' (2 marks) Question 3 – 10 marks The Australian Council of Trade Unions will ramp up the pressure on the Labor leadership to reserve natural gas for domestic use in a bid to boost jobs and industry. The peak union body is today expected to adopt a new policy at its triennial congress that would impose greater controls on the export of Australian gas by multinational companies. The resolution is to be put by the Australian Workers Union national secretary Scott McDine, who has campaigned for laws to ensure a certain percentage of gas is set aside for domestic use….Mr McDine warns that unrestricted exports will lead to "sky-rocketing" prices. He forecasts a 300 percent increase over coming years, equating to a $500 spike in household gas bills. The Australian, May 27 2015 a) Employing the conceptual framework used to explain world trade, clearly illustrate and explain how opening the Australian natural gas market to international trade could lead to "sky-rocketing" prices for domestic consumers. (4 marks) b) Who wins and who loses from opening the Australian natural gas market to international trade? (2 marks) c) Although economists generally argue that increasing trade is good for economic welfare, there are a number of arguments put forward for why it might be a good idea to impose some form of barrier to trade. Clearly explain one of those arguments. (4 marks) 3 Question 4 – 10 marks The case for a global agreement to limit carbon-dioxide emissions has been bolstered after the world's top climate scientists increased their level of confidence that humans are changing the climate…Greens leader Christine Milne said the report confirmed urgent and deep emission cuts globally were needed. She said the government had "no option but to abandon" its direct-action approach and take "urgent and serious measures immediately". The Weekend Australian, September 28-29 2013 a) Employing a supply and demand framework, clearly illustrate and explain why the free market may produce too many carbon-dioxide emissions. (3 marks) b) The alternative to using 'direct-action' to reduce carbon-dioxide emissions is to take a market-based approach. Building upon the framework developed for the answer to part (a) above, clearly illustrate and explain how a market-based approach could be used to ensure carbon-dioxide emissions are reduced to their socially optimal level. (3 marks) It's taken them awhile, but Australia's east coast states have, one by one, woken up to the monopoly power of their ports. Or at least the value of that monopoly to potential buyers. In unveiling the model for the privatisation of the Port of Melbourne, the Victorian government is pitching the gateway, already the biggest container port in the country, as a monopoly facility in the state. The Australian, 28 May 2015 c) Employing the conceptual framework of a monopoly, clearly illustrate and explain why a monopoly might be of value to potential buyers. (2 marks) d) This value, however, comes at a cost – clearly illustrate and explain this cost. (2 marks) Question 5 – 10 marks Economists are deeply puzzled by our desire to have children. First, kids are really expensive - the biggest financial decision most couples will make. Forget the cost of buying the family home; the kids you choose to populate it with will end up costing just as much, or more, over a lifetime. A survey released last week by AMP and the National Centre for Social and Economic Modelling found the typical Australian family spent $812,000 raising two kids. This is an increase of nearly 50 per cent in just six years. …Economists like to assume we are rational individuals who make decisions based on anticipated costs and benefits. The Sunday Mail (Qld) May 26 2013 a) Working within a supply and demand microeconomic framework, illustrate the conceptual equilibrium number of children in a household. (4 marks) 4 b) One of the key ingredients for higher productivity (particularly in developing countries) is to lower population growth. Continuing to work within a supply and demand framework, discuss ways of lowering the equilibrium number of children in a household. Be sure to consider both the supply and demand side of the 'market' for children. (6 marks) Hint – the supply curve can be thought of as the marginal cost of children to the household, the demand curve can be thought of as the marginal benefit of children to the household.