section 1

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etawa Sundowner
2014
Steven Kemp
Chief Marker
Economics
WACE Stage 3
Subject
2011
2012
2013
Economics
Geography
History
Politics & Law
Chemistry
Human Biology
Phys. Ed Studies
Physics
Maths 3AB
2123
2022
2814
934
4907
4428
1752
3695
4751
1929
1977
2811
953
4894
4184
2062
3641
4749
2028
2040
2564
896
4911
4019
2042
3696
4734
2013 Stage 3 Economics
•Section 1
•Section 2
•Section 3
•Total Paper
2011
64%
55%
50%
55%
2012
57%
52%
52%
53%
2013
60%
56%
50%
54%
Economics Stage 3 Exam 2013
• The correlation of section totals with the
examination total is strong, with Section 1
(Multiple choice) at 0.82, Section 2 (Data
interpretation) at 0.93 and Section 3
(Extended response) at 0.93.
Areas of Weakness
• The meaning of productivity
– The difference between labour productivity & MFP
– How government policy can affect productivity
• The effect of economic activity on the current
account in the B of P
• The effect of interest rates on the trade balance
• The effect of an appreciation on the economy
& the factors underpinning a high $A
• Using the AD/AS model to explain the business
cycle
Section One: Multiple Choice
• Most questions (14/24) recorded a mean
between 50 and 80 per cent.
• Four questions recorded a mean between 80
and 90 per cent
• Six questions recorded a mean of less than 50
per cent.
• Overall, Section 1 worked well.
SECTION 1
79%
2. Which of the following statements is correct?
(a) Australia has a comparative advantage in both
products.
(b) New Zealand has a comparative advantage in steel.
(c) It would be best for Australia to produce both products.
(d) The opportunity cost of producing 1 unit of butter in
Australia is 2 units of steel
SECTION 1
3. Which of the following combination of factors
provides the best explanation for an increase in the
volume of Australian imports?
(a) an appreciation of the Australian dollar and a high
rate of inflation in China
(b) an appreciation of the Australian dollar and a high
rate of domestic economic growth
(c) a depreciation of the Australian dollar and a low rate
of domestic economic growth
(d) a depreciation of the Australian dollar and a high
rate of economic growth in China
81%
SECTION 1
55%
4. Which of the following statements relating to
the introduction of a subsidy is incorrect?
(a) The total cost of the subsidy is DCBW.
(b) The increase in producer surplus is DCAW.
(c) There is a deadweight loss of CBA.
(d) Domestic production will increase to OQ3.
SECTION 1
9. What is the most likely impact of a significant
improvement in Australia’s terms of trade?
(a) more imports can only be purchased with an
increased volume of exports
(b) a depreciation in the value of the Australian
dollar
(c) a decrease in the capital and financial account
surplus
(d) the current account deficit will increase
32%
SECTION 1
11. Which of the following is most likely to
increase the level of Australia’s foreign debt in
the short term?
(a) an appreciation of the Australian dollar
(b) a fall in the proportion of income saved by
households
(c) an increase in the Federal Government
budget surplus
(d) a fall in the current account deficit
52%
SECTION 1
12. Which one of the following events is likely
to have an effect on aggregate demand that is
different from the other three events?
32%(a) an increase in the income tax free threshold
(b) an appreciation of the Australian dollar
(c) an increase in the terms of trade
(d) an improvement in business expectations
31%
SECTION 1
14. The consumption function will tend to
shift upward as a result of an increase in the
(a) level of income. 52%
(b) marginal propensity to save.
(c) level of consumer confidence.
(d) value of net exports.
32%
43%
SECTION 1
16. Calculate the new equilibrium level of income for
Year 3 if investment falls by $20 billion.
(a) $380b
1. Whats the mpc?
(b) $280b
2. Whats the multiplier?
(c) $220b
3. Income will change by ?
(d) $205b
SECTION 1
15. Which of the following factors would shift
the aggregate supply curve in an economy to
the left?
(a) the implementation of competition policy,
such as tariff reform
(b) an increase in world oil prices
(c) the implementation of a contractionary
fiscal policy
(d) a cut in interest rates
67%
SECTION 1
17. The change shown in the diagram is most likely to have
been caused by
(a) the Federal budget changing from a deficit to a surplus.
(b) the Reserve Bank of Australia cutting the cash rate.
(c) increased competition in the provision of electricity in
Australia.
48%
(d) a fall in the value of the
Australian dollar.
