ECONOMICS
EXAMINATION
PREPARATION
AND 2014 HSC QUESTIONS
TIM RILEY
Director
Economic Literacy Centre
and
Tim Riley Publications Pty Ltd
HSC ECONOMICS CONFERENCE
THE UNIVERSITY OF WOLLONGONG
Monday June 15th 2015
Examination Preparation and 2014 HSC Questions
1
1. The Structure of the HSC Economics Examination Paper
The HSC Economics Examination tests students’ knowledge, understanding and
skills based on the individual outcomes for each topic in the HSC Course. The time
allowed for the written examination is three hours plus five minutes of reading time.
BOSTES approved calculators may be used in the examination. The HSC Economics
Examination specifications and assessment requirements are set out in Table 1.
Table 1: Structure of the HSC Economics Examination
Section 1
20 x Objective response questions (multiple choice questions)
Marks
20
Section II
4 x Short answer questions
40
(questions may be in parts and approximately 12 or 13 items in total)
Section III
•
Two stimulus based extended response questions
•
Students answer one question with an expected length of response
of around six examination writing booklet pages (approximately 800 words)
Section IV
•
Two extended response questions
•
Students answer one question with an expected length of response of
around six examination writing booklet pages (approximately 800 words)
Total Marks
20
20
100
Students should use the five minutes of reading time to:
•
Read the FOUR structured short answer questions in Section II as they are
compulsory.
•
Select ONE essay from Section III (two stimulus based extended response
questions, either question 25 or question 26) and ONE essay from Section IV
(two extended response questions not based on stimulus, either question 27
or question 28).
Students are advised to complete the examination questions in the right order i.e.
Section 1 first, then Sections II, III and IV. Guidelines for the allocation of time (these
are not prescriptive) in the examination are contained in Table 2.
Table 2 : Time Allocation in the HSC Economics Examination
Section 1
Section II
Section III
Section IV
20 multiple choice questions
4 x short answer questions
Stimulus based extended
response question
Extended response question
not based on stimulus material
15-20 minutes
40 minutes
20 marks
40 marks
50-60 minutes
20 marks
50-60 minutes
20 marks
Examination Preparation and 2014 HSC Questions
2
Table 3: The HSC Course Outcomes (H1 to H12) in the Syllabus
H1
H2
H3
H4
H5
H6
H7
H8
H9
H10
H11
H12
Demonstrates an understanding of economic terms, concepts and relationships;
Analyses the economic role of individuals, firms, institutions and governments;
Explains the role of markets within the global economy;
Analyses the impact of global markets on the Australian and global economies;
Discusses policy options for dealing with problems and issues in contemporary and hypothetical
contexts;
Analyses the impact of economic policies in theoretical and contemporary Australian contexts;
Evaluates the consequences of contemporary economic problems and issues on individuals, firms
and governments;
Applies appropriate terminology, concepts and theories in contemporary and hypothetical economic
contexts;
Selects and organises information from a variety of sources for relevance and reliability;
Communicates economic information, ideas and issues in appropriate forms;
Applies mathematical concepts in economic contexts; and
Works independently and in groups to achieve appropriate goals in set time lines.
2. What the HSC Economics Examination Tests: Knowledge and Skills Outcomes!
The HSC Economics Examination Tests the HSC Economics Syllabus and Course
Outcomes (see Table 3). It does not directly test your knowledge and understanding
of ‘current economics’ although this maybe relevant in answering many questions.
The Economics Stage 6 Syllabus (1999) was amended in 2009 and implemented in the
HSC course in 2011. The first HSC examination based on the amended HSC course
was in 2011, the second in 2012 when online marking was introduced, the third in
2013 when online marking was fully implemented with teachers marking at home,
and the fourth in 2014. The HSC Economics Examination in NSW is set by the HSC
Economics Examination Committee on behalf of BOSTES.
Students should be familiar with the structure of the Economics Syllabus because the
Economics Examination Committee examines the content and skills (outcomes) that
students are assumed to have learnt in the syllabus in the HSC examination. The
syllabus can be read and downloaded from the Board of Studies website:
www.boardofstudies.nsw.edu.au. The HSC course topics are listed in Table 4.
Within each HSC topic there are designated objectives in two broad categories:
Table 4: The HSC Course (120 hours of indicative time) – four compulsory topics:
1.
2.
3.
4.
The Global Economy
Australia’s Place in the Global Economy
Economic Issues
Economic Policies and Management
25% of course time
25% of course time
25% of course time
25% of course time
30 indicative hours
30 indicative hours
30 indicative hours
30 indicative hours
*STUDENTS LEARN TO:
EXAMINE ECONOMIC ISSUES, AND
APPLY ECONOMIC SKILLS
*STUDENTS LEARN ABOUT:
CONTENT TO GAIN KNOWLEDGE AND
UNDERSTANDING, AND SKILLS, AND
TO ACQUIRE VALUES AND ATTITUDES:
The HSC Examination tests both Learn to(s) and Learn About(s) and there are
usually ‘crossover’ questions across knowledge and skills in the four HSC topics.
