ECON 1021 University of Sydney Economics Worksheet


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ECON1021 Practice Final Exam
Session 1, 2022
ECON1021 Principles of Economics 2
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Katherine is an economics student who has a final exam coming up. She determines that her utility is
maximised by studying for 8 hours the day before the exam and predicts this will get her a final mark of 70.
a) Use a relevant diagram to show Katherine’s optimal combination of free time and final exam marks. Put
final exam marks on the vertical axis and free time in hours on the horizontal axis. (3 marks).
b) Just as Katherine is about to sit down to begin her study, her computer is infected with a virus and
becomes incredibly slow making it harder for her to study effectively during her study day. Explain the
impact this would have on the diagram you have drawn in part a). Suppose Katherine still decides to
study for 8 hours. Should she still receive the same level of satisfaction as she had anticipated? (2 marks)
a) Assume that spending in Country Y in 2020 can be expressed by the following equations
?? = ??0 + ??1 (1 ? ??)??
???? = ?? ? ????
The value of expenditure is summarised by the table below
Expenditure in Country Y, 2020
Autonomous Consumption
$40 billion
Marginal Propensity to Consume
Marginal Tax Rate
Marginal Propensity to Import
Government Expenditure
$140 billion
$200 billion
$20 billion
Calculate the equilibrium level of income for Country Y in 2020 showing all steps of working. Illustrate your
answer on a well labelled multiplier model diagram. (5 marks)
a) Suppose that the minimum wage in Australia is reduced slightly to a level where it is still binding (that
is, it is still above the equilibrium wage level). Illustrate the impact on employment of the minimum wage
reduction using a demand/supply graph. (6 marks)
b) Explain how changes in expected inflation result in changes in the level of inflation. Use an equation to
help explain your answer (4 marks)

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