Internal assessment resource Economics 2.7A v2 for Achievement Standard 91228
PAGE FOR TEACHER USE
NZQA
Approved
Internal Assessment Resource
Economics Level 2
This resource supports assessment against:
Achievement Standard 91228 version 2
Analyse a contemporary economic issue of special interest
using economic concepts and models
Resource title: The global financial crisis and its impact on
the New Zealand economy
4 credits
This resource:

Clarifies the requirements of the standard

Supports good assessment practice

Should be subjected to the school’s usual assessment quality assurance
process

Should be modified to make the context relevant to students in their school
environment and ensure that submitted evidence is authentic
Date version published
by Ministry of Education
February 2015 Version 2
Quality assurance status
These materials have been quality assured by NZQA.
To support internal assessment from 2015
NZQA Approved number: A-A-02-2015-91228-02-5488
Authenticity of evidence
Teachers must manage authenticity for any assessment
from a public source, because students may have access
to the assessment schedule or student exemplar
material.
Using this assessment resource without modification may
mean that students’ work is not authentic. The teacher
may need to change figures, measurements or data
sources or set a different context or topic to be
investigated or a different text to read or perform.
This resource is copyright © Crown 2015
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Internal assessment resource Economics 2.7A v2 for Achievement Standard 91228
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Internal Assessment Resource
Achievement Standard Economics 91228: Analyse a
contemporary economic issue of special interest using economic
concepts and models
Resource reference: Economics 2.7A v2
Resource title: The global financial crisis and its impact on the
New Zealand economy
Credits: 4
Teacher guidelines
The following guidelines are designed to ensure that teachers can carry out valid and
consistent assessment using this internal assessment resource.
Teachers need to be very familiar with the outcome being assessed by Achievement
Standard Economics 91228. The achievement criteria and the explanatory notes
contain information, definitions, and requirements that are crucial when interpreting
the standard and assessing students against it.
Context/setting
This assessment activity requires students to write a report analysing the impact of
the global financial crisis on the New Zealand economy, integrating economic
concepts and models into their explanations.
It is expected that students will have already covered the following topics prior to
commencing this assessment:

the economic concepts involved with the business cycle, and

circular flow model (covering all sectors and money flows), changes in injections
and leakages and the effect on the business cycle.
Conditions
You will need to determine how long students need to complete each task and what
processes they will follow. These will need to be clearly outlined in the student
instructions following.
The research component can be conducted with a group, but the writing of the report
must be completed individually.
Resource requirements
Students will need access to the Internet to do their research and in order to contact
businesses by email.
Teachers may wish to create an answer book of lines and resources for students to
draw the circular flow model and a business cycle.
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Internal assessment resource Economics 2.7A v2 for Achievement Standard 91228
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Students should refer to sources such as newspapers, journals, magazines, books,
and email responses and non-print media sources such as TV, radio, interviews, and
Internet chat sites for the research and report components of this assessment.
Additional information
None.
This resource is copyright © Crown 2015
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Internal assessment resource Economics 2.7A v2 for Achievement Standard 91228
PAGE FOR STUDENT USE
Internal Assessment Resource
Achievement Standard Economics 91228: Analyse a
contemporary economic issue of special interest using economic
concepts and models
Resource reference: Economics 2.7A v2
Resource title: The global financial crisis and its impact on the
New Zealand economy
Credits: 4
Achievement
Analyse a contemporary
economic issue of special
interest using economic
concepts and models.
Achievement with Merit
Achievement with
Excellence
Analyse in depth a
contemporary economic
issue of special interest using
economic concepts and
models.
Analyse comprehensively a
contemporary economic
issue of special interest using
economic concepts and
models.
Student instructions
Introduction
This assessment activity requires you to write a report which analyses the causes
and impact of the global financial crisis on the New Zealand economy, incorporating
changes shown on economic models into your explanations.
The context of this activity could be changed so it could be used with another
current contemporary issue. The student’s report could also be presented as a
poster, a PowerPoint presentation, or a movie presentation.
The thoroughness of your comparison of the causes and impacts of the global
financial crisis, and the extent to which you integrate changes shown on economic
models into your explanations, will determine the overall grade.
The research component of the task may be conducted as a group, but your report
needs to be written individually. You have [insert time] weeks of in- and out-of-class
time in which to complete this task.
Task
Using Resource A as a guide, research the causes of the global financial crisis. Write
a report analysing the causes of the global financial crisis and its impact on the New
Zealand economy.
In your report you need to:

Compare the identified causes of the global financial crisis and explain the
relationships between them, and explain how and when this event first impacted
on the NZ economy.

