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etawa Sundowner 2014

etawa Sundowner 2014. Steven Kemp Chief Marker Economics. WACE Stage 3. Subject 2011 2012 2013 Economics 2123 1929 2028 Geography 2022 1977 2040 History 2814 2811 2564 Politics & Law 934 953 896 Chemistry 4907 4894 4911 Human Biology 4428 4184 4019

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etawa Sundowner 2014

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  1. etawa Sundowner 2014 Steven Kemp Chief Marker Economics

  2. WACE Stage 3 Subject 2011 2012 2013 Economics 2123 1929 2028 Geography 2022 1977 2040 History 2814 2811 2564 Politics & Law 934 953 896 Chemistry 49074894 4911 Human Biology 4428 4184 4019 Phys. Ed Studies 1752 2062 2042 Physics 3695 3641 3696 Maths 3AB 4751 4749 4734

  3. 2013 Stage 3 Economics 20112012 2013 • Section 1 64% 57% 60% • Section 2 55% 52% 56% • Section 3 50% 52% 50% • Total Paper 55% 53% 54%

  4. Economics Stage 3 Exam 2013 • The correlation of section totals with the examination total is strong, with Section 1 (Multiple choice) at 0.82, Section 2 (Data interpretation) at 0.93 and Section 3 (Extended response) at 0.93.

  5. Areas of Weakness • The meaning of productivity • The difference between labour productivity & MFP • How government policy can affect productivity • The effect of economic activity on the current account in the B of P • The effect of interest rates on the trade balance • The effect of an appreciation on the economy & the factors underpinning a high $A • Using the AD/AS model to explain the business cycle

  6. Section One: Multiple Choice • Most questions (14/24) recorded a mean between 50 and 80 per cent. • Four questions recorded a mean between 80 and 90 per cent • Six questions recorded a mean of less than 50 per cent. • Overall, Section 1 worked well.

  7. SECTION 1 79% 2. Which of the following statements is correct? (a) Australia has a comparative advantage in both products. (b) New Zealand has a comparative advantage in steel. (c) It would be best for Australia to produce both products. (d) The opportunity cost of producing 1 unit of butter in Australia is 2 units of steel

  8. SECTION 1 3. Which of the following combination of factors provides the best explanation for an increase in the volume of Australian imports? (a) an appreciation of the Australian dollar and a high rate of inflation in China (b) an appreciation of the Australian dollar and a high rate of domestic economic growth (c) a depreciation of the Australian dollar and a low rate of domestic economic growth (d) a depreciation of the Australian dollar and a high rate of economic growth in China 81%

  9. SECTION 1 55% 4. Which of the following statements relating to the introduction of a subsidy is incorrect? (a) The total cost of the subsidy is DCBW. (b) The increase in producer surplus is DCAW. (c) There is a deadweight loss of CBA. (d) Domestic production will increase to OQ3.

  10. SECTION 1 9. What is the most likely impact of a significant improvement in Australia’s terms of trade? (a) more imports can only be purchased with an increased volume of exports (b) a depreciation in the value of the Australian dollar (c) a decrease in the capital and financial account surplus (d) the current account deficit will increase 32%

  11. SECTION 1 11. Which of the following is most likely to increase the level of Australia’s foreign debt in the short term? (a) an appreciation of the Australian dollar (b) a fall in the proportion of income saved by households (c) an increase in the Federal Government budget surplus (d) a fall in the current account deficit 52%

  12. SECTION 1 12. Which one of the following events is likely to have an effect on aggregate demand that is different from the other three events? (a) an increase in the income tax free threshold (b) an appreciation of the Australian dollar (c) an increase in the terms of trade (d) an improvement in business expectations 32% 31%

  13. SECTION 1 14. The consumption function will tend to shift upward as a result of an increase in the (a) level of income. (b) marginal propensity to save. (c) level of consumer confidence. (d) value of net exports. 52% 32%

  14. 43% SECTION 1 16. Calculate the new equilibrium level of income for Year 3 if investment falls by $20 billion. (a) $380b (b) $280b (c) $220b (d) $205b Whats the mpc? Whats the multiplier? Income will change by ?