Examination Preparation and 2014 HSC Questions
3
A key feature of the Economics Syllabus is the ‘Problems and Issues’ approach to the
teaching and learning of economics:
1.
2.
3.
4.
5.
6.
Economic growth and the quality of life;
Unemployment;
Inflation;
External stability;
The distribution of income and wealth; and
Environmental sustainability.
In each HSC topic there are outcomes for the content students are expected to learn,
and outcomes for the economic skills that students are expected to be able to
demonstrate. The skills outcomes are listed below with those in bold examined in
the 2011, 2012, 2013 and 2014 HSC examinations.
Topic 1: The Global Economy
(i)
Students should learn to examine the following economic issues:
•
•
•
•
•
Examine the effects of globalisation on economic growth and the quality of life, levels of
unemployment, rates of inflation and external stability;
Assess the potential impact on the environment of continuing world economic development;
Investigate the global distribution of income and wealth;
Assess the consequences of an unequal distribution of global income and wealth; and
Discuss the effects of protectionist policies on the global economy.
(ii)
Students should learn to apply the following economic skills:
•
Analyse statistics on trade and financial flows to determine the nature and extent of global
interdependence;
Assess the impact on the global economy of international organisations and contemporary trading
bloc agreements; and
Evaluate the impact of development strategies used in a range of contemporary and hypothetical
situations.
•
•
Topic 2: Australia’s Place in the Global Economy
(i)
Students should learn to examine the following economic issues:
•
Assess the impact of recent changes in the global economy on Australia’s trade and financial
flows;
Examine the effects of changes in trade and financial flows on Australia’s economic performance;
Analyse the effects of changes in the value of the Australian dollar on the Australian economy;
Discuss the impact of free trade and protection policies on the quality of life in Australia; and
Propose likely changes to the structure of industry within Australia as a result of current trends in
the global economy.
•
•
•
•
(ii)
Students should learn to apply the following economic skills:
•
•
Calculate the main components of Australia’s balance of payments;
Analyse the relationship between the balance of the capital and financial account and the net
income balance;
Explain the relationship between the current account balance and the balance of the capital and
financial account;
Use supply and demand diagrams to explain how the value of a currency is determined under
different exchange rate systems; and
Analyse the impact of changes in the components of the balance of payments on the value of the
Australian dollar.
•
•
•
Examination Preparation and 2014 HSC Questions
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Topic 3: Economic Issues
(i)
Students should learn to examine the following economic issues:
•
•
•
•
•
Examine the arguments for and against increasing economic growth rates;
Investigate the economic and social problems created by unemployment;
Analyse the effects of inflation on an economy;
Discuss the effect of a continued current account deficit on an economy;
Investigate recent trends in the distribution of income in Australia and identify the impact of
specific economic policies on this distribution;
Analyse the economic and social costs of inequality in the distribution of income; and
Examine the economic issues associated with the goal of ecologically sustainable
development.
•
•
(ii) Students should learn to apply the following economic skills:
•
•
•
•
•
•
•
•
Identify and analyse problems facing contemporary and hypothetical economies;
Calculate an equilibrium position for an economy using leakages and injections;
Determine the impact of the simple multiplier effect on national income;
Explain the implications of the multiplier for fluctuations in the level of economic activity;
Calculate the unemployment rate and the participation rate using labourforce statistics;
Interpret a Lorenz Curve and a Gini co-efficient for the distribution of income in an
economy;
Use economic concepts to analyse a contemporary environmental issue; and
Assess the key problems and issues facing the Australian economy.
Topic 4: Economic Policies and Management
(i)
Students should learn to examine the following economic issues:
•
Analyse the opportunity cost of government decisions in addressing specific economic
problems or issues;
Investigate structural changes in the Australian economy resulting from microeconomic
policies;
Apply economic theory to explain how a government could address an economic
problem or issue in hypothetical situations; and
Propose and evaluate alternative policies to address an economic problem in
hypothetical and contemporary Australian contexts.
•
•
•
(ii)
•
•
•
•
•
•
•
•
Students should learn to apply the following economic skills:
Explain how governments are restricted in their ability to simultaneously achieve
economic objectives;
Use (simple) multiplier analysis to explain how governments can solve economic
problems;
Analyse alternative ways to finance a budget deficit and their impact on the economy;
Identify limitations of the effectiveness of economic policies;
Explain the impact of key economic policies on an economy;
Propose and evaluate alternative policies to address an economic problem in
hypothetical and contemporary Australian contexts;
Explain, using economic theory, the general effects of macroeconomic and
microeconomic policies on an economy; and
Select an appropriate policy mix to address a specific economic problem.