Use a circular flow model to illustrate and explain the flow-on impacts to various
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Internal assessment resource Economics 2.7A v2 for Achievement Standard 91228
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sectors of the NZ economy.

Explain how the global financial crisis caused changes in our national economic
activity and analyse the relationships between these changes, using the money
flow components. Link your explanations to the business cycle.

Compare how different sectors were affected and explain why the impacts of the
financial crisis were not equally felt by all NZ society.
As you write your report, take care to refer to appropriate economic concepts and
models in your explanations.
When you have completed your report, hand it in to your teacher.
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Internal assessment resource Economics 2.7A v2 for Achievement Standard 91228
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Resource A
Use the following guideline to help you focus your research:
Research:

financial crisis and the business cycle

financial and corporate bailouts.
Research the following causes of the global financial crisis:


sub-prime lending in the US
the Credit crunch and ensuing global financial crisis

the bailouts of banks and other corporations in the US, EU, and UK

over-borrowing by consumers.
Research the impacts of the global financial crisis on:



housing prices in the US, UK and New Zealand
the New Zealand Government Retail Deposit Guarantee Scheme
New Zealand consumption, production, savings, investments, government
spending trends since 2008.
Identify key causes and effects of each of your research topics and take note of the
source.
Useful links:

Reserve Bank Bulletin (See http://www.rbnz.govt.nz/research/bulletin/):
– “Lessons from previous US recessions and recoveries” by Satish Ranchhod
(March 2010)
– “The crisis and monetary policy: what we learned and where we are going.”
by Alan Bollard and Felix Delbrück (March 2010)
– “The financial crisis: whodunnit?” by Howard Davies (Sept 2009)
– “Economic recovery” by Alan Bollard (Sept 2009)
– “Financial crises, sound policies and sound institutions: an interview with
Michael Bordo”


http://en.wikipedia.org/wiki/Bailout
http://www.interest.co.nz/charts/
– Interest rates
– Economy
– Confidence
– Prices

