1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
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851185383
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1213-1 BUSINESS 115
(12/06/2021 17:30) Economics,
Markets and Law (Exam)
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Evaluation type
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Test opening time
12.06.2021 05:30
End time
12.06.2021 09:00
Grade deadline
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1/24
1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
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1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
Academic Integrity
Question
Status
Marks
Unanswered
Question type
Form
Part 1: Multiple Choice Questions (6 Marks in total)
Question
Status
Marks
Question type
1
Correct
1/1
Multiple Choice
2
Correct
1/1
Multiple Choice
3
Wrong
0/1
Multiple Choice
4
Correct
1/1
Multiple Choice
5
Correct
1/1
Multiple Choice
6
Correct
1/1
Multiple Choice
Part 2: Short Answer Questions (12 Marks in total)
Question
Status
Marks
Question type
7
Correct
2/2
Inline Choice
8
Correct
2/2
Inline Choice
9
Correct
3/3
Inline Choice
10
Correct
5/5
Inline Choice
Part 3: Comprehensive Analysis Questions (30 Marks in total)
Question
Status
Marks
Question type
11
Answered
10/10
Upload Assignment
12
Answered
10/10
Essay
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1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
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Candidate 851185383
Part 4: Essay Questions (12 Marks in total)
Question
Status
Marks
Question type
14
Answered
5/6
Essay
15
Answered
4.9/6
Essay
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4/24
1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
1 Suppose John is willing to pay $9 for a box of chocolate, Paul is willing to
pay $8, George is
willing to pay $7 and Ringo is willing to pay $6. Suppose when they arrive
at the market place
they find that the sellers are charging $7.5 per box. This implies that:
Select one alternative:
John will buy and get a consumer surplus of $9.
The total consumer surplus for those who actually buy is $2.
Ringo will buy and get a consumer surplus of $1.5.
George will buy and get a consumer surplus of $7.5.
Maximum marks: 1
2 Suppose that the price elasticity of demand for coffee is 2, while
consumers treat coffee and tea as close substitutes.
When the price of coffee increases by 10%, the quantity of coffee
demanded will _______ and the market demand for tea will __________.
Select one alternative:
increase by 20%; decrease
increase; decrease by 20%
decrease by 20%; increase
decrease by 5%; increase
Maximum marks: 1
5/24
1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
3 Holding constant risk and the real returns available abroad, lower foreign
real interest rates
________ net foreign investment of New Zealand and lead to a(n)
_______ of the New Zealand dollar.
Select one alternative:
increase; depreciation
decrease; appreciation
increase; appreciation
decrease; depreciation
Maximum marks: 1
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1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
4
Based on the labor market diagram above, if the minimum wage is set at
$15 per hour, there will be _____________. If the minimum wage is set at
$25 per hour, there will be ___________.
Select one alternative:
no unemployment; 40 unemployed workers
20 unemployed workers; a shortage of 20 workers
a shortage of 40 workers; 40 unemployed workers
40 unemployed workers; no unemployment
Maximum marks: 1
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1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
5 If the nominal interest rate is 6.5% but inflation is running at 5%, then the
real interest rate is
Select one alternative:
0%
5%.
1.5%.
6.5%
Maximum marks: 1
6 Suppose an iPhone 12 costs 1,500 New Zealand dollars (NZD) in
Auckland and 800 British pounds (GBP) in London. The current
exchange rate is 0.5 GBP per NZD. For the sake of convenience we will
assume that taxes and transportation costs amount to NZD150 per
iPhone between Auckland and London. Which of the following statements
is correct?
Select one alternative:
There is no arbitrage opportunity in this case.
There is an arbitrage opportunity here where you buy iPhones in
Auckland for NZD 1,500, sell them in London for GBP 800 and
make a profit of NZD100 per iPhone.
There is an arbitrage opportunity here where you buy iPhones in
Auckland for NZD 1,500, sell them in London for GBP 800 and
make a profit of NZD50 per iPhone.
There is an arbitrage opportunity here where you buy iPhones in
London for GBP 800, sell them in Auckland for NZD 1500 and
make a profit of NZD100 per iPhone.
Maximum marks: 1
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1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
7 Oasis is a small open economy. It has the following macroeconomic data
in 2020.
GDP is 16,000; consumption is 8,500; investment is 3,000; net export is
1,000; and taxes are 2,500.
