NSW INDEPENDENT TRIAL EXAMS – 2008
ECONOMICS TRIAL EXAMINATION
MARKING GUIDELINES
Section I
1
D
2
B
3
C
4
B
5
B
6
C
7
B
8
D
9
D
10
A
11
D
12
B
13
D
14
A
15
C
16
B
17
D
18
A
19
C
20
B
Section II
Question 21(a) Outcomes assessed: H1, H8
Criteria
Marks
States the correct meaning of economic growth.
1
Answers could include: Economic growth is an increase in the level of economic activity which leads to an
increase in real GDP and reflects increased productive capacity of an economy.
Question 21(b) Outcomes assessed: H1, H8
Criteria
Marks
Correctly indicates the difference between nominal GDP and real GDP.
2
States the correct meaning of nominal GDP or real GDP.
1
Answers could include: Nominal GDP measures changes in GDP at current prices (money GDP). Real GDP
measures changes in GDP at constant prices with the effect of inflation taken into account.
Question 21(c) Outcomes assessed: H1, H8, H11
Criteria
Determines the correct value of real GDP.
Answers could include:
Real GDP = Nominal GDP x
Real GDP = $550m x
Marks
1
100
110
100
110
Real GDP = $500m
Question 21(d) Outcomes assessed: H1, H7
Criteria
Explains correctly TWO benefits of economic growth for an economy.
Explains only ONE benefit of economic growth for an economy.
Answers could include:
 Improved standard of living as measured by rising real per capita income;
 Increases in part time and full time employment;
 Increased level of international trade through exports and imports;
 Increased investment and technical progress;
 Reduction in poverty through increased welfare;
 Increased tax revenue for the government spent on infrastructure.
Marks
2
1
Question 21(e) Outcomes assessed: H1, H6
Criteria
Marks
Relates the cause and effect of the constraints on economic growth in Australia.
3–4
Sketches in general terms the constraints on economic growth in Australia.
1–2
Answers could include: Current constraints on economic growth in Australia may include two of the
following:
 Labour shortages in some industries especially for skilled workers because the labour market is at full
employment;
 Capacity utilisation is high with limited spare capacity for firms to raise production;
 Inflationary pressures including rising oil prices which raise production costs;
 Bottlenecks in transport and export infrastructure;
 More restrictive stances of monetary and fiscal policies.
NSW Independent Trial Exams 2008 – Economics Yr 12 Trial Examination: Marking Criteria - Page 1
Question 22(a) Outcomes assessed: H1
Criteria
Marks
States the correct meaning of the term exchange rate.
1
Answers could include: An exchange rate is the rate at which one country’s currency is exchanged for
another country’s currency. It is the relative price of two currencies traded in foreign exchange markets and
is a measure of relative purchasing power.
Question 22(b) Outcomes assessed: H1, H8
Criteria
Marks
Sketches in general terms ONE advantage and ONE disadvantage of a floating exchange
2
rate.
Sketches in general terms either ONE advantage or ONE disadvantage of a floating
1
exchange rate.
Answers could include: One advantage of a floating exchange rate is that the currency reflects the price
which is determined by the market forces of demand and supply. Another advantage of a floating exchange
rate is that movements (such as depreciation and appreciation) help to correct disequilibrium in the balance
of payments.
One disadvantage of a floating exchange rate is that the currency is more volatile and may lead to uncertainty
in the exchange rate. A further disadvantage is that any misalignment of the exchange rate in relation to an
economy’s fundamentals may require central bank intervention or a change in macroeconomic policy
settings which may affect a country’s economic performance.
Question 22(c) Outcomes assessed: H1, H4, H8
Criteria
Marks
Explains the relationship between an appreciation of a country’s currency and the impact
2–3
on the balance of payments.
Provides a limited response on the link between an appreciation and the impact on a
1
country’s balance of payments.
Answers could include: An appreciation of a country’s currency can cause import prices to become cheaper
and export prices dearer. This reduces the international competitiveness of exports and import competing
goods and could lead to a deterioration in the country’s existing current account deficit or a fall in an existing
current account surplus.
Through the ‘valuation effect’ of a currency appreciation, the country’s foreign debt decreases. This may
assist in reducing an existing current account deficit through a lower net income deficit. An appreciation of a
country’s currency may also lead to a reduction in capital inflow as foreign investment becomes more
expensive because domestic assets are dearer in foreign currency terms.
Question 22(d) Outcomes assessed: H1, H4, H8
Criteria
Marks
Explains TWO economic developments in the global economy which have caused the
3–4
recent appreciation of the Australian dollar.
1–2
 Sketches in general terms TWO economic developments in the global economy which
have caused the recent appreciation of the Australia dollar, OR
 Explains how ONE economic development in the global economy has caused the
recent appreciation of the Australia dollar.
Answers could include: Any TWO of the following global economic developments could be explained as
causes of the recent appreciation in the Australian dollar:
 The cut in interest rates by the US Federal Reserve due to the Sub Prime mortgage crisis has widened the
interest rate differential between the US and Australia. This has led to more foreign investors demanding
Australian dollars since returns are higher in Australia relative to the United States.
 The demand for Australian commodities has remained strong due to the rapid development of emerging
economies such as China and India. Commodity prices for iron ore, coal and aluminium have risen
significantly over the past few years. This has had a direct impact on the improvement in Australia’s
terms of trade.