Note that often a HSC question will use the operative verb or directive term and
text description of the outcome being tested e.g. Question 15, 2014 HSC - Interpret a
Lorenz Curve; and Question 27: For an economy other than Australia, discuss the
strategies used to promote both economic growth and development.
Examination Preparation and 2014 HSC Questions
5
3. Section I: Twenty Multiple Choice Questions (20 marks)
Allow a maximum of 35 minutes for this section but most students complete it in
about 15 to 20 minutes. Questions 1-20 test multiple choice skills based on the four
HSC topics and all questions are compulsory and of equal value. Some questions
may be based on stimulus material (such as a diagram or table of data) and all
answers are to be recorded on the multiple choice answer sheet. Marks are NOT
deducted for incorrect answers but it is important to score highly in Section 1 (i.e.
15+ out of 20) to achieve a high overall examination mark. Multiple choice questions
in economics tend to test four major skills:
1.
Definitions of basic concepts, e.g. tariff protection, Lorenz curve, free trade
agreement, hidden unemployment, fiscal policy, NAIRU, externality, current
account, productivity, interest rates, exchange rate, MPC, inflation.
2.
Economics calculations, e.g. the rates of economic growth, inflation and
unemployment, real GDP, the terms of trade, marginal rates of taxation, the
simple multiplier and the components of the balance of payments.
3.
The interpretation of diagrams, statistics and economic models e.g. tariffs,
quotas, subsidies, exchange rates, aggregate demand and supply, the Lorenz
Curve and Gini co-efficient.
4.
The application of economic analysis to current economic issues e.g. the
impact of changes in the stance of monetary and fiscal policies on economic
activity including growth, inflation, unemployment and the current account.
*
Beware of the matrix style of question which was the basis of eight questions
in the 2014 HSC. This means that the answer to the question was in a table
form where students had to select a combination of two correct answers
(effects of a changing variable) which correctly answered the question.
Sample Questions from the 2014 HSC Economics Examination
1.
An economy is operating at its natural rate of unemployment.
What would be the long term effect on the unemployment rate and the
participation rate of an increase in labour market flexibility?
(A)
(B)
(C)
(D)
2.
Unemployment rate
Participation rate
Increases
Decreases
Increases
Decreases
Increases
Increases
Decreases
Decreases
Which of the following is a trade bloc?
(A)
(B)
(C)
(D)
The European Union (EU)
The World Trade Organisation (WTO)
The General Agreement on Tariffs and Trade (GATT)
The Organisation for Economic Co-operation and Development
(OECD)
Examination Preparation and 2014 HSC Questions
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Use the following demand and supply diagram to answer Questions 3 and 4.
Price ($)
D
S
25
20
15
10
D
S
20
3.
30
40
50
60
70
80
Quantity
(millions)
Consider an economy in which there is a tariff of $15 in addition to the world
price of $10.
If the government reduces the tariff from $15 to $10, what will be the change
in tariff revenue?
(A)
(B)
(C)
(D)
4.
$100 million
$200 million
$400 million
$600 million
Consider an economy that operates a free trade policy.
The government is proposing to introduce a $5 tariff in addition to the world
price of $10.
What import quota could the government introduce to have the same effect
on domestic output as a $5 tariff?
(A)
(B)
(C)
(D)
5.
20 millions units
30 millions units
40 millions units
60 millions units
The table shows consumer price index (CPI) data for a hypothetical
economy.
Year
CPI
2011
2012
2013
145
150
156
What is the inflation rate for this economy in 2013?
(A)
(B)
(C)
(D)
3%
4%
5%
6%
Examination Preparation and 2014 HSC Questions
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Table 5: Selected Skills Outcomes and Formulae for Calculations
Topics 1 and 2: The Global Economy and Australia’s Place in the Global Economy
•
Analyse statistics on trade and financial flows/interpret exchange rate diagrams
•
Calculate the main components of Australia’s balance of payments
Current Account Balance = Goods Balance + Net Services + Net Primary + Net Secondary
Income
Income
Capital and Financial Account Balance = Capital Account Balance + Financial Account Balance
Balance of Payments = Current Account Balance + Capital and Financial Account Balance + NEO
Terms of Trade
=
Export Price Index
Import Price Index
x
100
1
Topic 3: Economic Issues
•
Calculate an equilibrium position for an economy using leakages and injections
S+T+M=I+G+X
AD = C + I + G + (X - M)
•
Determine the impact of the simple multiplier effect (k) on national income (Y)
∆Y
∆I
∆C
(MPC = ∆Y
∆S
MPS = ∆Y)
=
•
Explain the implications of the multiplier for fluctuations in the level of economic activity
∆Y
=
•
Calculate the unemployment rate and the participation rate using labourforce statistics
x
or
1
MPS
k
k
=
1
1 - MPC
∆I
Unemployment Rate
=
Unemployed
Labourforce
Labourforce
=
Full Time Employed + Part Time Employed + Unemployed
Participation Rate
=
Labourforce
Working Age Population
Real GDP
Nominal GDP
1
=
Inflation Rate =
•
x
x
100
1
x
100
1
100
CPI
Current CPI - Previous CPI
Previous CPI
x
100
1
Interpret a Lorenz Curve and a Gini co-efficient for the distribution of income in an
economy
Examination Preparation and 2014 HSC Questions
8
4. Section II: Four Short Answer Questions (40 marks)
Allow a maximum of 72 minutes, but most students complete this section in 40 to 50
minutes. Questions 21 to 24 test short answer skills such as the interpretation and
analysis of statistics relating to key concepts in the four compulsory topics in the
HSC course. All questions are of equal value (i.e. four 10 mark questions) and are
divided into parts, with marks allocated according to the degree of difficulty of the
question. Some of the short answer questions are based on stimulus material (e.g.
