Question 1

Consider the effects of an increase in the global price of oil. For a country such as Australia, which is a net exporter of oil, this development will imply that the CPI will increase roughly by the same amount as the increase in the GDP deflator.

Question 2

Consider a scenario where you start a new job as an economist in 2021. You successfully negotiate an employment contract with your employer where your salary is indexed to rise by 2% each year for the next two years, in line with inflation expectations at the time. In 2022, actual inflation turned out to be higher than expected. This has had the effect of increasing your purchasing power, meaning you are able to afford a higher standard of living than in previous years.

Question 3

[Redistribution policies aim to address the problem of economic inequality, but there is a risk that these policies have the effect of suppressing economic efficiency and growth.

Question 4

Suppose that the government allocates more funding to universities for vaccine research. Assuming there is no change in government tax revenue, and holding constant all other factors in the economy, this policy is likely to have a positive effect on private investment in the economy. “Private investment” refers to investment in physical capital by firms and residential investment by households.