Question 22(d) continues on the next page
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Question 22(d) continued
 Australia’s terms of trade have risen by over 30% in the last few years mainly due to rising prices for
commodity exports such as minerals, as well as falls in the prices of some imported manufactured goods
from low cost producers such as China. The rising terms of trade has driven the appreciation in the
Australian dollar.
 The demand for Australian dollars has also been strong because of increased foreign direct and portfolio
investment in the Australian resources sector where mining companies are making large profits from the
global resources boom.
 The Australian dollar’s appreciation has also been a reflection of positive exchange rate expectations by
foreign exchange participants looking to make capital gains from a strong currency such as the Australian
dollar relative to the weak US dollar.
Question 23(a) Outcomes assessed: H1, H2
Criteria
Marks
Sketches in general terms TWO objectives of fiscal policy in Australia.
2
Sketches in general terms ONE objective of fiscal policy in Australia OR identifies rather
1
than outlines TWO objectives of fiscal policy in Australia.
Answers could include:
 The primary objective of fiscal policy is embodied in the federal government’s medium-term fiscal
strategy of ensuring fiscal sustainability. This requires the budget to be balanced, on average, over the
course of the economic cycle.
 To provide funding through current and future budget surpluses for future capital investment in
infrastructure, education and health.
 To bear down on inflationary pressures in the economy by reducing public demand.
 To ensure a strong financial position at a time of heightened uncertainty in the international economy.
 To entrench low public debt and ensure that over time, the current account reflects private saving and
investment decisions.
Question 23(b) Outcomes assessed: H1, H2, H6
Criteria
Marks
Clearly and concisely demonstrates an understanding of how the government uses fiscal
3
policy to influence the level of economic activity.
Demonstrates a general understanding of how the government uses fiscal policy to
2
influence the level of economic activity.
States correctly ONE method through which the government uses fiscal policy to
1
influence the level of economic activity.
Answers could include:
 Fiscal policy tools are used by the government to try and shorten recessions and to prevent booms in
economic activity from becoming excessive. This has traditionally been termed stabilisation policy.
 When devising fiscal policy, government authorities will consider the need to stabilise aggregate
expenditure and also the likely effects of government spending, taxes and transfers on the economy’s
level of activity.
 Fiscal policy measures may affect potential output as well as planned aggregate expenditure. With regard
to expenditure, this includes investment in public capital, including roads, airports and schools which tend
to play a major role in the growth or potential output in the modern economy.
 Government tax and transfer programmes influence the economic behaviour of households and firms
through incentive and disincentive effects. For example, a high tax rate on income earned through interest
rates may reduce the willingness of people to save in the future, while tax concessions afforded to
businesses through the budget may encourage firms to increase their rate of capital formation.
Question 23(c) Outcomes assessed: H1, H2, H5, H6, H7, H8
Criteria
 Identifies the effects of sustained fiscal surpluses.
 Demonstrates a clear and concise understanding of the main effects of sustained fiscal
surpluses on the Australian economy.
Question 23(c) continues on the next page
Marks
4–5
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Question 23(c) continued
3
 Identifies the effects of sustained fiscal surpluses.
 Demonstrates a general understanding of the main effects of sustained fiscal surpluses
on the Australian economy.
2
 Demonstrates a limited understanding of the main effects of sustained fiscal surpluses
on the Australian economy.
1
 Lists some ways that sustained fiscal surpluses can impact on the Australia economy,
OR
 Correctly defines fiscal surplus.
Answers could include:
 Since budget surpluses add to national savings, they help to increase the level of national savings and the
level of financial resources available for private investment. Investment provides the engine for sustained
economic growth and therefore confers future economic benefits on Australian society.
 Sustained fiscal surpluses enable the government to finance its own investment requirements, meaning
that the national debt is the outcome of private sector borrowing and decisions primarily driven by market
forces.
 There is a strong equity issue surrounding the desire to keep the budget in surplus and reduce the level of
public debt. Any borrowing undertaken by the government has to be repaid plus interest, at some time in
the future. In this way, the budget surplus avoids the undesirable burden of future debt repayments being
bestowed upon future generations and the possibility of higher taxes being levied to service public debt
liabilities.
 Sustained budget surpluses help to increase the level of national savings. By the end of the 1980’s, the
level of national savings (as measured by the gross national savings rate) had increased to around 21% of
GDP after falling to a low of 16% in 1992. By 2006-07 national savings as a percentage of GDP was
approximately 20%.
 There has been a longstanding debate about the effects of reducing public debt, more specifically to what
degree persistent fiscal surpluses may have reduced the level of economic activity over time.
 Another issue is to what degree the government may have surrendered its capacity to use fiscal policy as a
counter cyclical policy tool by pursuing surplus budget outcomes. This reflects uncertainty and concern
on the part of policy makers over the capacity for fiscal policy to be used as an effective tool for
stabilisation. The emphasis for stabilisation has clearly shifted to the use of monetary policy in achieving
the goals of sustainable economic growth, price stability and full employment.
 Sustained fiscal surpluses have been used to establish the Future Fund which will be used to finance
increased future government spending due to the ageing of the Australian population.
Question 24(a) Outcomes assessed: H1, H8, H11
Criteria
States correctly the formula for calculating the unemployment rate.
Answers could include:
Number of Unemployed
100
x
Unemployment Rate =
Total Labour Force
1
Question 24(b) Outcomes assessed: H1, H8, H11
Criteria
Calculates correctly the unemployment rate for Australia in 2006-07 as 4.5%.