an economic diagram, extract of text or data from a relevant source such as Budget
Statements or the Reserve Bank of Australia Bulletin).
The short answer questions may involve a calculation and the use of a student’s
knowledge of economics in applying, interpreting, analysing or explaining an
economic concept, term, issue, model, policy or principle. Answers have to be
recorded in the spaces provided in the examination paper. Students should provide
adequate detail in relation to the allocation of marks, which tend to reflect the
progression from low order to higher order thinking skills. In the 2014 HSC the
combinations were 2,4 & 4: 2, 3 & 5; 2,4 & 4; and 4 & 6. Students should show all
working if a calculation is involved.
The short answers (Section II) are in a separate booklet attached to the examination
paper (Sections 1 and III). The spaces provided for the answers are sufficient to earn
full marks. Since the answers are scanned it is important to write in the space
provided. Extra writing space is provided on pages 18 and 19.
Short Answer Tips
•
•
•
•
•
Use the wording of the question in the answer and write in the space given
Learn and apply correct definitions and formulae
Pay attention to the instructional or directive verb (e.g. ‘distinguish’,
‘explain’, ‘discuss, ‘analyse’, ‘outline’, ‘calculate’, ‘what’, ‘how’, ‘why’,
‘evaluate’
Read the instructions carefully, especially when asked to draw on a diagram
Refer to the stimulus and provide analytical detail for 4-6 mark questions
Sample Question from the 2014 HSC Economics Examination
Marks
Question 22 (10 marks)
(a)
Briefly explain ONE cause of an exchange rate depreciation
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Examination Preparation and 2014 HSC Questions
9
2
(b)
Explain how Australia’s trade weighted index (TWI) can decline even
as the Australian dollar appreciates against the euro.
3
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------(c)
Analyse the effects of rising interest rates on both the current account
and the capital and financial account of the balance of payments.
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Examination Preparation and 2014 HSC Questions
10
5
Table 6: Marking Guidelines for Question 22 in the 2014 HSC Examination
Criteria
Marks
Question 22 (a)
• Demonstrates how one factor can cause an exchange rate depreciation
• States one cause of an exchange rate depreciation
2
1
Sample answer: One cause of an exchange rate depreciation is a fall in demand for
a country’s exports. Less demand for exports will lead to a decrease in demand for
the country’s currency, thus depreciating the exchange rate.
Question 22 (b)
• Demonstrates a clear understanding of how Australia’s trade weighted index
can decline even as the Australian dollar appreciates against the euro
• Sketches in general terms how Australia’s trade weighted index can decline even
as the Australian dollar appreciates against the euro
• Demonstrates a limited understanding of how Australia’s trade weighted index
can decline even as the Australian dollar appreciates against the euro
3
2
1
Sample answer: The TWI is the value of the AUD against a weighted basket of the
currencies of its major trading partners. This includes the euro but is dominated by the
$US and Asian currencies. While on the one hand the AUD could have appreciated
against the euro due to the European crisis, the AUD may be weaker in the TWI due
to lower commodity prices, causing its decline against currencies of the US and Asia.
Question 22 (c)
• Clearly shows how rising interest rates affect both the current account AND the
capital and financial account of the balance of payments
• Clearly shows how rising interest rates affect EITHER the current account OR the
capital and financial account of the balance of payments, and sketches in general
terms the other
• Clearly shows the effect(s) of rising interest rates on EITHER the current account
OR the capital and financial account of the balance of payments
OR
• Sketches in general terms the effect(s) of rising interest rates on both the current
account AND the capital and financial account of the balance of payments
• Sketches in general terms at least one effect of rising interest rates on EITHER the
current account OR the capital and financial account of the balance of payments
• States some aspects of how interest rates affect the current account AND/OR the
capital and financial account of the balance of payments
Sample answer: Rising interest rates will discourage individuals from spending which
will lead to low imports thus improving the trade balance on the current account. On
the other hand, rising interest rates will tend to appreciate the exchange rate, making
imports cheaper and exports more expensive leading to a worsening in the trade
balance. Rising interest rates will increase income payable on existing debt to overseas
investors on the income account of the current account. It will also cause an inflow of
foreign investment which will credit the financial account.