  15. SECTION 1 15. Which of the following factors would shift the aggregate supply curve in an economy to the left? (a) the implementation of competition policy, such as tariff reform (b) an increase in world oil prices (c) the implementation of a contractionary fiscal policy (d) a cut in interest rates 67%

  16. SECTION 1 17. The change shown in the diagram is most likely to have been caused by (a) the Federal budget changing from a deficit to a surplus. (b) the Reserve Bank of Australia cutting the cash rate. (c) increased competition in the provision of electricity in Australia. (d) a fall in the value of the Australian dollar. 48% 44%

  17. SECTION 1 22. A decrease in the cash rate is likely to lead to (a) an increase in aggregate expenditure and a fall in asset prices. (b) a decrease in aggregate expenditure and an increase in the exchange rate. (c) an increase in aggregate expenditure and an increase in asset prices. (d) a decrease in aggregate expenditure and a decrease in the exchange rate. 48%

  18. Section 2 The mean was 56% - higher than 2012! Strong correlation with exam total (0.93) • Q25 – Productivity growth Mean of 55.5% (Correlation 0.84) • Q26 – Trading partners - descriptive Mean of 61% (Correlation 0.81) • Q37 – B of P & the exchange rate Mean of 52% (Correlation 0.88)

  19. Section 2 Question 25

  20. Section 2 (b) Explain why the change in labour productivity between Period 2 and Period 3 is a cause of concern for the Australian economy. (4 marks) Many students confuse productivity with production. Also most students incorrectly stated that labour productivity fell rather than the rate of productivity growth slowed. Need to spend more time on teaching the meaning of productivity & the difference between labour productivity & multifactor productivity. What’s the difference?

  21. Section 2 Labour productivity consists of 2 elements: i) capital deepening – increasing the capital-labour ratio ii) multifactor productivity – ‘real’ measure of productivity, it is a measure of technical progress & innovation

  22. Section 2 (c) Explain how fiscal policy and microeconomic reform can be used to increase labourproductivity. (6 marks) - mean 46%! Many students could not discuss how fiscal policy could be used to increase labour productivity. Most responses referred to expansionary fiscal policy as a means for raising productivity rather than specific measures such as spending on education and training, R & D or investment on infrastructure

  23. Section 2 Question 26 Australia’s Trading Partners (b) Describe the factors that have contributed to Australia being a major exporter to China. (c) Describe the advantages to Australia of the increased linkages among the countries in the Asia-Pacific region in recent decades Many students simply talked about trade linkages and failed to mention investment or immigration

  24. Section 2 Question 27 Balance of payments & the $A

  25. Section 2 27. (a) (i) What was the value of Australia’s current account balance in 2006–07? Mean 29%!!! (b) Describe and explain the relationship between the change in net capital inflow and the change in the exchange rate from 2000–01 to 2006–07. (4 marks) Great data interpret question It is evident that many students incorrectly think that a high dollar causes an inflow of foreign investment rather than foreign investment causing a rise in the currency. This is an important teaching point that should be addressed.

  26. Section 2 27. (c) Explain how changes in domestic interest rates affect the goods and services balance. (6 marks) This proved difficult – mean 48% • An increase in i/rs will decrease C & I spending which will decrease imports – the trade balance will increase • But an increase in i/rs will appreciate the $A which will increase imports & decrease exports - the trade balance will decrease Are you confused?

  27. Section 3 • The overall mean for this section was 50% - lower than 2012 (52%). The mean for section 3 should arguably be higher than section 2 • Strong correlation with exam total 0.93 • The most popular questions were questions 31 and 30 • Q28 – The Australian Dollar (mean 45%) • Q29 – The CAD: causes & effects (51%) • Q30 – Policy stance & economic objectives (53%) • Q31 – The business cycle – causes & effects (51%)

  28. Past Essay Questions • 1987 • Define & discuss economic growth & its measurement. • Discuss three ways in which a Commonwealth Government could promote economic growth in the Australian economy.

  29. Past Essay Questions • 1993 • What factors might cause an increase in business investment? • Using an appropriate economic model, demonstrate the effect of an increase in investment on the level of GDP and employment.

  30. Past Essay Questions • 1997 • With the aid of supply & demand analysis explain how the value of the Australian dollar is determined in the foreign exchange market. • Explain the effects of an appreciation of the $A on • Australia’s primary producers. • Australia’s domestic consumers.

  31. Past Essay Questions • 2000 • Discuss the meaning & significance of each of the following to the Australian economy: • Foreign investment in Australia • Australia’s terms of trade • Australia’s foreign debt

  32. Past Essay Questions • 2005 • Discuss the recent trend in Australia’s terms of trade & discuss the likely causes and effects of this trend.