Answers could include:
Number of Unemployed
100
x
Unemployment Rate =
Total Labour Force
1
Unemployment Rate =
489,000
10,823,500
x
Marks
1
Marks
1
100
= 4.5%
1
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Question 24(c) Outcomes assessed: H1, H2, H8, H9
Criteria
Marks
Sketches in general terms TWO reasons for the falling level of unemployment in Australia
2
between 2004-05 and 2006-07.
Sketches in general terms only ONE reason for the falling level of unemployment in
1
Australia between 2004-05 and 2006-07.
Answers could include:
 Higher than average rates of economic growth as measured by changes in real GDP in the period between
2004-05 and 2006-07 have led to employment growth of around 2.5% in annual terms. This reflected
growth in both part time and full time employment, with around 51,500 previously unemployed persons
finding paid employment. This led to a significant fall in both the level and rate of unemployment in
Australia.
 Strong rates of economic growth in the global economy associated with the global resources boom have
underpinned Australia’s rising terms of trade, which has driven employment growth in the mining and
construction sectors of the economy between 2004 and 2007. Around 30% of the rise in employment
growth in this period occurred in these industries, which helped to reduce the unemployment rate from
5.2% in 2004-05 to 4.5% in 2006-07.
 A third reason for the falling level of unemployment between 2004-05 and 2006-07 were changes in the
Australian government’s eligibility requirements for existing and new welfare beneficiaries to secure
some form of paid employment. This tightening of welfare regulations, together with incentives for
previously unemployed persons to take on apprenticeships and training has also been a reason for the
falling level of unemployment as more people have moved off Job Search Allowance to paid
employment.
Question 24(d) Outcomes assessed: H1, H2, H8
Criteria
Marks
Explains correctly TWO causes of the skills shortage in the Australian labour market
2
Explains correctly only ONE cause of the skills shortage in the Australian labour market
1
Answers could include:
 The skills shortage in the Australian labour market is basically caused by the supply of specific labour
skills in trades and professional occupations being less than the demand for these skills. This skills
shortage reflects the slower growth in the training and supply of skilled workers in relation to employers’
demand for skilled labour.
 The resources boom and rising terms of trade have led to increased demand for skills in the mining and
construction industries, where high investment and the rapid expansion of output require increasing
amounts skilled labour. Higher wages and other benefits have attracted skilled labour to these industries
but it has been insufficient to meet employers’ demand, necessitating the importation of skilled labour
from overseas.
Question 24(e) Outcomes assessed: H1, H2, H5, H8
Criteria
Marks
Explains correctly ONE short term policy and ONE long term policy to overcome the
3–4
skills shortage.
Explains correctly ONE short term policy or ONE long term policy to overcome the skills
2–3
shortage, OR outlines TWO policies but does not explain each one.
Outlines rather than explains ONE policy to overcome the skills shortage.
1–2
Answers could include:
 Policies the Australian government could use to overcome the skills shortage in the short term include
providing incentives such as lower taxes and improved superannuation to encourage older or more mature
age workers to remain in the workforce and contribute their skills. Another short term policy is to train or
retrain younger workers to become tradespersons or professionals to meet the demand for such skills by
employers. This could include increased funding for apprenticeships and traineeships, as well as increased
spending on university and technical education. A further policy used by the Australian government in the
short term is the importation of skilled workers from overseas on special visas to fill job vacancies in
skilled occupations.
Question 24(e) continues on the next page
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Question 24(e) continued
 In the longer term an appropriate Australian government policy response to the skills shortage is to
increase the intake of skilled migrants with skills in short supply in Australia. In addition, there is scope
for achieving improved outcomes and higher participation in Australia’s early childhood, school
education, vocational and educational training (VET) and higher education sectors. This would enhance
the educational and skill attainment of the labour force and add to the skills base of the Australian labour
force. A final policy in the longer term is for the Australian government to remove the impediments in the
labour market that might restrict skilled labour from earning higher wages and other benefits, or their
mobility in seeking higher paid and skilled employment. This could be achieved by reforming the tax
system and standardising national qualifications for trades and professions.
Section III
Question 25 Outcomes assessed: H1, H2, H6, H8, H10
Criteria
Marks
17 – 20
 Demonstrates a clear and concise understanding of the issues relating to the causes of
inflation, and draws out and makes the implications between the effectiveness of
monetary policy and the achievement of the objective of price stability in the
Australian economy.
 Integrates appropriate economic terms, relevant concepts, relationships and theory in
the extended response answer.
 Synthesises own information with the information provided to develop a sustained,
logical and well-structured response to the question.
13 – 16
 Demonstrates an understanding of the causes of inflation and shows the relationship
between the use of monetary policy and the achievement of the objective of price
stability in the Australian economy.
 Consistently uses appropriate economic terms, relevant concepts, relationships and
theory.
 Uses own information and the information provided to develop a logical and wellstructured response.
9 – 12
 Describes the causes of inflation and provides some information about how monetary
policy is used to address and achieve price stability in the Australian economy.
 Uses appropriate economic terms, concepts and relationships.
 Uses own information and the information provided to develop a coherent response.
5–8
 Outlines some of the causes of inflation and provides limited information on how
monetary policy is used to address inflation and achieve price stability in the
Australian economy.
 Uses some appropriate economic terms, concepts and relationships.
 Uses information to develop a generalised response.
1–4
 Lists some of the causes of inflation and provides very limited or no information on
how monetary policy is used to achieve price stability in the Australian economy.
 Uses some economic terms and/or concepts.
 Presents a limited response.