Examination Preparation and 2014 HSC Questions
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5
4
3
2
1
5. Section III: One Extended Response Question based on stimulus material
(maximum of 20 marks)
Allow a minimum of 35 minutes; but most students complete this section in 50 to 60
minutes. Questions 25 and 26 test essay writing (extended response) skills where
students are asked to apply and communicate their knowledge to a specific question
based on stimulus material. Stimulus material is designed to stimulate and support
thinking about a particular economic issue, problem or policy.
Students must choose from either Question 25 or 26 and write their answer in a
Section III Writing Booklet. In the 2014 HSC Examination all questions in Section III
and Section IV were in a one sentence format. The questions in Section III can be in a
one or two sentence format. This requires careful planning so that the essay is
structured into parts in a logical sequence.
The other important feature of questions in Section III is the use of operative words
such as ‘discuss’, ‘examine’, ‘analyse’, ‘evaluate’, ‘explain’, ‘assess’ and ‘contrast’.
Words such as ‘How’, ‘What’ and ‘Why’ can also be used. The same operative word
tends to be used for questions 25 and 26 (‘explain’ in 2013 and 2014).
Students should also be familiar with the rubric (i.e. the instructions) used at the top
of the page to present or introduce the questions in Section III:
Possible areas of examination in Section III (and Section IV) include content from the
four HSC topics of The Global Economy, Australia’s Place in the Global Economy,
Economic Issues and Economic Policies and Management. Some of the main
guidelines that students might follow in planning and writing an extended response
answer to a question from Section III include the following:
•
Learn to incorporate the rubric skills in your answer;
•
Practise planning as many one and two sentence questions as possible;
•
Refer to the plan as you write the answer to the extended response question;
•
Refer to the stimulus material in your answer;
•
Demonstrate an understanding of the integrated nature of questions such as
the relationship between an economic problem or issue (such as income and
wealth inequality) and possible government economic policy responses such
as labour market and fiscal policies (the ‘across topic’ or ‘crossover’ question);
•
Learn the list of operative terms published by the BOSTES; and
•
Practise the interpretation of stimulus material, especially quotations of text,
economic statistics, graphs or diagrams.
Examination Preparation and 2014 HSC Questions
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Table 7: Glossary of Key Words or Operative Terms
In economics all of these key words may be used but ‘distinguish’, ‘outline’, ‘discuss’, ‘analyse’,
‘explain’ and ‘evaluate’ are commonly used in short answer and extended response questions.
Analyse:
Assess:
Calculate:
Compare:
Contrast:
Define:
Demonstrate:
Describe:
Discuss:
Distinguish:
Evaluate:
Examine:
Explain:
Identify:
Interpret:
Outline:
Propose:
Recommend:
State:
Synthesise:
Identify components and the relationship between them; draw out and relate
implications
Make a judgement of value, quality, outcomes, results or size
Ascertain/determine from given facts
Show how things are similar or different
Show how things are different or opposite
State the meaning and identify essential qualities
Show by example
Provide characteristics and features
Identify issues and provide points for and/or against
Recognise or note/indicate as being distinct or different from; to note
differences between
Make a judgement based on criteria; determine the value of
Inquire into
Relate cause and effect; make the relationships between things evident;
provide why and/or how
Recognise and name
Draw meaning from
Sketch in general terms; indicate the main features of
Put forward (for example, a point of view, idea, argument or suggestion) for
consideration or action
Provide reasons in favour of
Write down the term or word for
Putting together various elements to make a whole
Note that in the 2011, 2012, 2013 and 2014 HSC examinations the examiners used the
following terms in addition to those above:
‘What’, ‘How’, ‘Why’
Examination Preparation and 2014 HSC Questions
13
Question 25 (20 marks) from the 2014 HSC Economics Examination
In your answer you will be assessed on how well you:
•
•
•
•
Demonstrate knowledge and understanding relevant to the question
Use the information provided
Apply relevant economic terms, concepts, relationships and theory
Present a sustained, logical and cohesive response
Question 25 (20 marks)
“Explain how both labour market policies and fiscal policies can be used to reduce
income inequality and wealth inequality. In your response, you should refer to the
economic information provided.”
An income safety net for all has been a long-term policy goal. The debate has
been about whether minimum wages and welfare payments achieve this
objective or whether disincentive effects mean that it has been
counterproductive for some groups.
