DEPARTMENT OF EDUCATION

GRADE 12 ECONOMICS ASSESSMENT BOOK 2

ECONOMIC POLICY STRATTEGY

Name: _____________________________________________________________
Address: ___________________________________________________________
Province: ___________________________________________________________

FLEXIBLE OPEN AND DISTANCE EDUCATION

PRIVATE MAIL BAG, WAIGANI, NCD
DEPARTMENT OF EDUCATION
PAPUA NEW GUINEA
2017
 GRADE 12

ECONOMICS

ASSESSMENT BOOK 2

ECONOMIC POLICY STRATEGY

 ACKNOWLEDGEMENTS

We acknowledge the contribution of all Secondary and Upper Primary teachers who in one
way or another helped to develop this course.

Special thank you is hereby given to the staff of the Social Science Department - FODE who
played active role in coordinating writing workshops, outsourcing of lesson writing and
editing processes involving selected teachers in NCD.

We also acknowledge the professional guidance and services provided through-out the
processes of writing by the members of:
- Social Science Subject Review Committee-FODE
- Academic Advisory Committee-FODE
- Social Science Department- CDAD

This book was developed with the invaluable support and co-funding of the GO-PNG and
World Bank.

DEMAS TONGOGO
Principal-FODE

Flexible Open and Distance Education

Papua New Guinea

Published in 2016

© Copyright 2016, Department of Education, Papua New Guinea

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means electronic, mechanical, photocopying, recording or any
other form of reproduction by any process is allowed without the prior permission of the
publisher.

ISBN
National Library Services of Papua New Guinea
Compiled and finalised by: Social Science Department-FODE
Written by: Mohoto Pinnoh Malt
Printed by the Flexible, Open and Distance Education
 TABLE OF CONTENTS

Contents ………………………………………………………………………………………………………………. 4

General Instructions: ……………………………………………………………………………………………… 5

Test Instructions: ……………………………………………………………………………………………………. 6

Test 1: Money and Banking…………… ………………………………………………………………………….. 7-21

Test 2: Monetary Policy and Fiscal Policy…………………………………………………………………… 15-22

Test 3: Incomes and Wages Policy………………………………………………………………………………..

Test 4: Unemployment in Papua New Guinea……………………………………………………………….

Test 5: Inflation……………………………………………………………………………………………………………..

Assignment 1: Money and Banking………………………….………………………………….………………… 21-23

Assignment 2: Fiscal Policy and Monetary Policy ………………………………………………………….. 24

Assignment 3: Inflation……………………………………………………………………………………………………

Student’s Page: ……………………………………………………………………………………………………… 26

Teacher’s Page: ……………………………………………………………………………………………………… 27-28

GENERAL INSTRUCTIONS

 When you have completed all the topics and the Student Learning Activities in Unit 1 and
corrected them, revise the notes.
 Now do Test 1 to 5. The questions are similar to the questions in the Student Learning
Activities. If you have any problems with them go back to Unit 2 Module and revise. If you
come across any problems you revise the whole Unit Module.
 You are also required to complete Assignment 1, 2 and 3.
 Once you have completed all the assessment tasks, check your work.

Student’s Page:

 If you have any problems, questions or comments regarding your studies, then
write them clearly in the spaces provided on the Student’s Page.

 Your Distance Teacher will answer them on the Teacher’s Page, when you
submit your assignment in for marking. The Teacher’s Page is at the end of
the Assessment Book.

WHEN YOU HAVE COMPLETED ALL THE TASKS IN THE

ASSESSMENT BOOK, SEND THE ASSESSMENT BOOK TO YOUR
PROVINCIAL CENTRE FOR MARKING.
TEST INSTRUCTIONS

1. There are five tests in this Assessment Book. Each test scores add up to 70 Marks. The tests
have three parts:

PART A: MULTIPLE CHOICE QUESTIONS

PART B: SHORT ANSWER QUESTIONS
PART C: EXTENDED RESPONSE

2. Write all your answers in the spaces provided in the Assessment Book using blue or black
biro. Write your answer clearly. If you change your answer, make sure the original mark is
crossed out as shown below.

A D

3. After the tests, you have three assignments worth 10 marks each. Please complete the
assignments.

4. Answer all the questions even if you are not sure of some of the answers.

2. Now turn to the next page and start doing Test 1.

TEST 1: MONEY AND BANKING 20 MARKS

PART A: MULTIPLE CHOICE QUESTIONS (10 marks)

Circle the correct answer for each question from the given alternatives A, B, C or D.

QUESTION 1
Money is defined as

A. anything which is generally accepted as payment in exchange of goods and

services.