  33. Past Essay Questions • 2007 • Explain why the Reserve Bank may reduce official interest rates & discuss the likely effects this would have on the economy. • Discuss the strengths & weaknesses of monetary policy.

  34. Section 3 Question 28 • From early 2012 to mid 2013, the Australian dollar was strong against most other major currencies. Using examples, describe the impact this had on the Australian economy. (10 marks) Mean 51% • Effect on trade – Xs fall, Ms rise, CAD rises • Negative effect on export sector & import competing sectors e.g. manufacturing • Positive effect on consumers & producers importing raw materials & capital goods • Overall contractionary effect on economy – implications for monetary policy • Other – lower inflation rate

  35. Section 3 Question 28 (b) Explain why the value of the Australian dollar remained relatively strong in the second half of 2012, a period that saw a significant fall in commodity prices. (10 marks) Mean 40% • Interest rate differential • China’s continued demand for Aust exports • Foreign investment into mining sector • Relatively weak US & Europe; Aust’s AAA rating

  36. Section 3 Question 29 Discuss the causes and effects of Australia’s persistent current account deficit.Mean 51% Up to 3 marks allocated to explainng the CAD Rough equal split on causes & effects Key cause – the I –S gap Key effect – increased foreign liabilities & servicing costs

  37. Section 3 Question 30 In 2010–11 and 2011–12, the Australian Government ran budget deficits of $54.5 billion and $47.5 billion. In 2012–13, the Government ran another budget deficit of $43.4 billion. Furthermore, in July 2010, the cash rate was 4.5%, and since then has been lowered to 2.5% as of August 2013. (a) Describe the economic conditions in Australia that led to these policy stances. (8 marks) Mean 51% (b) Using a diagram/s, show how these policies can help the Government achieve its internal economic objectives. (12 marks) Mean 56%

  38. Section 3 Question 30 • Describe the economic conditions in Australia that led to these policy stances. (8 marks) Mean 51% Few students could explain why the budget deficit was falling. Most simply focussed on the expansionary impact of a budget deficit. The key understanding was that the Australian economy was weak with economic growth well below trend (2.5%) and unemployment rising (5.7%). Contributing factors were the slowdown in the Chinese economy, decline in domestic investment and the high $A.

  39. Section 3 Question 30 (b) Using a diagram/s, show how these policies can help the Government achieve its internal economic objectives. (12 marks) Mean 56% Generally answered quite well - most students were able to discuss how expansionary monetary and fiscal policy can be use to offset a weak domestic economy

  40. Section 3 Question 31 (20 marks) Describe the causes of the business cycle and the effects of the boom phase of the business cycle on the Australian Government budget outcome, business investment and imports and exports.Mean 51% This was the most popular question! But most students do not understand the causes of business cycles - students simply described the phases of the business cycle.

  41. Section 3 Question 31 (20 marks) Describe the causes of the business cycle and the effects of the boom phase of the business cycle on the Australian Government budget outcome, business investment and imports and exports.Mean 51% Good answers should have incorporated the AD/AS model to show how changes in AD and/or AS can cause fluctuations in economic activity e.g. changes in business & consumer confidence, the terms of trade, external shocks, natural disasters, world economic growth

  42. Decrease in AD 1. The economy is at point A AS Price level 2. A financial crisis shifts the AD curve to the left A P1 B P2 3. Both Real GDP and the price level fall – unemployment rises AD1 AD2 Y2 Real GDP Y1

  43. Decrease in AS SRAS2 LRAS Price level SRAS1 1. The economy is at point A B P2 2. A natural disaster or oil price shock shifts AS to the left. A P1 3. Real GDP falls, unemployment rises and the price level rises (B) AD 0 Real GDP Yf Y1

  44. Increase in AD LRAS Price level 1. The economy is at point A SRAS1 B P2 2. A mining boom shifts AD to the right. A P1 3. Real GDP rises, unemployment falls and the price level rises (B) AD2 AD1 0 Real GDP Yf Y1

  45. Topical Stuff • South Korea FTA – huge boost for Australia • The demise of Ford, Holden & Toyota • Abbott government rejects ‘protectionism’ • Australia appears on track to complete its 23rd year of uninterrupted economic growth in 2014 – but at below trend growth • We are entering the 3rd stage of the resources boom – the start of the export boom • Stage 1 was the terms of trade income boom, • Stage 2 was the mining investment boom

  46. The Resources Boom Source: CBA

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