http://www.rbnz.govt.nz/monpol/statements/0090630.html

http://www.treasury.govt.nz/.
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Assessment schedule: Economics 91228 The global financial crisis and its impact on the New Zealand
economy
Evidence/Judgements for Achievement
The student has identified and explained some
causes of the global financial crisis, and how and
when it first impacted on the NZ economy.
The student has explained the impacts of the
global financial crisis on some sectors of the NZ
economy, and has created a circular flow model,
to illustrate the flow-on effects of these impacts
(see Appendix A).
The student has explained a change in our
national economic activity, showing the effect of
the global financial crisis on the NZ business
cycle, to support their explanation (see Appendix
B).
Example of student response:
New Zealand banks were affected by the crisis
that hit many overseas financial institutions.
Overseas governments had to bail out many of
these institutions. In New Zealand, the government
offered deposit guarantees so consumers would
still give their savings to our banks.
A major reason was human greed because some
investment bankers and financial advisors
behaved fraudulently or deceitfully, and some
consumers wanted it all now so they borrowed
money for goods and services.
IMPACTS ON SECTORS: As income fell
households reduced savings and will pay less tax,
through reduced expenditure. Firms who produce
luxury goods experienced the biggest fall in
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Evidence/Judgements for Achievement with
Merit
Evidence/Judgements for Achievement with
Excellence
The student has provided a detailed explanation
into the causes of the global financial crisis,
identifying relationships between them, and how
and when this event first impacted on the NZ
economy.
The student has explained in detail the different
impacts of the global financial crisis on sectors of
the New Zealand economy, and has created a
circular flow model, using the money flow
components (G, T, I, C, S, Y, X, M), to explain the
flow-on effects of the global financial crisis on most
sectors (also see Appendix A).
The student has provided a comprehensive
explanation into the causes of the global financial
crisis, explaining the relationships between them,
and how and when these events first impacted on
the NZ economy.
The student has comprehensively explained the
different impacts of the global financial crisis on
each sector of New Zealand society, and has
integrated the circular flow model, using the
money flow components (G, T, I, C, S, Y, X, M) to
explain the flow-on effects of the global financial
crisis on each sector (also see Appendix A).
The student explains how the global financial crisis
caused changes in our national economic activity
by using the money flow components and has
linked the explanations to the business cycle (also
see Appendix B).
The student comprehensively explains how the
global financial crisis caused changes in our
national economic activity and analyses the
relationships between these changes by using the
money flow components and has linked the
explanations to the business cycle (also see
Appendix B).
Example of student response:
From 2003, in the US, banks and mortgage
companies lent money to people who bought
houses and lots of consumer goods on an interest
(mortgage) rate that was much lower than the
normal rate for a fixed term rate of time (between
2-5 years). This was called the sub-prime rate.
LINK Because of this many people bought houses
and the prices went up because of this excess
demand. When the fixed term interest rate period
expired, interest rates were much higher than the
original rate, and homeowners couldn’t afford to
pay the mortgage, or sell their houses, because so
The student has analysed the impacts of the
global financial crisis by comparing how different
sectors were affected and explained why the
impacts were not equally felt by all NZ society.
Example of student response:
(from an international and a New Zealand
perspective):
The crisis was initially attributed to the sub-prime
mortgage market in the U.S., which involved
largely unregulated mortgage brokers, lending to
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demand, things like expensive cars and hotels.
Firms who produce the basic necessities were
more able to cope with the recession because
consumers still have to buy their products, things
like food and petrol. Some firms have had to make
people redundant and so the unemployed have
less income to spend, also the government has to
pay more in benefits, and spending to try and
stimulate the economy, but is receiving less taxes
like PAYE, GST, and company taxes, so has gone
into a budget deficit. Export receipts have also
fallen because the recession is global and
consumers overseas are not buying NZ products,
just like we are buying less imported goods and
services. Banks have struggled to provide
investment funding to firms because households
are saving less, and it is more difficult to get
overseas funds as well, because of the financial
crisis in the USA and Europe.
IMPACT ON BUSINESS CYCLE: The trend
shown on the diagram shows that while a peak or
boom is usually followed by recession, because of
the global financial crisis which hit us around Oct
2008 we have stayed in recession or a trough
phase much longer than usual and the recovery
from mid to late 2009 is weak. This means we
have had decreased and even negative growth as
the GDP figures have shown.
many people had taken on these types of loans.
So overall house prices went down.
From October 2008 until about July 2009, a
number of the very large banks expected a lot of
their customers to be unable to repay their loans
as the mortgage interest rates in the United States
had been low for a very long time. LINK Because
of this, banks became much more cautious about
their lending and stopped lending funds, or
charged a very high rate of interest. Businesses
stopped being able to access overdraft facilities,
and this meant that businesses started to go into
liquidation. LINK Some of the worst affected
economies were G7 countries.
Australia and New Zealand were also been
affected by the rapid devaluation of bank assets
held by overseas financial institutions. IMPACT
This meant that New Zealand and Australian
banks were unwilling to increase their lending to
homeowners or businesses in New Zealand which
reduced the amount of expansion by firms and
reduced the demand for purchasing houses. This
resulted in an excess supply of houses for sale.
Businesses also reduced their demand for
employees, and this increased unemployment.
Governments around the world have had to
protect potentially failing banks, such as the
bailout by the US government $700 Billion bailout
package for the financial sector. Banks were
worried that people would withdraw their money
from the banks and banks would not have cash
reserves. IMPACT In New Zealand and Australia