B. record of payment of cash made for supply of goods and services.

C. anything that is generally scarce and valuable and can be paid for goods and

Services.

D. an economic resource that is valuable in making payment for goods and services.

QUESTION 2

Which of the following is NOT the characteristic of money?

A. Durable B. Scarce

C. Unique D. Portable

QUESTION 3

Which of the following words best describes the word ‘scarcity’ in relation to money.

A. Limited in supply B. Easy to carry

C. Easily divided D. Make payment easier

QUESTION 4

Which of the following are NOT the functions of money?

A. Medium of exchange. B. Store of value

C. Measure of Value D. Easily recognizable

QUESTION 5

Which of the following is a measure of Money Supply?

A. Broad money supply B. Measure of value

C. Processes payments D. Legal tender

QUESTION 6

Which of the following best explains Total Money Supply?

A. It includes notes, coins and cheque deposits.

B. It includes cash, cheque deposits and term deposits that are fairly liquid.

C. Its consists of M3* and bank deposits only.

D. It includes M3* and bank deposits of bank Stabilisation fund.

QUESTION 7

Which of the following scenario will reduce money supply in the economy?

A. Increase in lending by commercial banks.

B. Increase in foreign investment.

C. Purchase of government bonds by the government.

D. Decrease government expenditure.

QUESTION 8

What does liquidity mean with reference to money?

A. Measure of how much money is in circulation.

B. Measure of how quickly an asset can be made into cash.

C. Measure of how quickly the broad money supply increases.

D. Process by which initial increase in the deposits increases money supply.

For Question 9 and 10, refer to the following information.

Assume that the Liquid Asset ratio is 20%, and the deposit is K 1000.

QUESTION 9

What would be the credit creation multiplier?

A. 25% B. 20 % C. 5 D. 4

QUESTION 10

What would be the final increase in deposit after the full credit creation process is complete?

A. K 5000B. K 4000 C. K 500 D. K 400

END OF PART A

PART B: SHORT ANSWER QUESTIONS (5 MARKS)

Write your answers on the spaces provided after the question.

QUESTION 11

What is a balance sheet? (1 Mark)

________________________________________________________________________________
________________________________________________________________________________

QUESTION 12

List two functions of commercial Banks (2 marks)

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QUESTION 13

Explain how ‘balance of payment ‘increases Money Supply in the economy. (2 marks)

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END OF PART B
PART C: EXTENDED RESPONSE (5 MARKS)

QUESTION 14

Liabilities Assets
Deposits: K 2 000 Liquid Asset: K 400
Loan/Advance: K1 600
Total: K2 000 Total: K2 000

a. What is the LGS ratio in the balance sheet above? (1 mark)

______________________________________________________________________________

b. If the Liquid Asset ratio were 25%, what would be the

(i) new liquid asset? (1 mark)

____________________________________________________________
(ii) new lending amount? (1 mark)

____________________________________________________________

(iii) credit creation multiplier? (1 mark)

____________________________________________________________

c. What would be the final increase in money after the full credit creation process? (1 mark)

__________________________________________________________

END OF TEST 1
TEST 2: MONETARY POLICY AND FISCAL POLICY 20 MARKS

PART A: MULTIPLE CHOICE QUESTIONS (10 MARKS)

Circle the correct answer for each question from the given alternatives A, B, C or D.

QUESTION 1

Which of the following is an example of instruments of Monetary Policy?

A. Interest rate B. Taxation

C. Budget deficit D. Balance of payment

QUESTION 2

An increase in interest rate will

A. increase money supply. B. decrease money supply.

C. encourage borrowing. D. discourage savings.

QUESTION 3

Decrease in liquid asset ratio will

A. decrease borrowing which will decrease money supply.

B. increase the banks ability to increase lending.

C. decrease the banks ability to increase lending.

D. increase the cash reserve in the bank.

QUESTION 4

The mutual co-operation between the central bank and commercial bank in implementing the
monetary policies set by the central bank is known as

A. open market operation. B. moral suasion.

C. special deposit. C. special meeting.

QUESTION 5

Which of the following measures is taken to contract the economy when the level of economic
activity is high.

A. Sell Government Securities B. Decrease interest rate

C. Encourage lending C. Decrease LGS ratio

QUESTION 6

If the government wants to increase the level of employment in the country, it will

A. increase LGS ratio. B. reduce lending.

C. buy government securities. D. increase interest rate.

QUESTION 7

What is the primary concern of fiscal policy?