44%
SECTION 1
22. A decrease in the cash rate is likely to lead to
(a) an increase in aggregate expenditure and a fall
in asset prices.
(b) a decrease in aggregate expenditure and an
increase in the exchange rate.
(c) an increase in aggregate expenditure and an
increase in asset prices.
(d) a decrease in aggregate expenditure and a
decrease in the exchange rate.
48%
Section 2
The mean was 56% - higher than 2012!
Strong correlation with exam total (0.93)
• Q25 – Productivity growth
Mean of 55.5% (Correlation 0.84)
• Q26 – Trading partners - descriptive
Mean of 61% (Correlation 0.81)
• Q37 – B of P & the exchange rate
Mean of 52% (Correlation 0.88)
Section 2
Question 25
Section 2
(b) Explain why the change in labour productivity
between Period 2 and Period 3 is a cause of concern
for the Australian economy. (4 marks)
Many students confuse productivity with production.
Also most students incorrectly stated that labour
productivity fell rather than the rate of productivity
growth slowed.
Need to spend more time on teaching the meaning of
productivity & the difference between labour
productivity & multifactor productivity.
What’s the difference?
Section 2
Labour productivity consists of 2 elements:
i) capital deepening – increasing the capitallabour ratio
ii) multifactor productivity – ‘real’ measure of
productivity, it is a measure of technical
progress & innovation
Section 2
(c) Explain how fiscal policy and microeconomic
reform can be used to increase labour productivity. (6
marks) - mean 46%!
Many students could not discuss how fiscal policy
could be used to increase labour productivity. Most
responses referred to expansionary fiscal policy as a
means for raising productivity rather than specific
measures such as spending on education and
training, R & D or investment on infrastructure
Section 2
Question 26 Australia’s
Trading Partners
(b) Describe the factors that have contributed to
Australia being a major exporter to China.
(c) Describe the advantages to Australia of the
increased linkages among the countries in the
Asia-Pacific region in recent decades
Many students simply talked about trade linkages
and failed to mention investment or immigration
Section 2
Question 27
Balance of
payments &
the $A
Section 2
27. (a) (i) What was the value of Australia’s current
account balance in 2006–07? Mean 29%!!!
(b) Describe and explain the relationship between the
change in net capital inflow and the change in the
exchange rate from 2000–01 to 2006–07. (4 marks)
Great data interpret question
It is evident that many students incorrectly think that
a high dollar causes an inflow of foreign investment
rather than foreign investment causing a rise in the
currency. This is an important teaching point that
should be addressed.
Section 2
27. (c) Explain how changes in domestic interest rates
affect the goods and services balance. (6 marks)
This proved difficult – mean 48%
1. An increase in i/rs will decrease C & I spending
which will decrease imports – the trade balance
will increase
2. But an increase in i/rs will appreciate the $A
which will increase imports & decrease exports the trade balance will decrease
Are you confused?
Section 3
• The overall mean for this section was 50% - lower
than 2012 (52%). The mean for section 3 should
arguably be higher than section 2
• Strong correlation with exam total 0.93
• The most popular questions were questions 31 and 30
• Q28 – The Australian Dollar (mean 45%)
• Q29 – The CAD: causes & effects (51%)
• Q30 – Policy stance & economic objectives (53%)
• Q31 – The business cycle – causes & effects (51%)
Past Essay Questions
• 1987
(a) Define & discuss economic growth & its
measurement.
(b) Discuss three ways in which a
Commonwealth Government could promote
economic growth in the Australian economy.
Past Essay Questions
• 1993
(a) What factors might cause an increase in
business investment?
(b) Using an appropriate economic model,
demonstrate the effect of an increase in
investment on the level of GDP and
employment.
Past Essay Questions
• 1997
(a) With the aid of supply & demand analysis
explain how the value of the Australian dollar
is determined in the foreign exchange
market.
(b) Explain the effects of an appreciation of the
$A on
•
•
Australia’s primary producers.
Australia’s domestic consumers.
Past Essay Questions
• 2000
• Discuss the meaning & significance of each of
the following to the Australian economy:
– Foreign investment in Australia
– Australia’s terms of trade
– Australia’s foreign debt
Past Essay Questions
• 2005
• Discuss the recent trend in Australia’s terms of
trade & discuss the likely causes and effects of
this trend.
Past Essay Questions
• 2007
(a) Explain why the Reserve Bank may reduce
official interest rates & discuss the likely
effects this would have on the economy.
(b) Discuss the strengths & weaknesses of
monetary policy.