Essay plan:
Inflation is the general increase in prices in an economy over a period of time. The major causes of inflation
include demand pull inflation, cost push inflation, imported inflation and rising inflationary expectations.
Since the early 1990s Australia’s inflation rate has averaged just under 3% per annum. However recent
(2007-08) inflation figures have sparked concern, being over 4%, causing the Reserve Bank to tighten
monetary policy by increasing interest rates.
The major causes of inflation include demand side factors, generally referred to as demand pull inflation and
supply side factors called cost push inflation. Demand pull or excess aggregate demand inflation exists when
the total level of demand is excessive relative to the level of production. The excess demand leads to an
upward pressure on prices. The original theory of excess demand was developed by John Maynard Keynes.
He recognised that an economy working at full capacity, which is unable to match the demands of the
economy, will put an upward pressure on prices (i.e. an inflationary gap). Demand pull inflation originates
from the demand side or expenditure side of the economy.
Question 25 continues on the next page
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Question 25 continued
Cost push inflation refers to the situation where increases in the costs of production flow into the prices of
goods and services. The increased costs can originate from higher costs of raw materials, higher interest rates
and higher wage demands. Cost push inflation originates on the supply side of economies. Better students
should include diagrams to illustrate demand pull inflation and cost push inflation. Other causes of inflation
include imported inflation and higher inflationary expectations. These should be elaborated upon by better
students.
The most common measure of the level of inflation in Australia is the Consumer Price Index (CPI). The CPI
is compiled by the Australian Bureau of Statistics on a quarterly basis and is based on a ‘sample’ basket of
goods and services which are weighted to reflect the relative importance in relation to expenditure patterns
by an ‘average’ household. The annual rate of inflation is based on the addition of the quarterly rates of
inflation. Reporting of inflation in Australia includes references to the headline rate of inflation and the
underlying rate inflation. The headline rate is the inflation rate as measured by the CPI. The underlying rate
of inflation excludes price changes of any volatile goods or services. In 1996 the Reserve Bank adopted the
objective of keeping underlying inflation between 2% and 3%, on average, over the cycle.
The headline rate of the CPI has been highly volatile in Australia since 2003/04. More recently in March
2008 the annual rate of inflation was 4.2%. This was above the Reserve Bank of Australia’s 2% to 3%
inflation target. The underlying rate of inflation has also increased over the past two years and is also outside
the Reserve Bank’s target band.
Conditions which have added to inflationary pressure in the Australian economy include strong domestic
demand relative to the economy’s productive capacity (5.7% in 2007); strong commodity prices coupled
with strong business investment; a tight labour market characterised by a serious skills shortage; rising global
oil prices; and rising costs of credit associated with the subprime mortgage and financial crises in the USA.
The response by the Reserve Bank to address inflationary pressures in the short term has been to increase
interest rates. Tightening of monetary policy involves the Reserve Bank selling Commonwealth Government
Securities. This has occurred on a number of occasions, including two rate rises in late 2007 and an
additional two rises in February and March of 2008. The official cash rate now stands at 7.25%. The cash
rate has not been at this level for fourteen years. A number of financial intermediaries have also passed on to
borrowers increases in interest rates above the cash rate, due to increases in funding costs in global financial
markets. This has occurred due to the crisis in the subprime mortgage market in the USA.
The contractionary stance by the Reserve Bank appears to be working with a slowdown in the Australian
economy starting to occur. Retail sales fell in the March quarter 2008. There has been a sharp decline in
consumer sentiment. Indicators of housing construction have fallen and ABS jobs data for March 2008
indicated the first fall in employment levels for 18 months.
Whether the slowdown in the economy continues will depend on whether the domestic factors mentioned
previously continue to decline coupled with a number of global factors. These factors include the slowdown
in some of the world’s major economies and the continuing problems in overseas financial markets.
A study by the Reserve Bank published in 2003 revealed that monetary policy has been very effective in
achieving price stability in Australia between 1993 and 2003. Inflation targeting had allowed short term
flexibility and had also delivered medium term constraints on the economy. Inflation on average stood at
2.3% between 1993 and 2003. This figure was better than other OECD countries which had adopted inflation
targeting over the same period. However, the inflationary pressures over the past three years have led to a
significant reliance on monetary policy to reduce inflation to within the inflation target band.
Monetary policy has its critics. Estimates of the lags of monetary policy are sometimes significant. Shorter
lags can be 12 months and some longer term estimates put lags at between 18 months to 24 months. Current
changes in interest rates may eventually impact on the business cycle which is at a different stage from when
the policy was enacted. Monetary policy has been referred to as a blunt instrument because it impacts on all
types of spending including investment. Another argument relates to the inability of monetary policy to
influence current price rises which are imported from abroad.
Question 25 continues on the next page
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Question 25 continued
The task of achieving price stability is largely the responsibility of monetary policy. The 2008-09 Budget
delivered a large surplus. Whilst this is true of previous budgets the emphasis of the current budget has been
to put considerable amounts of this surplus into increasing the economy’s productive capacity or aggregate
supply through greater spending on education and skills, health and infrastructure. The intention of the
government in applying this policy is to, in part, reduce inflationary pressures on the economy. These
measures, plus the call for additional microeconomic reforms, combine to form the current policy mix being
implemented to address inflation in Australia and achieve greater price stability.
Question 26 Outcomes assessed: H1, H2, H3, H4, H5, H6, H7, H8, H10
Criteria
Marks
17 – 20
 Identifies the main features of the current Australian industrial relations system and
discusses in detail its impact on productivity and Australia’s economic performance.