A. Control the amount of money in the economy and the way it is used.

B. Raise money to finance government expenditure through taxation.

C. Aims to set minimum wages and regulate prices of goods and services.

D. Borrow money for further investment within an economy.

QUESTION 8

Budget is defined as

A. control over the level of government spending.

B. planned expected income and expenditure over a period of time.

C. planned government expenditure of goods over a given period of time.

D. money received from the tax revenue for planned expenditure.

QUESTION 9

Tax can be defined as a

A. compulsory transfer of wealth from the private sector to the public sector.

B. factor that discourages production and consumption of unpleasant goods.

C. factor that contributes to raising government revenue for its expenditure.

D. compulsory transfer of wealth from the public sector to the private sector.

QUESTION 10

Which of the following best explains the personal income tax?

A. It is the tax on imported goods.

B. Tax on locally produced goods.

C. It is an indirect tax imposed on price of goods.

D. It is a direct tax imposed on salaries and wages.

 END OF PART A

PART B: SHORT ANSWER QUESTIONS (5 MARKS)

Write your answers on the spaces provided after the question.

QUESTION 11

Define Monetary Policy (2 marks)

________________________________________________________________________________
________________________________________________________________________________

QUESTION 12

List at least two instruments of Monetary Policy. (2 marks)

________________________________________________________________________________
________________________________________________________________________________

QUESTION 13

What is budget surplus? (1 mark)

________________________________________________________________________________
________________________________________________________________________________

END OF PART B
PART C: EXTENDED RESPONSE 5 MARKS

Write your answers in the spaces provided after the question.

a. Label the tax graphs below correctly. (3 marks)

b. List two types of tax. (2 Marks)

________________________________________________________________________________
________________________________________________________________________________

END OF TEST 2

TEST 3: INCOMES AND WAGES POLICY 20 MARKS

PART A: MULTIPLE CHOICE QUESTIONS (5 MARKS)

Circle the correct answer for each question from the given alternatives A, B, C or D.

QUESTION 1

Wage is defined as

A. price of income. B. price of labor.

C. price of leisure. D. price of imports.

QUESTION 2

Minimum wage is the

A. highest amount of money an employer can pay his employee according to the law

B. lowest wage set by the government which is below the equilibrium.

C. lowest amount of money an employer can pay his employee according to the law.

D. highest wage set by the government which is above the equilibrium.

QUESTION 3.

Wage indexation is

A. fixation of wage to maintain real income during inflation.

B. adjustment of wages to maintain amount of tax received by government.

C. adjustment of wage to maintain rate of interest rate imposed by banks.

D. fixation of wages to decrease real income during inflation.

QUESTION 4

There are two types of wage indexation. Full wage indexation is adjusting or fixing wage according
to the inflation rate.

Which of the following scenario is the example of full wage indexation?

A. Country A adjusts its minimum wages by 5% when the general inflation rate is 7%.

B. Country B increases its wages by K20 when general price of goods increase by K5.

C. Country C adjusts it minimum wage by 20% when the level of inflation is 20%.

D. Country D increases it wage by K10 when the price of rice increases to by K20.

QUESTION 5

Which of the following is true about the government intervention in the incomes of employees?

A. To redistribute income equally through progressive tax.

B. To compensate for the loss made during natural disaster.

C. To make every regular income earner happy.

D. Prices of goods are always low whenever the government intervenes.

 END OF PART A

PART B: SHORT ANSWER QUESTIONS (5 MARKS)

Write your answers on the spaces provided after the question.

QUESTION 6

Define wage. (1 mark)

_____________________________________________________________________________

QUESTION 7

What is Trade Union? (1 mark)

________________________________________________________________________________
________________________________________________________________________________

QUESTION 8

What is the role of the employers Federation? (1 mark)

________________________________________________________________________________
________________________________________________________________________________

QUESTION 9

Which government department deals with labour related issues? (1 mark)

_____________________________________________________________________________

QUESTION 10

Explain the relationship between price and income. (1 mark)

________________________________________________________________________________
________________________________________________________________________________

END OF PART B
PART C: EXTENDED RESPONSE (5 MARKS)

Write your answers in the spaces provided after the question.

a. Label the letters in the graph correctly.

b. What is the overall negative consequence (effect) of setting a higher minimum wage on
i. employment? (1 mark)

_________________________________________________________________

ii. cost of production? (1 mark)

___________________________________________________________

END OF TEST 3
TEST 4: EMPLOYMENT IN PAPUA NEW GUINEA 15 MARKS

PART A: MULTIPLE CHOICE QUESTIONS (5 MARKS)

Circle the correct answer for each question from the given alternatives A, B, C or D.