the government put into place the New Zealand
Deposit Guarantees Scheme, so customers of
banks and some finance companies felt safer with
their savings.
The decrease in the demand for commodities in
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higher risk clients.
Later the credit re-rating pushed down the price of
bonds and other financial assets, and the losses
were too large for the U.S. financial system to
cover because it didn’t have enough capital.
This triggered panic among U.S. consumers that
many of these institutions would become bankrupt,
so consumers stopped investing. Because of a
collapse in economic confidence and then a
collapse in economic growth, weakening business
and consumer confidence led to a collapse of
economic growth in New Zealand.
The collapse was more severe because of overpriced assets like the housing market, funded by
readily available credit from banks, which
consumers kept borrowing against. When house
prices fell again, borrowers started defaulting on
their loans. This also happened in New Zealand.
Consumers went on a borrowing binge because
credit was so easily accessible, companies also
borrowed (for leverage), so debt in relation to GDP
grew to huge levels. This is also true of
consumption in New Zealand.
Loose fiscal (such as tax cuts) and monetary
policy and low interest rates led to easy and
relatively cheap borrowing, so consumers were not
saving in the U.S., or the U.K. New Zealanders
were not good savers either.
After the collapse around Oct 2008, governments
increased fiscal spending (such as housing
insulation grants in New Zealand) to try and
stimulate their economies and some had to bail
out their financial institutions. The New Zealand
government offered deposit guarantees to add
stability and security, and encourage investment to
continue.
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countries like US and the UK because businesses
were unsure of the future IMPACT meant that New
Zealand producers were unable to increase their
sales overseas and this meant that some
households suffered unemployment.
IMPACTS ON SECTORS: The government sector
is receiving less tax revenue but is spending more
to stimulate the economy, see
http://www.treasury.govt.nz/economy/overview/arc
hive for the facts and figures of their expenditure,
the government is spending to stimulate the
economy; this is the (G) in the circular flow model
and is an injection of money into the producer and
household sectors. This happens via the subsidies
and projects; households benefit from (G)
spending by encouraging them to increase
consumption, the (C) part of the circular flow
model.
The financial sector has been forced to reassess
their financial position as they were faced with a
rapid devaluation of their assets. They have been
slow to lower their interest rates, the argument
being that they have to keep domestic interest
rates up to attract depositors, and they are also
faced with higher rates from overseas financial
markets, who they borrow from due to the
shortage of savings locally. Banks are lending
against property, viewed by them as safer assets,
but are hesitant to lend to businesses, threatening
our economic growth due to lack of investment.
The financial sector has injected some money into
the economy through lending against property and
providing investment to some businesses. This is
the (I) part of the circular flow model. They are
maintaining higher domestic interest rates to
attract depositors, which would be the leakage or
withdrawal from the economy that comes from
both the household and producer sectors, and is
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[Source: US information simplified from article by
Howard Davies. Reserve Bank of New Zealand:
Bulletin, Vol. 72, No. 3, September 2009.]
IMPACTS ON SECTORS: The government sector
is receiving less tax revenue but is spending more
to stimulate the economy, see
http://www.treasury.govt.nz/economy/overview/arc
hive for the facts and figures of their expenditure,
the government is spending to stimulate the
economy; this is the (G) in the circular flow model
and is an injection of money into the producer and
household sectors. This happens via the subsidies
and projects; households benefit from (G)
spending by encouraging them to increase
consumption, the (C) part of the circular flow
model.
The financial sector has been forced to reassess
their financial position as they were faced with a
rapid devaluation of their assets. They have been
slow to lower their interest rates, the argument
being that they have to keep domestic interest
rates up to attract depositors, and they are also
faced with higher rates from overseas financial
markets, who they borrow from due to the
shortage of savings locally. Banks are lending
against property, viewed by them as safer assets,
but are hesitant to lend to businesses, threatening
our economic growth due to lack of investment.
The financial sector has injected some money into
the economy through lending against property and
providing investment to some businesses. This is
the (I) part of the circular flow model. They are
maintaining higher domestic interest rates to
attract depositors which would be the leakage or
withdrawal from the economy that comes from
both the household and producer sectors, and is
the (S) part of the circular flow model. They need
savings so they can lend it back out into the
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the (S) part of the circular flow model. They need
savings so they can lend it back out into the
economy as (I).
The household and producer sectors have many
of the impacts mentioned in Appendix A, but there
are signs that consumption is increasing again
with the government using expansionary fiscal
policy to stimulate the economy via injections into
the producer and household sectors, such as
subsidies and projects that create employment
and enable households to benefit from
government spending, for example, the insulation
scheme available to homes built before 2000. The
producers also gain from the increased (C)
demand which provides them with revenue (Y),
and creates more employment, which also
provides more income (Y) for households, so more
(C) creating a positive cycle. The (X) receipts are
down due to lack of overseas demand and a
higher New Zealand dollar, so net export (X-M)
income is down.
IMPACT ON BUSINESS CYCLE: The global
financial crisis has negatively impacted on
consumption because consumers have less
income due to increased unemployment.
Unemployment has risen due to redundancies and
business closures, so total demand has fallen
further than we would normally see in the New
Zealand business cycle due to decreased income
and lack of available capital. Investment is needed
to keep businesses afloat in this time of deepened
recession or extended downturn in the business
cycle. Banks are not loaning to small- and
medium-sized businesses. With decreased
investment, there is little or no growth in productive