 Integrates appropriate economic terms, relevant concepts, relationships and theory in
the extended response answer.
 Synthesises own information with the information provided to develop a sustained,
logical and well-structured response to the question.
13 – 16
 Demonstrates an understanding and identifies the main features of the current
Australian industrial relations system and discusses some of its impacts on productivity
and Australia’s economic performance.
 Consistently uses appropriate economic terms, relevant concepts, relationships and
theory.
 Uses own information and the information provided to develop a logical and wellstructured response to the question.
9 – 12
 Describes rather than discusses some of the features of the current Australian industrial
relations system and its impact on productivity and some aspects of Australia’s
economic performance.
 Uses appropriate economic terms, concepts and relationships.
 Uses own information and the information provided to develop a coherent response.
5–8
 Outlines rather than discusses some of the main features of the current Australian
industrial relations system, but provides a very limited discussion of its impact on
productivity and Australia’s economic performance.
 Uses some appropriate economic terms, concepts and relationships.
 Uses information to develop a generalised response.
1–4
 Lists rather than discusses some of the features of the current Australian industrial
relations system, and provides limited discussion of its impact on productivity and
Australia’s economic performance.
 Uses some economic terms and/or concepts.
 Presents a limited response.
Essay plan:
The Australian industrial relations system refers to the methods and legislation that influence the setting of
wages and working conditions between employees and employers in the labour force. The Australian system
of industrial or workplace relations has been characterised by a movement away from a rigid and centralised
system of wage determination in the 1980’s, to a more flexible and decentralised system of wage
determination in the 1990s and 2000s. This process has been characterised by the decreasing reliance on
adjustments to industrial awards by a centralised body such as the AIRC for wage increases, to a system
based on individual and collectively negotiated workplace agreements at the enterprise level between
employees and employers.
Some of the main features of the current Australian industrial relations system are evident in the stimulus
graph showing current methods of setting pay provided to support the question.
 The safety net of the federal and state award systems provide a set of minimum wages and conditions for
workers with low skill and bargaining power. The federal minimum award wage is adjusted annually by
the Australian Fair Pay Commission, with its most recent decision (July 2008) to grant a $21.66 or 4.1%
increase for the lowest paid. Around 20% or two million workers in Australia rely on the adjustment for
annual wage increases, which help to meet increases in the cost of living for Australian households.
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Question 26 continued
 By far the most important method used for adjustments to wages and working conditions is the role of
collective enterprise agreements usually negotiated by trade unions with employers. These agreements
reflect enterprise conditions and usually provide for wage increases of around 4% based on increases in
the cost of living as well as improvements in labour productivity. Collective enterprise agreements
provide coverage for around 40% of the Australian labour force or four million workers. They are
prevalent in the public sector and some industries in the private sector where union coverage is high, such
as construction and manufacturing.
 Registered individual agreements such as Australian Workplace Agreements (AWAs) and unregistered
individual arrangements such as common law labour contracts provide coverage for a further 35% of the
labour force. AWAs are small in coverage (5%) and are registered with the Workplace Authority, whilst
informal common law contracts (30%) are not registered with any third party.
A major feature of the current Australian industrial relations system is the role of the federal government in
passing legislation to establish the principles for wage determination and other industrial relations matters.
The Workplace Relations Act 1996 legislated to introduce AWAs as a third stream of individual wage
adjustments in addition to awards and collective enterprise agreements. The allowable matters governed by
awards were reduced, greater controls were placed on union power in negotiating Certified Agreements and
workers were encouraged to sign AWAs to gain more flexibility with their employer. In 2006 the Workplace
Relations Amendment Act (WorkChoices) further deregulated the system of industrial relations by creating a
unified national system and the application of an Australian Fair Pay and Conditions Standard (AFPCS) to
underpin individual and collective workplace agreements.
With widespread community concern over the erosion of minimum wages and conditions under the
WorkChoices legislation, in 2007 the Australian government enacted the Workplace Relations Amendment
(A Stronger Safety Net) Act. This legislation created the Workplace Authority to oversee the registration of
individual and collective workplace agreements, and the Workplace Ombudsman to investigate and enforce
alleged breaches of minimum wage rates and conditions of employment, by employers.
In November 2007 the Labor Party under leader Kevin Rudd won the federal election and formed a new
Australian government. A major part of its policy platform was the repeal of the WorkChoices legislation
because of its perceived unfairness in eroding minimum wages and conditions of employment. The
Workplace Relations Amendment (Transition to Forward with Fairness) Act 2008 was passed by the
Australian parliament on March 19th 2008. The Act will implement transitional arrangements to begin the
process of phasing out the current WorkChoices (including the prohibition of AWAs) laws by January 2010
and introduce Fair Work Australia as the main body to oversee the industrial relations system in Australia.
Labour market policies such as the deregulation of the wage determination system by successive Australian
governments were based on the belief that more flexible wage setting arrangements can increase labour
productivity and improve Australia’s macroeconomic performance. The movement away from the reliance
on the award system to workplace or enterprise bargaining in the 1990s and 2000s has led to greater
productivity bargaining and changes in work practices, in return for higher wages and better working
conditions. Increasing the efficiency and productivity of labour in the workplace has been achieved through a
number of means:
 The encouragement of multi-skilling, where workers acquire new skills in performing a variety of work
tasks, adding to their productivity and the technical efficiency of the enterprise or firm;
 The development of employee career paths, with prospects for higher wages offered as incentives to
employees who undertake further education and training;
 The trend towards the broadbanding of awards through reducing the number of awards, and grouping
specialist labour skills or job categories under one award;
 The development of key competencies in job training (such as working in teams and using new
technology) so that employees can transfer and apply skills to a variety of occupations;
 An emphasis on training and education and the acquisition of formal qualifications in areas of specialist
labour skills, especially in the use of new capital equipment and technology.