Distribution of Income, Taxes and Government Benefits in Australia, 2009-10
(% shares of total income, taxes and benefits paid to/received by different income groups)
Share of the
poorest 20% of
income earners
Share of the
richest 20% of
income earners
3.3%
45.0%
Less taxes paid:
Income tax paid
Indirect taxes paid (eg GST, petrol taxes)
1.2%
12.5%
56.2%
30.1%
Plus government benefits received:
Transfer payments (eg pension, unemployment)
In-kind payments (eg free health, education)
36.5%
22.0%
2.5%
15.3%
Final income
11.3%
34.7%
Income earned before tax (eg wages and salaries,
interest income)
Introduction
One of the economic and social goals of the Australian government is to reduce
inequality in the distribution of income and wealth. Income is a flow concept and
refers to the payments of wages and salaries, profits, rent and interest for the
contribution of the factors of production to economic activity. Wealth on the
otherhand is a stock concept and refers to a person’s or household’s net assets at any
particular point in time and may include cash and bank deposits, superannuation,
consumer durables, the value of owner occupied and investment properties, shares
and other financial and non financial assets. Inequality arises in the distribution of
income and wealth in a market economy because productivity and opportunity
differ between individuals and households leading to inequality in the distribution of
Examination Preparation and 2014 HSC Questions
14
income and wealth in Australian society. For example in the ABS survey of Household
Income and Income Distribution 2011-12 it was estimated that the lowest income
quintile received 7.5% of total equivalised disposable income (an average of $346 per
week), whereas the highest income quintile received 39.5% of the total equivalised
disposable income (or $1,814 per week). The distribution of wealth or net assets
according to the ABS survey of Household Wealth and Wealth Distribution in 2013 was
more unequal than the distribution of income. The lowest quintile accounted for
0.9% of total household net worth whereas the highest quintile accounted for 60.8%
of total household net worth. Mean wealth was estimated at $728,100 and median
wealth at $434,000 in 2011-12.
Body
The Lorenz Curve can be used to graph the distribution of income and the
distribution of wealth. The distance between the Lorenz Curve for income or wealth
from the line of perfect equality can be used to calculate the Gini co-efficient in
relation to the area under the line of perfect equality. An increasing Gini co-efficient
suggests an increase in inequality whereas a decreasing Gini co-efficient represents a
decline in inequality over time. One of the key influences on income and wealth
inequality over time is the level of economic activity and the rate of unemployment.
A slower level of economic activity and a rise in the rate of unemployment usually
leads to increasing inequality whereas a rise in economic activity and a lower
unemployment rate may lead to a fall in inequality. However these are not the only
factors which influence the level of income and wealth inequality.
The Australian government can use both labour market and fiscal policies to reduce
income and wealth inequality. Labour market policies are used to create and support
a safety net for low income earners. Under the Fair Work Act 2009 the safety for
Australian employees is made up of three parts:
1.
The National Employment Standards (NES) provide ten minimum standards
that cover maximum weekly hours of work, leave arrangements, public
holidays and notice of termination and redundancy pay.
2.
Annual adjustments are made to the National Minimum Wage so that low
paid workers are able to maintain their real wages or purchasing power over
time. In 2014 Fair Work Australia increased the National Minimum Wage by
$16.87 per week (3%) which took the National Minimum Adult Wage to
$640.90 per week.
3.
The system of about 120 Modern Awards provides a set of minimum wages
and working conditions for employees who have a specific occupation, job
classification or type of work. Modern Awards contain about 20 terms
including minimum wages, types of employment, penalty rates of pay,
leave entitlements and superannuation.
Single enterprise, multi-enterprise and greenfields agreements are also encouraged
under the Fair Work Act 2009 for employees represented by a trade union or those
that engage in collective of enterprise bargaining. This allows workers to improve
their training, skills and productivity in return for higher wages and entitlements.
Enterprise agreements are subject to both a No Disadvantage Test (NDT) and Better
Off Overall Test (BOOT) to ensure workers are better off than under a Modern
award or the National Minimum Wage.
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Other Australian government labour market policies have focused on increasing the
education, training and skills formation of the Australian workforce, especially for
young people. These policies are seen as essential for reducing youth and long term
unemployment. The Jobs and Training Compact was introduced in the 2009-10
budget in response to higher unemployment during the Global Financial Crisis. This
policy targeted young people, communities and workers who became unemployed
as a result of the GFC. In the 2014-15 budget the Abbott government introduced a
‘Learn or Earn’ policy requiring job seekers up to 30 years of age to participate in job
search and employment activities for an additional six months before applying for
Newstart or Youth Allowance. This policy was changed to one month in the 2015-16
budget and more money was allocated to assist the long term and young
unemployed through work experience and the payment of wage subsidies.