The government expenditure is 3,500
(3,500, 2,500, 4,000,
3,000), there is a government budget deficit of 1000
(surplus of
500, deficit of 1000, deficit of 500, 0).
Maximum marks: 2
8 Suppose that Brazil has a fractional reserve banking system, with the
required reserve ratio (RRR) of 20%.
An initial deposit of $2,000 in the banking system will end up creating
$10,000
($2,000, $12,000, $10,000, $400) dollars of total
deposits.
New Zealand does not have the fractional reserve banking system. The
RBNZ expands monetary supply in New Zealand by
lowering the official cash rate.
(increasing the
government spending., cutting the income tax rate., raising the official
cash rate., lowering the official cash rate.).
Maximum marks: 2
9/24
1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
9 Suppose that the NZ Government announces a large amount of tax
credits stimulating the investment in green technologies, including solar
panels, electric cars, and wind farms.
With everything else held constant, the investment tax credits would
increase
(not affect, decrease, increase) the demand for
loanable funds in New Zealand, leading to an increase
(no
change, a decrease, an increase) in the real interest rate.
Accordingly, investors find the NZD-denominated deposits more
(more, less) attractive and hence, they
buy more
(sell more, buy less, do not
change their holdings of, buy more) New Zealand dollars from the
currency market. It leads to an appreciation
(no
impact on the exchange rate, an appreciation, a depreciation) of the NZ
dollar, which tends to reduce
(reduce, raise, have no
impact on) the net exports of New Zealand.
Maximum marks: 3
10/24
1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
10 Global policy responses to the COVID-19 recession
The European Central Bank uses expansionary monetary policy and
hence, the market interest rate tends to decrease
(remain unchanged, decrease, be equal to 2%, increase). In contrast,
China uses expansionary fiscal policy to mitigate the recession, which
tends to raise
(reduce, have no impact on, raise)
the market interest rate. Compared to the scenario of no government
intervention, the price level tends to rise
(rise,
keep falling, fall, remain unchanged) in both cases, according to the ADAS model.
In April 2021, President Joe Biden proposed the US$ 2 trillion plan to
rebuild infrastructure and reshape the Economy in the United States. It
would fix 20,000 miles of roads and 10,000 bridges, while also
addressing climate change and racial inequities.
Suppose the marginal propensity to save (MPS) is equal to 0.2 in the
United States.
If passed, then Biden's plan would raise aggregate demand by 10
(10, 2.5, 0.4, 1.6) trillion US dollars in total.
If President Biden proposed the US$ 2 trillion tax cuts instead, the
overall impact on aggregate demand would be smaller than
(larger than, equal to, smaller than) that in the case of government
spending as mentioned above.
Maximum marks: 5
11/24
1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
11 Consider the market for loanable funds in a closed economy.
State, and illustrate on a diagram of the loanable funds market (using a
separate diagram for each case), how the real interest rate and
the quantity of loanable funds change in the following cases,
respectively:
a. Case 1: an increase in the government’s budget deficit [4 marks]
b. Case 2: an investment tax credit [4 marks]
[Note: Your answer will contain two neatly drawn and labelled
diagrams for the impacts of a budget deficit and for the impacts of an
investment tax credit. On these diagrams, indicate the changes to the
interest rate and the quantity of loanable funds.]
c. Describe what is similar in both cases, and what is different. [2
marks]
[Hint: if you draw the diagrams correctly, the answers to the
questions should follow easily from them.]
Upload your diagrams and written answers to question 11 in one
pdf file (see below).
You may take one of the options as specified below or other approach
you prefer.
Option 1: you may write the answer and draw the diagrams on
paper, scan and convert the file in the pdf format, and click the link
below for file uploading.
Option 2: you may type the answer in MS Word, scan and insert
the hand-drawn diagrams into your file, convert the file into the
pdf format, and click the link below for file uploading.
Option 3: you may type the answer using MS Word and draw the
diagrams using MS PowerPoint, combine them as one file,
convert it into a pdf file, and click the link below for file uploading.
Remarks:
Please make sure that your pdf file is clearly readable and
properly uploaded.
Please do not wait until the last minute to upload.
Upload ONE pdf file (see below).
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Maximum marks: 10
13/24
1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
12 In order to mitigate the economic impacts of the COVID-19 recession,
the Government plans to run large budget deficits to improve
infrastructure and build more public and transitional houses in New
Zealand.