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Question 26 continued
The Productivity Commission estimated that labour productivity in Australia’s market sector increased by
2.2% in 2005-06 which was around the long term average of 2.3% per year since the early 1990s. All the
labour productivity growth in 2005-06 was due to above average capital deepening (i.e. increases in the
capital to labour ratio) of 2.3%. Other factors attributed to the rise in labour productivity in the 1990s and
2000s were improvements in the quality of labour through education and training, and improvements in the
efficiency with which labour and capital are used in production.
At the macroeconomic level, labour market reform has led to rising rates of real GDP or income per head
and improvements in living standards. In addition, rising labour productivity underpinned Australia’s
average 3.5% rate of economic growth between 1994 and 2007. Other macroeconomic benefits of successful
labour market reform include the enhanced international competitiveness of the traded goods sector (i.e.
exports and import substitutes) and wage outcomes consistent with rising productivity, which do not add to
inflationary pressures on the supply side of the economy. To this extent inflation outcomes in the Australian
economy have been more moderate since the adoption of inflation targeting by the Reserve Bank in 1993 and
the more flexible system of wage determination, characterised by the decentralisation of wage negotiations
away from the rigid centralised system, to a more flexible system of collective and individual productivity
bargaining.
Section IV
Question 27 Outcomes assessed: H1, H2, H3, H4, H5, H6, H7, H8, H9, H10
Criteria
 Integrates economic terms, concepts, issues, relationships and theory in an appropriate
context.
 Defines protection and discusses why some countries and trading blocs have resisted
the World Trade Organisation’s push for free trade by outlining the reasons for
protection.
 Uses specific examples and relevant data of countries and trading blocs that protect
their domestic markets and industries, to support a contemporary and comprehensive
analysis of the costs and benefits of this policy to the host country and other
economies.
 Explains the role and influence of the WTO in promoting free trade, both its successes
(e.g. the Uruguay Round) and failures (e.g. the Doha Round).
 Provides concise definitions of economic terms and applies concepts and relationships
in an appropriate context.
 Defines protection and discusses why some countries and trading blocs have resisted
the World Trade Organisation’s push for free trade by outlining the reasons for
protection.
 Uses examples of countries and trading blocs that are protecting domestic markets and
industries, to support a contemporary and comprehensive analysis of the costs and
benefits of this policy to the host country and other economies.
 Explains the role and influence of the WTO in promoting free trade.
 Provides clear definitions of economic terms, concepts and relationships.
 Defines protection and attempts to outline the reasons for protection.
 Lists some possible outcomes of promoting free trade.
 Attempts to explain the role and influence of the WTO in promoting free trade in the
global economy.
 Provides basic definitions of some economic terms, concepts and relationships.
 Defines protection and attempts to outline some reasons for protection.
 Uses generalised knowledge to develop an irrelevant or inappropriate response to the
WTO’s role in promoting free trade in the global economy.
Marks
17 – 20
13 – 16
9 – 12
5–8
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Question 27 continued
1–4
 Utilises some appropriate terminology to communicate economic ideas.
 Develops no logical sequence in the answer.
 Demonstrates a lack of knowledge about the reasons for protection.
 Unable to discuss the benefits of free trade.
 Uses generalised knowledge to develop an irrelevant or inappropriate response to the
WTO’s role in promoting free trade in the global economy.
Essay plan:
Protection should be defined as any advantage given by a national government to help its export or import
replacement industries to compete with overseas producers. Free trade on the other hand is international
trade conducted in the absence of protective devices such as tariffs, subsidies, quotas, embargoes or
voluntary export restraints.
A discussion of the following reasons or economic arguments for protection should be undertaken:




The infant industry argument;
The promotion of domestic employment;
The protection from dumping of cheap products;
The self sufficiency and national defence arguments.
Students should discuss why free trade is not high on the agenda for some countries and trading blocs (e.g.
the European Union) and why their domestic goals may outweigh international goals for free trade and
development. This discussion may include reference to the following cases:
 In the USA the federal government provides protection of farming communities (e.g. ‘wheat states’ in the
Mid West); protection of domestic employment in the manufacturing sector (e.g. the automotive
industry); prevention of dumping of agricultural surpluses from low cost overseas producers; and
protection from cheap manufactured exports from China due to China’s undervalued currency, the RMB.
 In the European Union (EU), the Common Agricultural Policy (CAP) leads to extensive subsidies for
dairy, wheat, fruit, vegetable and meat products of EU farmers. The EU operates as a preferential trading
bloc, causing many world food prices to be lower than they would be in the absence of subsidies. This
reduces market access for developing countries’ exports of farm products to the EU market.
 In Japan and South Korea, subsidies are paid to farmers to achieve national self sufficiency in rice
production, thereby shutting out rice exports from the rest of the world.
Students should discuss the main benefits to be derived from the WTO’s policy of promoting free trade in
the global economy, by discussing the potential gains from free trade:
 Restructuring of industry and employment, leading to greater efficiency and improved international
competitiveness. This can be attributed to firms achieving economies of large scale production for export
markets.
 Focusing on comparative advantage in production and efficient resource allocation.
 Lower domestic prices and less inflationary pressure from high import prices.