Labour market policies such as enterprise bargaining, education and training and
apprenticeships have been linked to the reform of welfare payments and incentives
for disadvantaged people to find part time and permanent employment. As stated in
the stimulus material there has been debate in Australia over whether the system of
minimum wages and welfare payments (through the tax-transfer system) have
created disincentive effects (such as over reliance on welfare and poverty traps) for
people to secure permanent employment and increase their education and training
to find higher paid jobs in the workforce.
In the 2014-15 budget the Abbott government introduced reforms to the transfer
payments system to strengthen incentives for workforce participation and reduce
the reliance on welfare payments for certain groups such as youth, married women
with children, senior Australians, the disabled and the unemployed.
In the stimulus material showing the distribution of income, taxes and government
benefits it can be seen that the poorest 20% of income earners received 3.3% of total
income compared to 45% for the top or richest 20% of income earners. Although the
poorest 20% of income earners paid a lower proportion of income tax (1.2%) and
indirect taxes (12.5%) compared to the richest 20% of income earners (56.2% and
30.1% respectively), they relied more heavily on transfer payments (36.5%) for
income than the richest 20% of income earners (2.5%).
Also the poorest 20% of income earners received a greater share (22%) of the social
wage or benefits in kind (such as public health and education) than the richest 20%
of income earners (15.3%), and their share of final income of 11.3% was less than one
third of the richest 20% of income earners (34.7%). Final income in this table would
be defined as:
Final Income = Gross Income - Taxation (Direct + Indirect) + Government Benefits
The main policy used to reduce inequality in the distribution of income and wealth is
known as social policy, which is based on the tax-transfer system. This is part of
fiscal policy and the Australian government’s annual budget framework. Social or
welfare policy refers to the government’s use of the progressive system of taxation
and the system of tax expenditures, which provides income support to low income
earners, the aged, families with children on a single income, the unemployed, the
sick and the disabled. The system of progressive taxation of personal income in
Australia means that the more income a person earns, the more tax they pay as a
percentage of their gross income. The progressive tax system provides revenue to
the government enabling it to redistribute income from high income earners to low
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income earners, through transfer payments such as old age and disability pensions,
job search allowances, youth allowances and family benefits.
Expenditure on social security by the Australian government represents around 35%
of total budgetary expenditure. In the 2015-16 budget, $154b was allocated for
expenditure on social security and welfare. Targeted and means tested welfare
assistance in the form of pensions, family benefits and job search allowances provide
income support for the aged, veterans, disabled, low income families with children
and the unemployed. Government support helps these disadvantaged groups to
raise their of standard of living. This helps to create a more even distribution of
income and wealth.
Tax policy can also be used to lower marginal taxation rates for low income earners
and to raise the tax thresholds for low to lower middle income earners, as occurred
in numerous federal budgets in the 2000s. In 2012, the tax free threshold was raised
from $6,000 to $18,200 to encourage those on welfare to seek paid work, and in each
budget between 2003 and 2012, other tax thresholds were raised to take into account
the growth in incomes over time and the effect of ‘bracket creep’ (where taxpayers
pay more tax as they move into higher tax thresholds). These tax changes reduced
the tax burden on low and middle income earners relative to high income earners.
The current tax table for income tax appears below:
Tax Threshold (from July 1st 2012)
Tax Rate (Marginal Tax Rate %)
0-$18,200
$18,201-$37,000
$37,001-$80,000
$80,001-$180,000
$180,000+
0%
19%
32.5%
37%
45%
The use of fringe benefits tax on fringe benefits such as company cars, and capital
gains tax on the real gains from the sale of shares and real estate are taxes on wealth.
They assist in redistributing income (like the progressive income tax system), since
they tax fringe benefits and capital gains on a progressive scale through rising
marginal taxation rates. In Australia there is an absence of death duties, inheritance
taxes or a wealth tax so the government relies on progressive taxes to tax wealth.
Conclusion
Changes in income inequality are measured by changes in the value of the Gini coefficient and for the distribution of equivalised disposable income in Australia it rose
from 0.314 in 2005-06 to 0.336 in 2007-08, indicating an increase in income inequality
of 7% between 2005-06 and 2007-08 due to strong growth in wages and salaries and
unearned sources of income to households in the highest income quintile, relative to
those households in the lowest, second, third and fourth income quintiles.
However the Gini co-efficient fell from 0.336 in 2007-08 to 0.329 in 2009-10, and to
0.320 in 2011-12, which was a reduction in inequality of 4.8% because of tax cuts and
increased welfare payments to low income households. The effective conduct of
monetary and fiscal policies are also important in reducing inequality by supporting
sustainable economic growth, increasing employment and growth in incomes.
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6. Section IV: One Extended Response Question not based on stimulus
(maximum of 20 marks)
Allow a minimum of 35 minutes, but most students complete this section in 50 to 60
minutes.