Briefly describe the impact of this budget plan (with everything else
held constant) on the following variables in the short run. [10 marks]
(a) aggregate demand;
(b) the price level;
(c) the supply of loanable funds;
(d) the real interest rate;
(e) the relative attractiveness of NZD-denominated assets;
(f) net foreign investment;
(g) the exchange rate of the NZ dollar;
(h) NZ exports
(i) NZ imports;
(j) the value of NZ net exports.
A written answer is sufficient and you do not need to draw any
diagrams.
[word limit: 250]
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1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
Fill in your answer here
The aggregate demand would increase this is because the
Government spends money on infrastructure and
building more public transitional houses in New Zealand
which increases the GDP. Therefore, the price level would
increases as there is an increase in aggregate demand.
Hence, the supply of loanable funds would decrease
because the Government takes money out of the loanable
funds to fund their infrastructure and housing
programmes. The real interest rate increases as the
loanable funds market decreases. Thus, the relative
attractiveness of NZD-denominated assets increases as
the increase in interest rate becomes more attractive to
investors. The net foreign investment falls causing more
foreign demand investment and less domestic demand
investment. Consequently, the exchange rate of the NZ
dollar would appreciate as the NZ dollar appreciates. The
NZ exports will fall as they become more expensive in
foreign countries becoming less attractive and the NZ
imports will rise as the NZ dollar has a higher purchasing
power. Finally, the value of NZ net exports will decrease
as the fall in exports outweighs the rise in imports.
Maximum marks: 10
15/24
1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
13 Suppose you find the following exchange rates prevailing in various
different currency markets.
2 NZ Dollars = 1 British Pound;
1 British Pound = 1 US Dollar;
1 US Dollar = 1 NZ Dollar.
(a) Are these currency values in equilibrium or is there an arbitrage
opportunity here; meaning that starting with NZ $100, can you end up
making a profit by buying and selling the different currencies? [3 marks]
(b) What does arbitraging mean? Why do arbitraging activities tend to
eventually eliminate such an arbitrage opportunity and drive prices to
equilibrium? [4 marks]
(c) Keeping the following two exchange rates as they are.
2 NZ Dollars = 1 British Pound;
1 British Pound = 1 US Dollar;
Calculate the exchange rate between the US dollar and the NZ dollar
such that there is no arbitrage opportunity among the three currencies.
[3 marks]
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1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
Fill in your answer here
a. These currency values are not in equilibrium therefore
there is an arbitrage opportunity. If we start with NZ$100
and we sell the currency to the US it would be US$100
and if the British bought the US currency the value would
be £100 and if it was sold to NZ the final value would
double becoming NZ$200 as 1 British pound equals to 2
NZ dollars. Thus there is an arbitrage opportunity to
make a profit.
b. Arbitraging is a profit-making opportunity in different
markets selling the same product. Arbitraging activities
tend to eventually eliminate an arbitrage opportunity and
drive prices to equilibrium as eventually, prices that
differed in two markets would necessarily converge due
to the Purchasing Power Parity which states that a
currency must have the same purchasing power in all
countries and exchange rates move to ensure that.
Therefore, if there is an increase in demand eventually
the prices would increase therefore less profit would be
made and eventually drive the prices back to equilibrium.
c.
2 NZ Dollars = 1 British Pound;
1 British Pound = 1 US Dollar;
0.5 US Dollar = 1 NZ Dollar
NZ$100 converts to £50 because of 2 NZ Dollars = 1
British Pound and then converts to US$50 due to 1
British Pound = 1 US Dollar and must convert back
to NZ$100. Therefore 1 US dollar equals 2 NZ dollar
which is equivalent to 0.5 US dollar to 1 NZ dollar.
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1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
Maximum marks: 10
18/24
1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
14 A new walking track called the Metzler Track is opened in an alpine area
of great natural beauty. The area is under the control of the Department
of Conservation. At certain points the track is crossed by forestry and
other access roads. In the first year of opening, a walker is killed by a
four-wheel drive vehicle travelling at speed along one of the intersecting
roads. This made headlines overseas because the track was advertised
internationally to be very remote and pristine.
As a matter of urgency, the Minister of Conservation introduces the
Metzler Walk Safe Bill to prevent injury to users of the track. In
introducing the Bill, he says:
“Following the tragic death of an overseas visitor walking the Track, the
safety of visitors to our shores and public confidence in our Great Walks
is a top priority of this Government.”
The Bill is passed into law. Section 9 of the Metzler Track Act 2021
states that: “no car, motorcycle or other motor vehicle shall be used on
the Metzler Track or within 2 kilometres from any point of the Metzler
Track.”