 Promotion of globalisation leads to improved equity between countries with the developing countries
being able to increase their rates of economic growth and raise living standards. This helps them to
decrease levels of poverty and foreign debt.
 Benefits of increased consumer choice of goods and services and rising levels of real income.
 Greater rates of technical progress and innovation as countries increase their efficiency and
competiveness through international trade.
The role of the World Trade Organisation (WTO) is crucial in promoting free trade, as it is the main global
body in overseeing the rules based trading system:
 Implementing and expanding global trade agreements;
 Resolving trade disputes between countries;
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Question 27 continued
 Enforcing trade agreements across the world;
 Promoting the benefits of free trade between nations and regions;
 Setting targets for improved free trade at global member meetings (e.g. the Doha Round).
Students could provide historical detail on the growing influence of the WTO since its formation at the end
of the Uruguay Round in 1994 e.g. trade in services and intellectual property rights were included. This
round also commenced the reduction in agricultural subsidies by the USA and EU although the results so far
have been well below initial expectations.
Dispute resolution by the WTO between smaller countries has been successful but the power of the European
Union and the United States has been difficult to overcome in getting them to reduce their food subsidies.
Membership of the WTO is growing and there has been an increase in voluntary agreements to enhance trade
liberalisation.
An outline of the goals of the Doha Round could be stated, especially the reduction of global poverty and the
reasons for the suspension of the Doha talks. Despite the impasse reached at the Doha Round, many large
developing economies such as China, India and Brazil have had tremendous growth and are fast becoming
world leaders in international trade. Mention could also be made of the recent impact of higher world oil and
food prices and the slowing world economy on the influence of the WTO, as domestic issues again move to
the forefront of most national governments’ agendas. This is most evident by the push to protect domestic
markets and employment during a period of slower world growth.
Question 28 H1, H2, H4, H5, H7, H8, H9, H10
Criteria
Marks
17 – 20
 Integrates appropriate economic terms, concepts, issues, relationships and theory.
 Synthesises economic data and other information to develop a sustained, logical and
well structured answer.
 Demonstrates a clear, concise and comprehensive understanding of how globalisation
has led to variations in the standard of living and contrasts in the level of development
between nations that make up the global economy.
13 – 16
 Consistently applies economic terms, concepts, relationships and theory.
 Uses economic data and other information to develop a logical and structured answer.
 Demonstrates a clear understanding of how globalisation has led to variations in the
standard of living and contrasts in the level of development between nations that make
up the global economy.
9 – 12
 Provides some understanding of economic terms, concepts, relationships and theory.
 Uses economic data and other information to develop a coherent response.
 Demonstrates a general understanding of how globalisation has led to variations in the
standard of living and contrasts in the level of development between nations that make
up the global economy.
5–8
 Uses some economic terms, concepts and relationships.
 Uses information to develop a generalised response.
 Sketches in general terms some aspects of the impact of globalisation on living
standards and economic development between nations that make up the global
economy.
1–4
 Uses some economic terms and/or concepts.
 Presents a limited response.
 Lists some aspects of the impact of globalisation.
Essay plan:
The logical starting point for this essay would be to define the process of globalisation and then explain the
link between globalisation of world economic activity and the levels of economic growth and economic
development experienced in the various regions of the global economy. Globalisation refers to the increasing
economic integration between countries, leading to the emergence of a global market place or single world
market. Globalisation has linked people in various countries (often at different stage of economic
development) through the use of common technologies and the customisation of goods and services
marketed and distributed on a global basis.
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Question 28 continued
A high level response (17 – 20 marks) would be expected to make reference to how globalisation has
generally reinforced the existing income disparities between the developed and developing countries. This is
reflected in the large variations in the standard of living between countries, which becomes evident when
comparisons are made in terms of real GDP or income per capita, and a host of other material and non
material indicators (i.e. adult literacy, nutrition, energy consumption and health services). Reference would
normally be made to the variety of development indicators incorporated in the United Nations Development
Programme’s (UNDP) Human Development Report and the Human Development Index (HDI). Specific
examples of the relative performance of high income and poorer nations in terms of the HDI could be cited
as evidence of the contrasting levels of economic development attained by countries throughout the global
economy.
Students should draw attention to the large contrast in the levels of economic development achieved by
developed countries (such as the USA and Australia) and the less developed countries (LDCs) such as China,
Bangladesh and Zimbabwe. This contrast in the level of development between the two groups of countries is
often referred to as ‘the development gap’ since the distinguishing features of less developed countries tend
to be low per capita incomes, low levels of saving, investment, capital formation and economic growth,
whereas developed countries are characterised by high real per capita incomes and high levels of saving,
investment, capital formation and economic growth. Some developing countries such as India and China are
closing this gap quickly by sustaining higher rates of economic growth, rising per capita incomes and
reductions in poverty.
The development gap leads to significant contrasts in the living standards between the developed and less
developed countries. In less developed nations, general standards of living tend to be very low for the vast
majority of people. This is true not only in relation to their counterparts in rich nations, but also in relation to
small elite groups within their own societies. These low levels of living are evident both quantitatively and
qualitatively in the form of low incomes (poverty), inadequate housing, poor health, limited education, high
infant mortality, low life expectancies and in many cases, a general sense of deprivation.