QUESTION 1

Labourforce refers to those

A. people between the age of 15 to 65 who are willing and able to work but could not due to
one reason or another.

B. people between the age of 15 to 65 who are willing and able to work according to
International labour organisation.

C. people that are already being employed and are already working for an individual or an
organisation.

D. people that are working for industries and organisations who are paid only wages with out
paying tax.

QUESTION 2

Unemployment is a situation where

A. people are willing and able to work but could not due to one reason or another.

B. people are willing and able to work according to International labour organisation.

C. people are being employed and are already working for an individual or an organisation.

D. people who are working for industries and organisations are paid only wages with out
being taxed tax.

QUESTION 3

PNG government aims to address economic growth, unemployment, inflation, and balance of
payment. In economics, they are studied under

A. Micro-economics B. Vision 2050.

C. Macro-economics D. National Strategic Plan 2030.

QUESTION 4

Which of the following group is not part of the labour force?

A. Full time university students

B. Non Government organisation workers

C. Private Contractors to the government department

D. All female employees of the government department

QUESTION 5

Which of the following refers to an unemployment situation that occurs when one leaves his job
to look for another?

A. Cyclical unemployment B. seasonal unemployment

C. Structural unemployment D. Frictional unemployment

END OF PART A

PART B: SHORT ANSWER QUESTIONS (5 MARKS)

Write your answers on the spaces provided after the question.

QUESTION 6

What is seasonal unemployment? (1 mark)

________________________________________________________________________________
________________________________________________________________________________

QUESTION 7

Differentiate between the formal and informal employment. (2 marks)

________________________________________________________________________________
________________________________________________________________________________
QUESTION 8

List two negative effects of unemployment. (2 marks)

________________________________________________________________________________
_______________________________________________________________________________

END OF PART B

PART C: EXTENDED RESPONSE (5 MARKS)

Write your answers in the spaces provided after the question.

Explain at least three effects of unemployment in the economy. (5 marks)

(Answer between 1-2 paragraphs)

________________________________________________________________________________
_______________________________________________________________________________

________________________________________________________________________________
________________________________________________________________________________

________________________________________________________________________________
________________________________________________________________________________

________________________________________________________________________________
________________________________________________________________________________

________________________________________________________________________________
________________________________________________________________________________

________________________________________________________________________________
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________________________________________________________________________________
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END OF TEST 4
TEST 5: INFLATION 10 MARKS

PART A: MULTIPLE CHOICE QUESTIONS (5 MARKS)

Circle the correct answer for each question from the given alternatives A, B, C or D.

QUESTION 1

Inflation is defined as

A. a general increase in average price of goods and services

B. a general increase in the selected prices of goods only.

C. it is a measure of cost of production from one period to an other.

D. a general increase in the average wages of average incomer earners.

QUESTION 2

Which of the following is NOT the cause of inflation?

A. Cost-push inflation B. Imported inflation

C. Excess demand inflation D. Wage spiral inflation

QUESTION 3

Consumer price index is a

A. general increase in average price of goods and services

B. measure used to show changes in the price of goods and services.

C. it is a measure of cost of production from one period to an other.

D. measure used to show changes in the income earners wages.

QUESTION 4

What does ‘wage freeze’ mean?

A. Placing a temporary ban on prices during times of higher inflation.

B. Placing a temporary ban on wages during times of higher inflation.

C. Stopping an increase in the cost of raw materials to maintain prices.

D. Reduction of higher inflation by reducing cost of raw materials.

QUESTION 5

The weighted price for selected group of goods and service has increase from K20 to K25. Assume
that the base Consumer Price Index (CPI) is 100.

What would be the inflation rate?

A. 25% B. 20% C. 120 D. 125

END OF PART A

PART B: SHORT ANSWER QUESTIONS (5 MARKS)

Write your answers on the spaces provided after the question.

QUESTION 6

List three types of inflation. (3 Marks)

________________________________________________________________________________
________________________________________________________________________________

________________________________________________________________________________
________________________________________________________________________________

QUESTION 7

Explain how ‘imported inflation’ is caused. (2 Marks)

________________________________________________________________________________
________________________________________________________________________________

END OF PART B

THERE IS NO PART C IN THIS TEST.

END OF TEST 5
ASSIGNMENT 1: TOPIC: MONEY AND BANKING 10 MARKS

Write your answers on the spaces provided after each question.

QUESTION 1

Suppose Joe Blow deposits 5 000 in one of the Papua New Guinea Commercial Banks. Since the
Government is keen on encouraging Small to medium enterprise business in Papua New Guinea,
the commercial bank have been encouraged to keep only 10% as its liquid asset ratio.