capacity due to lack of investment, banks are
mainly loaning against safer assets like property,
which doesn’t increase productive capacity.
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economy as (I).
The household and producer sectors have many
of the impacts mentioned in Appendix A, but there
are signs that consumption is increasing again
with the government using expansionary fiscal
policy to stimulate the economy via injections into
the producer and household sectors, such as
subsidies and projects that create employment
and enable households to benefit from
government spending, for example, the insulation
scheme available to homes built before 2000. The
producers also gain from the increased (C)
demand which provides them with revenue (Y),
and creates more employment, which also
provides more income (Y) for households, so more
(C) creating a positive cycle. The (X) receipts are
down due to lack of overseas demand and a
higher New Zealand dollar, so net export (X-M)
income is down.
COMPARING IMPACTS: The impacts felt by
producers differ to consumers because producers
are concerned with producing final goods/services
and keeping people in jobs, productivity, and
maximising profits. Consumers are more
concerned about meeting their basic needs,
keeping their jobs, and increasing their personal
wealth and assets. These two sectors are
interdependent to fulfil these needs/wants.
Unfortunately, due to the global financial crisis,
many businesses had to close or downsize, which
meant many consumers lost jobs and their main
source of income, which therefore reduces total
demand for final goods/services, and jeopardises
their assets.
Producers lose profits through reduced output and
decreased productivity. Producers rely on the
overseas sector for imported raw materials and to
export final goods/services for income. The global
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Because this is a global financial crisis, there has
also been a negative effect on net export income.
This has meant further job losses in tourism and
other export/import businesses. The government
has increased spending to try and minimise the
negative impact of this global financial crisis, and
to stimulate the economy by injecting money into it
through various projects. They have also provided
tax cuts, which have increased disposable income
for many consumers in a bid to try and increase
consumption, and increase total demand to create
an upturn or a recovery in the New Zealand
business cycle.
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financial crisis has meant decreased demand for
tourist activities and for New Zealand goods. The
weak U.S. dollar has had a negative impact on our
exporters’ income, but will help the income of U.S
exporters. Imported goods/services become
cheaper though and this will assist producers who
use imported raw materials in production.
Producers need the financial sector for investment
purposes to increase productive capacity and
create economic growth for an economy. Both are
concerned with making profits and protecting their
business interests. Banks see many businesses
as risky ventures in the financial crisis and prefer
to loan against safer assets like property, which is
fine for consumers who want to increase wealth,
but not great for businesses who need the finance
to keep their businesses afloat or to expand.
The government is concerned with the economy
and uses fiscal policy to maintain economic
stability. It has used expenditure to stimulate
consumption through tax cuts, and subsidies that
assist producers who are part of the industries
involved in the funded projects. This also creates
employment. The government needs tax as
revenue to spend and the financial crisis has
meant a smaller tax take, so they are running a
budget deficit, which tax payers will have to fund
longer term.
However, not all New Zealanders have
experienced hardship, as many consumers did not
have deposits in finance companies or banks in
financial trouble, and have retained their usual
employment, so for these people life is pretty
much the same as before or better as interest
rates came down, lowering mortgage repayments.
The wealthier or older members of our society
have been more affected and may have lost life
savings or investments, and banks faced
devaluation of assets and have lost profits, but I
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would say overall NZ has not been as badly
affected as some of the other bigger economies;
this is largely due to our tighter banking
regulations, and more conservative approach to
lending.
IMPACT ON BUSINESS CYCLE: During an
upswing in our normal business cycle, investment
increases as producers undertake new investment
to meet growing demand. However, producers
eventually have in place the investment they need
and so they slow or stop new investment. This
slowing in investment means that there is a
reduction in total demand in the economy. AD = C
+ I + G + (X – M), when I falls. Therefore, incomes
start to fall and consumption spending (C) so total
demand (AD) in the economy falls. For example,
workers in the investment industries such as
building industry employees, start to lose their
jobs. Firms now reduce their output because of
falling demand. This process stops when
investment, employment, and growth are at a
minimum. Extra investment is needed at this point
to maintain production because of depreciation,
etc., and so the next upturn or recovery is created.
However, with the impact of the financial crisis, the
upturn never happened and the recession period
in New Zealand deepened, worsened by banks not
supplying the investment needed to keep small
and medium businesses afloat. Unemployment
has risen due to redundancies and business
closures, so total demand has fallen further than
what we would normally see in the New Zealand
business cycle due to decreased income and lack
of available capital. Because this is now a global
recession, it has also negatively affected net
export income. This has created further job losses
in tourism and other export/import businesses. The
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government has increased spending to try and
minimise the negative impacts of the financial
crisis, and stimulate the economy by injecting
money into it through various projects. They have
also provided tax cuts, which has increased
disposable income for many consumers in a bid to
try and increase consumption and lead the country
into a recovery period.
Final grades will be decided using professional judgement based on a holistic examination of the evidence provided against the criteria in the
Achievement Standard.
This resource is copyright © Crown 2015
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Appendix A: Oct 2008–2009 Impacts of Global Financial crisis on New Zealand sectors – Solid arrows (Money flows)
Impacts on Financial Sector
 Rapid devaluation of bank assets.
 Harder & costlier to obtain funds from overseas financial