As the populations of less developed nations generally experience low per capita incomes, this also reduces
their ability to save and invest and restricts the supply of capital. Subsequently, many developing countries
experience difficulties in achieving high levels of productivity and economic growth relative to the
developed countries and become trapped in a ‘vicious cycle of poverty’. This is sometimes referred to as
‘self-perpetuating poverty’ where low per capita incomes lead to low levels of saving, which in turn lead to
low levels of investment and capital accumulation and low productivity.
In addition to having much lower levels of per capita income, many developing countries and regions have
experienced slower GNP growth than the developed nations. During the 1980s and early 1990s, the income
gap between rich and poor nations widened at the fastest pace in more than three decades. The impact of this
widening gap is enormous. If we look at the income levels of the richest 20% of the world’s population in
comparison with the poorest 20%, we find that whereas in 1960 the income ratio was 30 to 1, by 1997 the
rich were receiving over 70 times the income of the poor.
Many people in developing nations fight a constant battle against malnutrition, disease and ill health. Infant
mortality rates (the number of children who die before their first birthday out of every 1000 live births)
average about 96 in the least developed countries, compared with approximately 64 in other less developed
countries and 8 in developed countries. Malnutrition and poor health in the developing world reflect the high
levels of absolute poverty that many of the citizens of these countries are forced to endure. Absolute poverty
refers to a specific minimum level of income needed to satisfy the basic physical needs of food, clothing and
shelter in order to ensure continued survival.
Once the magnitude and nature of the development gap between the developed nations and the developing
world has been established, students may then turn their attention to the factors which have limited the
ability of developing nations to share in the economic benefits of globalisation:
 One of the greatest constraints to both economic growth and developing nations is the spread of
educational opportunities. In most developing countries, education takes the largest share of the
government budget. While there have been some impressive quantitative advances in school enrolments,
literacy levels remain strikingly low in the developing world compared with the developed nations.
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Question 28 continued
 Developing countries are characterised by relatively low levels of labour productivity which is attributed
to a diverse range of factors including managerial inefficiency, lack of access to information, low worker
motivation and the poor health of the workforce. Low levels of labour productivity can also be explained
by the severe lack of complementary factor inputs such as physical capital or experienced management.
 Better students should explain how most developing countries have economies that are orientated towards
the production of primary products (agriculture, fuel, forestry and raw materials) as opposed to secondary
(manufacturing) and tertiary (service) activities. These primary commodities comprise their main exports
to other nations (both developed and less developed). Exports of primary products typically account for
more than half of the annual flow of foreign currency into the developing world. Private foreign
investment and foreign aid are also significant (albeit rapidly declining) sources of foreign exchange to
these countries.
 Unfortunately for many debt-ridden developing countries their hard earned foreign exchange earnings
through exports during the 1980s and 1990s simply went towards paying interest on their foreign debt
liabilities. Furthermore, during some years, these countries have witnessed a negative international flow
of capital with more foreign currency flowing out of the developing countries than they have actually
received.
 These factors have been compounded by the failure of developing country export growth (excluding oil
exports), to keep pace with those of the developed countries. As a consequence, even in their best years,
most non oil exporting developing nations have been losing ground to their more developed counterparts,
in terms of their share of total world merchandise trade. For example, according to World Bank figures, in
1950 the developing countries share of world trade was nearly 33%. Since then it has fallen nearly every
year and by 2003, it stood at only 25%. Worse still, the share of the lowest income countries is a mere
3%.
Since 1970, most of the success in export promotion has been enjoyed by a few OPEC countries (in the
1970s) and the four Asian Tiger economies (Hong Kong SAR, Singapore, South Korea and Taiwan). So far
this century, it has been the emerging economies led by China (and other developing countries such as India,
Brazil, Poland and Mexico) that have made substantial gains in export markets. However, generally
speaking, the majority of developing countries have experienced a continuing decline in their share of world
trade.
NSW Independent Trial Exams 2008 – Economics Yr 12 Trial Examination: Marking Criteria - Page 14
NSW INDEPENDENT TRIAL EXAMS – 2008
ECONOMICS TRIAL EXAMINATION
MAPPING GRID
Question
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Outcome(s) assessed
H1
H1, H8
H1, H11
H1, H2, H8
H1, H4, H8, H11
H1, H2
H1, H2, H8
H1, H4, H8
H1, H2, H8
H1, H4
H1, H4, H8
H1, H2, H8
H1, H2, H6, H11
H1, H11
H1, H2
H1, H2
H1, H8
H1, H4
H1, H4, H8
Question
21(a)
21(b)
21(c)
21(d)
21(e)
22(a)
22(b)
22(c)
23(a)
23(b)
23(c)
24(a)
24(b)
24(c)
24(d)
24(e)
25
26
27
20
H1, H6, H8
28
Outcome(s) assessed
H1, H8
H1, H8
H1, H8, H11
H1, H7
H1, H6
H1
H1, H8
H1, H4, H8
H1, H4, H8
H1, H2
H1, H2, H5, H6, H7, H8
H1, H8, H11
H1, H8, H11
H1, H2, H8, H9
H1, H2, H8
H1, H2, H5, H8
H1, H2, H6, H8, H10
H1, H2, H5, H6, H7, H8, H10
H1, H2, H3, H4, H5, H6, H7,
H8, H9, H10
H1, H2, H4, H5, H7, H8, H9,
H10
The Year 12 Trial HSC examination, marking guidelines/suggested answers and ‘mapping
grid’ have been produced to help prepare students for the HSC to the best of our ability.
Individual teachers/schools may alter parts of this product to suit their own requirements.
NSW Independent Trial Exams 2008 – Economics Yr 12 Trial Examination: Marking Criteria - Page 15