You are required to

1. Research and complete the table

2. Answer the questions followed.

3. First two examples has been done for you.

Bank New New Liquid New Loan Increase in Total

Deposit Asset Money Increase in
Money
1 5 000 500 4500 5000 5 000
2 4 500 450 4 050 4 500 9 500
3
4
5
( 6 Marks)

4. What is the size of the credit creation multiplier? (2 marks)

5. Calculate the total increase in money after the full credit creation process is completed.

(2 marks)

Marking criteria for the table

-Award 2 full marks for each row. If one or two mistake, award 1 mark for each row. If more than
two mistakes, award Zero.

END OF ASSIGNMENT 1
ASSIGNMENT 2: MONETARY POLICY & FISCAL POLICY 10 MARKS

Write your answers on the spaces provided after each question.

QUESTION 1

Explain how ‘open market operation’ as an instrument of monetary policy will be used to reduce
level of economic activity in the country. (2 marks)

________________________________________________________________________________
_______________________________________________________________________________

QUESTION 2

List and explain the objectives of 3 budget out comes. (3 marks)

________________________________________________________________________________
________________________________________________________________________________

________________________________________________________________________________
________________________________________________________________________________

QUESTION 3

Explain the difference between the Monetary Policy and Fiscal Policy. (2 marks)

________________________________________________________________________________
________________________________________________________________________________

________________________________________________________________________________

QUESTION 4

Identify the different source of taxes and list them under direct or indirect tax.3 Marks

________________________________________________________________________________
_______________________________________________________________________________

________________________________________________________________________________
________________________________________________________________________________

END OF ASSIGNMENT 2
ASSIGNMENT 3: INFLATION 10 MARKS

Write your answers on the spaces provided after each question.

QUESTION 1

Identify and describe the steps involve in calculating Consumer Price Index. (3 marks)

Marking criteria for Question 1

3 full marks for full explanation to the 5 steps. 1 Mark deducted for 2 mistakes

QUESTION 2

Complete the table below. (7 marks)

Regimen Weight Year 1 (Base year) Year 2 (Current year)

(Kg) Price Expenditure Price Expenditure
Meat 10 50.00 ___________ 55.00 _________
Potatoe 5 20.00 __________ 25.00 ______________
Milk 15 10.00 __________ 15.00 ____________
Bread 6 5.00 _________ 10.00 ___________
Tea 1 2.00 __________ 5.00 ____________
Total Expenditure __________ _____________
Consumer Price Index _________ ____________
Marking Criteria for Question 2

-Two correct answers are equivalent to one mark.

(There are 14 blank spaces to complete, If there is one incorrect answer, then the score is still 7
marks, but if two incorrect answers, then the score will be 6 marks. If three incorrect answers, still
6 marks but if there are 4 incorrect answers then the score goes down to 5 marks and so on.)

END OF ASSIGNMENT 3

END OF ASSESSMENT UNIT 2

STUDENT’S PAGE

You, the student is kindly asked to complete this page.

Student’s Evaluation
This page is designed for you as a student to assess the course you have just completed. The
information you put down will help the writers of this book to look out for what your needs are
and to design books appropriate to meet your need.

I, ________________________ have found the;

 topics to be
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

 illustrations and diagrams

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

 other comments
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

Student’s Signature: ____________________ Date: ___________________________

YOU HAVE NOW COMPLETED THIS ASSIGNMENT.

CHECK YOUR WORK. THEN SEND IT TO YOUR PROVINCIAL
CENTRE CO-ORDINATOR FOR MARKING.
TEACHER’S PAGE

You must ask your distance teacher or marker to complete this page.

TESTS 1 2 TOTAL

MARKS SCORED
35 35 70

ASSIGNMENTS 1 2

MARKS SCORED
15 15 30

OVER ALL TOTAL

50 50 100

The Distance Teacher or Marker’s Assessment

The Teacher’s or Marker’s comments are important. They give students an idea of how well they
have worked. They can also suggest ways in which a student can improve his or her work.
Use the check-list below to indicate how well your student has progressed in the main skills and
concepts taught throughout this unit. You may want to use the space below the check-list to write
some comments on how your student can improve his/her work.
_______________________ has demonstrated ability to;
(Student’s Name)

Put a tick  where appropriate.

KNOWLEDGE, VERY GOOD GOOD/ NEEDS ADDITIONAL

ADDITIONAL COMMENTS
SKILLS/ SATISFACTORY
GUIDANCE
ATTITUDE

use maps and graphs to

obtain information

Explain the nature and

operation of the
government’s macro-
economic policy and
evaluate its effectiveness
in achieving the macro-
economic objectives of
the PNG Government.

Give opinions with

supporting evidence using
a variety of sources

GENERAL COMMENTS:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

Name of Teacher: ___________________________

Signature: ________________________________

Date: _____________________________