Section 3
Question 28
(a) From early 2012 to mid 2013, the Australian dollar
was strong against most other major currencies.
Using examples, describe the impact this had on
the Australian economy. (10 marks) Mean 51%
1. Effect on trade – Xs fall, Ms rise, CAD rises
2. Negative effect on export sector & import competing
sectors e.g. manufacturing
3. Positive effect on consumers & producers importing raw
materials & capital goods
4. Overall contractionary effect on economy – implications
for monetary policy
5. Other – lower inflation rate
Section 3
Question 28
(b) Explain why the value of the Australian dollar
remained relatively strong in the second half of 2012, a
period that saw a significant fall in commodity prices.
(10 marks) Mean 40%
1. Interest rate differential
2. China’s continued demand for Aust exports
3. Foreign investment into mining sector
4. Relatively weak US & Europe; Aust’s AAA rating
Section 3
Question 29
Discuss the causes and effects of Australia’s persistent
current account deficit. Mean 51%
Up to 3 marks allocated to explainng the CAD
Rough equal split on causes & effects
Key cause – the I –S gap
Key effect – increased foreign liabilities & servicing
costs
Section 3
Question 30
In 2010–11 and 2011–12, the Australian Government
ran budget deficits of $54.5 billion and $47.5 billion. In
2012–13, the Government ran another budget deficit
of $43.4 billion. Furthermore, in July 2010, the cash
rate was 4.5%, and since then has been lowered to
2.5% as of August 2013.
(a) Describe the economic conditions in Australia that
led to these policy stances. (8 marks) Mean 51%
(b) Using a diagram/s, show how these policies can
help the Government achieve its internal economic
objectives. (12 marks) Mean 56%
Section 3
Question 30
(a) Describe the economic conditions in Australia that
led to these policy stances. (8 marks) Mean 51%
Few students could explain why the budget deficit was
falling. Most simply focussed on the expansionary
impact of a budget deficit. The key understanding was
that the Australian economy was weak with economic
growth well below trend (2.5%) and unemployment
rising (5.7%). Contributing factors were the slowdown
in the Chinese economy, decline in domestic investment
and the high $A.
Section 3
Question 30
(b) Using a diagram/s, show how these policies can
help the Government achieve its internal economic
objectives. (12 marks) Mean 56%
Generally answered quite well - most students were
able to discuss how expansionary monetary and fiscal
policy can be use to offset a weak domestic economy
Section 3
Question 31 (20 marks)
Describe the causes of the business cycle and the
effects of the boom phase of the business cycle on the
Australian Government budget outcome, business
investment and imports and exports. Mean 51%
This was the most popular question!
But most students do not understand the causes of
business cycles - students simply described the phases
of the business cycle.
Section 3
Question 31 (20 marks)
Describe the causes of the business cycle and the
effects of the boom phase of the business cycle on the
Australian Government budget outcome, business
investment and imports and exports. Mean 51%
Good answers should have incorporated the AD/AS
model to show how changes in AD and/or AS can cause
fluctuations in economic activity
e.g. changes in business & consumer confidence, the
terms of trade, external shocks, natural disasters, world
economic growth
Decrease in AD
Price level
1. The economy
is at point A
AS
2. A financial crisis
shifts the AD curve
to the left
A
P1
B
P2
3. Both Real GDP
and the price level
fall – unemployment
rises
AD2
Y2
Y1
AD1
Real GDP
Decrease in AS
LRAS
Price level
SRAS2
SRAS1
P2
1. The economy
is at point A
B
A
P1
3. Real GDP falls,
unemployment
rises and the price
level rises (B)
2. A natural disaster
or oil price shock
shifts AS to the left.
AD
0
Y1
Yf
Real GDP
Increase in AD
LRAS
Price level
1. The economy
is at point A
SRAS1
B
P2
2. A mining boom
shifts AD to the right.
A
P1
3. Real GDP rises,
unemployment falls
and the price level
rises (B)
AD2
AD1
0
Yf
Y1
Real GDP
Topical Stuff
•
•
•
•
South Korea FTA – huge boost for Australia
The demise of Ford, Holden & Toyota
Abbott government rejects ‘protectionism’
Australia appears on track to complete its 23rd year of
uninterrupted economic growth in 2014 – but at below
trend growth
• We are entering the 3rd stage of the resources boom –
the start of the export boom
– Stage 1 was the terms of trade income boom,
– Stage 2 was the mining investment boom
The Resources Boom
Source: CBA
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