Your company has a contract to provide certain food and supplies to
huts along the track. Normally, this is done by motor vehicle. Also, you
wonder what will happen if someone is taken seriously ill or is injured on
the walk and needs to be taken to hospital.
How do you think a court would interpret the new legislation? Refer to
any relevant principles of statutory interpretation in your answer. [6
marks]
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1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
Fill in your answer here
There an issue at hand is whether vehicles are allowed to
be used on the Metzler Track or within 2 kilometres from
any point of the Metzler Track. As the company has a
contract to provide certain food supplied to huts along the
track by motor vehicle and the issue of how transport
would occur if someone is taken seriously ill or is injured
on the walk and needs to be taken to hospital.
Section 9 of the Metzler Track Act 2021 states that: "no
car, motorcycle or other motor vehicles shall be used on
the Metzler Track or within 2 kilometres from any point
of the Metzler Track.
Through class rule, we can identify that motorised
vehicles are not allowed to be used therefore the
company must halt their contract to provide certain food
and supplies to huts along the track. But if they were to
continue through their contract they must look towards
alternative forms of transport to provide certain food and
supplies to huts along the track. Although, the company
motor vehicle should be allowed on or near the tracks to
provide food and supplies in emergency situations only
where it threatens the health and safety of a track user.
But if the purpose of the vehicle is not for emergencies
then the company must seek alternative forms of
transport to provide food and supplies.
Through a purposive approach, we can identify that the
Act itself is attempting to prevent injury to the users of
the track. Hence, protecting the users of the
track. Therefore, if someone is seriously ill or is injured
and needs to be taken to hospital, they take top priority
as the track was unable to protect the users of the track.
Therefore, we would assume that ambulances are
authorized vehicles and should be allowed near or on the
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1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
track as it is to ensure the purpose of the act is fulfilled or
else Act would contradict the purpose of the Act itself.
In summary, the Act ensures the safety of users on the
track. Therefore, the company that provides food and
supplies to huts along the track should only use motor
vehicles in emergencies but should seek alternative
transport to provide food and supplies. Authorised
vehicles should be allowed on the premises such as
ambulances as it complies with the purpose of the Act and
the courts should interpret as such.
Maximum marks: 6
21/24
1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
15 Describe a situation where the law steps in to regulate the operation of
the free market. In doing so, provide reasons why the law acts in this
way. If possible, provide references to relevant legislation and cases. [6
marks]
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1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
Fill in your answer here
The operation of the free market needs to be regulated to
avoid anticompetitive conduct which potentially harms
the welfare of customers. The operation of the free
market needs to be regulated by the government under
concerns that there are contracts, arrangements or
understandings within a market that intend on
decreasing competition between firms or firms with high
market power restricting the entry into the market thus
would minimise competition in a market.
Legislation, where the law is able to regulate the
operation of the free market, is under the Commerce Act
1986 where the purpose is seen in Section 1A: "is to
promote competition in markets for the long-term
benefit of consumers within New Zealand."
An example where we are able to see the legislation
regulating the operation of the free market can be seen in
the case of Ruapehu Alpine Lifts Limited. In this case, the
SSNIP (small but significant non-transitionary increase
in price) test is used to assist market definition and the
identification of substitutes.
We are able to see in this case that the Commerce
Commission granted the authorisation to Ruapehu
Alpine Lifts for the acquisition of the assets and
operations of Turoa Ski Resorts, this was not a breach of
Section 47 of the Commerce Act 1986 which "prohibits
mergers/acquisition if it would have or be likely to have
the effect of sustainability lessening competition (SLC
test) in a market." We can see that the benefits clearly
outweigh the detriments and therefore the Commission
can be satisfied that the proposed acquisition will result,
or be likely to result, beneficial to the public that it should
be permitted, and thus be able to grant an authorisation
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1213-1 BUSINESS 115 (12/06/2021 17:30) Economics, Markets and Law (Exam)
Candidate 851185383
for the proposed acquisition. Hence, customer welfare is
protected as the Commerce Commission identified and
weighed the benefit in public likely to flow from the
acquisition as a whole.
Major companies holding the majority of the share in a
free market would potentially result in customers welfare
not being protected and instead harmed due to the lack of
substitutes. Thus regulation in the operation of the free
market is important to protect the welfare of the
customers as seen in the Ruapehu Alpine Lifts case.
Maximum marks: 6
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