Question 1 (20%)

  A) What is the GDP gap?

  B) Explain why comparing the GDP's of various nations might not tell you which nations people are better off. (Layton et al 2012 p 304 question 6 and p 280 question 13)

 Question 2 (20%)

What is the "market basket" used by the Australian Bureau of Statistics? Why does the "basket" of goods have to change over time? Give two examples of how the "market basket" has changed over time.

Question 3 (20%)

During the periods of economic downturn economists often note that the unemployment rate falls. They attribute this to the "discouraged worker effect". a) Define an "unemployed person" b)What is the "discouraged worker effect"? c) Why does this drop in the unemployment rate signal bad news?

Question 4 (20%)

a)Define the term "inflation". b)Inflation has different effects for different groups of people. Who benefits and who loses out from inflation? c) It is generally accepted that there are two broad types of inflation, demand-pull inflation and cost-push inflation. Describe both the cause and effect of each.

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