Impacts on Overseas Sector
–
markets.
Bad debts due to unpaid loans and bankruptcies.
Mortgagee sales.
Less (S)
–
–
Fewer
loans
Less consumption, so less demand for New
Zealand goods.
Higher unemployment, so less income.
Less holidays being taken, so less tourists to N Z.
 Consumer spending decreased, so
 Redundancies as producers cannot continue in



business or have had to downsize.
Households who invested in failed companies
have lost a lot of their wealth and assets.
Households who have to sell property as they
can’t service the home loans due to reduced
income or equity as the value of their property
decreased.
First home buyers are finding it tougher to get
home loans from banks.
Many families struggle to meet their basic needs,
as unemployment rises.

Less (C)


Less (Y) wages/salary
Impacts on Government Sector
Less PAYE
(T)
Less (X)
receipts
Impacts on Producer Sector
Impacts on Household Sector

Less (M)
payments
Less (I)


producers’ sales and profits decreased.
Due to the strengthening Kiwi dollar, our
exporters have suffered losses.
Banks have become hesitant about
lending money to businesses, so capital
formation has been hindered.
Investors have become wary of investing
in the share market, which means less
investment in New Zealand companies.
Less GST
& (T)
Less GST receipts due to lower consumption.
Less PAYE
 Less PAYE as workers are made redundant.
 Increase in transfer payments for increasing
More (G)
spending
unemployment.
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Appendix B: Oct 2008 - 2010
Economic Activity
Oct ’08- We were already in a technical recession, but the global
financial crisis deepened our recession period, and it has resulted in
no economic growth till June ’09 which saw a 0.1% growth, which
carried onto a slow economic recovery into 2010.
Trend growth path
‘08
‘09
June ‘10
Time
Appendix B: Economic activity fell by 0.2% in the September 2010 quarter, below market expectations of a small rise. This was the first fall in
real GDP since the economy exited recession in the June 2009 quarter and follows growth of only 0.1% in the June 2010 quarter. While some of
the slowing in growth reflects disruptions from the Canterbury earthquake, the economic recovery clearly lost momentum over the middle of 2010
as domestic demand remained subdued and business confidence softened. Highlighting the slow and patchy nature of the recovery, real GDP still
remains 1.8% below its December 2007 peak.
http://www.dol.govt.nz/lmr/lmr-economic-growth.asp
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