Questions 27 and 28 are two extended response questions that are not based on
stimulus material as in Section III. Students must answer one of the two questions in
a separate Section IV Writing Booklet and the same rules for interpreting, planning
and writing the essay answer apply as in Section III. Extended response questions in
Section IV can come from any of the four topic areas of The Global Economy,
Australia’s Place in the Global Economy, Economic Issues, and Economic Policies and
Management. Students should also be familiar with the rubric (i.e. instructions) used
at the top of the page to present or introduce the questions in Section IV:
The directive verb used in Section IV questions in the 2014 HSC examination was
‘discuss’ and both questions were in a one sentence format. ‘Discuss’ means to
identify issues and provide points for and/or against. In the 2013 HSC the directive
verb was ‘analyse’ (identify components and the relationship between them).
7. HSC Economics Marking
The short answers and extended responses are marked according to criteria
developed by the examination committee for the HSC markers. Whilst these criteria
are well defined there is some tolerance shown in accepting a variety of student
answers, although these are in well defined limits.
Students should be aiming to achieve Band 5 or Band 6 answers in the extended
response section of the paper which is worth 40% of total marks. Extended
responses in economics are marked out of 20 according to a criteria based marking
system known as Marking Guidelines. Marking criteria are developed to describe
student performance in each of the six bands of performance, starting from the
lowest bands (Bands 1 and 2) and proceeding to the highest bands (Bands 5 and 6).
The descriptors of student achievement in Band 6 are as follows:
Band 6 - Criteria
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17-20 Marks
Integrates economic terms, concepts, relationships and theory in a variety of
economic contexts
Displays superior analysis of the role of economic participants and markets in a
variety of economic contexts
Uses extensive economic vocabulary and illustrative examples in exposition of
problems and policies in a variety of contexts
Demonstrates critical judgement and sound reasoning to select, organise,
synthesise and evaluate relevant information from a variety of sources
Presents excellent explanation and evaluation of the impact of government
economic policies in contemporary and hypothetical economic contexts
Presents comprehensive application of appropriate mathematical concepts in
a variety of economic contexts
Produces comprehensive economic arguments to evaluate the consequences
of economic problems and issues on economic participants
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•
The markers are generally very experienced
•
There is intense briefing of markers prior to marking
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Short answers are marked once
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Extended responses are marked twice with a variation of more than two
marks checked by a Senior Marker
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If an extended response is ‘discrepant’ the response is marked a third time
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Senior Markers have new technology to monitor consistency and accuracy of
the marking process
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With the move to online marking it is important for students to write neatly
and within the lines provided for the short answers and in writing booklets
for extended responses. This is because the scanning process will be more
efficient if student responses are legible and captured in their entirety.
8. Student Resources
Aside from using textbooks, study guides, teachers’ notes, conference papers and
slides, newsletter and newspaper articles and research materials from the Internet,
students are encouraged to also use resources developed by the Board of Studies,
Teaching and Educational Standards (BOSTES) which are found on its website at
www.boardofstudies.nsw.edu.au:
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Assessment and Reporting in Economics
The Economics Stage 6 Syllabus and Amendments
Copies of past HSC Economics Examination papers
Notes from the Marking Centre and Marking Guidelines
HSC Economics Examination Rubrics
NSW HSC Online for information on each topic in the HSC Economics course
Performance Band Descriptions
Booklets of Sample Answers such as the 2014 HSC Exam Workbook ($30)
Practising past questions is the best way of preparing yourself for the Trial HSC and
HSC examinations, in addition to making summaries of key knowledge and skills
outcomes for each of the four topics in economics. Other resources may include past
papers from the Catholic Trial and NSW Independent Trial Examination series from
when the current syllabus was first examined (2011).
9. Examination Preparation
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Go over past papers and ‘group’ questions from the same topic area
Read the examiners’ comments from the Notes from the Marking Centre
Practise one essay and one short answer per week and use exam time limits
and hand the answers in for marking by your teacher
Peer review other students’ essays and short answers
Learn effective writing techniques in economics - ABCD
- Answer the question
- Balanced answer in terms of adequate detail for each part of the question
- Coherent answer in terms of structure and expression
- Diagrams should be used where relevant
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Multiple Choice Tips
Be aware of the new question format used in 2012, with four questions based on this
format (8, 9,10 and 20). In 2013 there were eight questions based on this format (6, 9,
13, 14, 15 ,16 ,17 and 20. In 2014 there again eight questions based on this format (7,
9, 10, 11, 13, 14, 15 and 17).
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Go to the Board of Studies website and get the answers to past multiple
choice questions in HSC examinations
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Make topic lists of key terms/definitions
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Learn diagrams by drawing and interpreting them
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Memorise formulae for calculations
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Apply formulae in solving multiple choice questions based on calculations
GOOD LUCK IN THE TRIAL AND HSC IN 2015!
Keynes said economics was ‘an apparatus of the mind’
or in other words
just another way of thinking about the world.
The definition of an economist: too much personality to be an accountant!
Vale John Nash
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