2010 HSC Notes from the Marking Centre — Economics
Contents
Introduction
This document has been produced for the teachers and candidates of the Stage 6 course in Economics. It contains comments on candidate responses to the 2010 Higher School Certificate examination, indicating the quality of the responses and highlighting their relative strengths and weaknesses.
This document should be read along with the relevant syllabus, the 2010 Higher School Certificate examination, the marking guidelines and other support documents which have been developed by the Board of Studies to assist in the teaching and learning of Economics.
General Comments
Teachers and candidates should be aware that examiners may ask questions that address the syllabus outcomes in a manner that requires candidates to respond by integrating their knowledge, understanding and skills developed through studying the course.
Candidates need to be aware that the marks allocated to the question and the answer space (where this is provided on the examination paper), are guides to the length of the required response. A longer response will not in itself lead to higher marks. Writing in excess of the space allocated may reduce the time available for answering other questions.
Candidates need to be familiar with the Board’s Glossary of Key Words which contains some terms commonly used in examination questions. However, candidates should also be aware that not all questions will start with or contain one of the key words from the glossary. Questions such as ‘how?’, ‘why?’ or ‘to what extent?’ may be asked or verbs may be used which are not included in the glossary, such as ‘design’, ‘translate’ or ‘list’.
Section II
Question 21
- Most candidates correctly stated the terms of trade (TOT) for Year 2 in the given table as 80, and calculated that the TOT improved or increased from Year 2 to Year 3. A minority of candidates confused the definition of the TOT with the ratio of the import price index to the export price index.
- In better responses, candidates cited factors such as Australia’s developing comparative advantage in the supply of services and government policies to promote this. They also commonly gave inbound tourism and education exports as prime examples. Globalisation and world economic growth were also frequently given as reasons for the growth in Australia’s service exports. However, in weaker responses, candidates failed to provide a brief elaboration as to how these processes can lead to the trend in service exports.
In some weaker responses, candidates simply stated that Australia has shifted away from manufacturing towards services. - In better responses, candidates linked the existence of comparative advantage and economic growth in Australia with increased imports from Asia.
In weaker responses, candidates commonly referred generally to globalisation or simply to an increase in demand for imports from Asia, without giving a reason why this demand has increased. In some poor responses, candidates included unjustified statements such as that economic growth in Asia was responsible for increased imports from Asia. - In better responses, candidates talked in detail about the many interrelated links between imported financial capital, our balance of payments, our relatively high interest rates, our savings/investment shortfall, the current account deficit and surplus on the capital and financial account (and may have even mentioned our lack of comparative advantage with respect to the production of physical capital). Candidates also wrote about Australia’s positive economic environment that is conducive to capital inflows.
In weaker responses, candidates referred at length to the lack of Australian efficiency at producing capital equipment. There were very few good attempts at explaining imports of physical capital as opposed to financial capital. In weaker responses, candidates tended to refer to the benefits of physical capital imports, not to the reasons why capital is imported.
Question 22
- Candidates provided a wide range of features that satisfactorily distinguished a newly industrialised country from a transition economy. Examples of these features for a newly industrialised country included rapid economic growth and an export-orientated growth path. Many candidates correctly provided a distinguishing feature of a transition economy.
In weaker responses, candidates referred to a newly industrialised country as experiencing ‘growth’ as opposed to ‘rapid economic growth’ or as being ‘newly industrialised’. Some candidates also incorrectly referred to a transition economy as one that has recently become a democracy. - In better responses, candidates demonstrated a sound understanding of the term international convergence. These candidates provided a clear and concise explanation of how a factor or several factors have resulted in the world economy experiencing international convergence. Examples of these factors included reduced trade barriers, financial deregulation, the need for increased international competitiveness and the increasing role of international organisations such as the WTO (World Trade Organization).
In weaker responses, candidates did not understand the term international convergence. A large number of candidates thought that integration and globalisation were the same as international convergence. - In better responses, candidates provided a balanced coverage of how trade and investment promoted the globalisation process in an economy other than Australia. These candidates referred to the way in which increased trade and investment led to higher economic growth and development, attracted the presence of Trans National Corporations (TNCs), made the economy more vulnerable to external shocks and adverse movements in the international business cycle, environmental degradation and greater income inequality.
In the very best responses, candidates examined trade and investment separately in terms of the way in which both promoted the globalisation process in their chosen economy. These responses made extensive use of data
In weaker responses, candidates provided general information about the size and direction of trade and investment flows for their selected economy but did not refer to the way in which these flows promoted the globalisation process in that economy. In addition, many of these candidates tended to treat trade and investment collectively rather than separately.
Question 23
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- In better responses, candidates calculated that unemployment had increased from 15% in Year 1 to 20% in Year 2.
- In better responses, candidates outlined the cause of the change in the unemployment rate as a rise in the labour force participation rate, with a significant number of the new participants joining as unemployed members of the labour force. Other candidates calculated that the rate of increase in unemployment from Year 1 to Year 2 greatly exceeded the rate of increase in employment over the same period.
In weaker responses, candidates referred to data from the table but were unable to sustain a logical argument that identified the cause of the change in unemployment. Many responses could not distinguish between the labour force participation rate and the working age population. Some candidates suggested a range of causes of unemployment such as cyclical and structural, all unrelated to the table.
- In better responses, candidates identified a range of outcomes from long-term unemployment and concisely explained the effect on the economy. In these responses, candidates focused on the opportunity cost of unemployment, the decline in human capital, income inequality, reduced standard of living, weaker economic growth and fiscal burden. Some candidates clearly linked the social costs of long-term unemployment and the effects on the broader economy.
In weaker responses, candidates identified some effects of long-term unemployment without developing the impact of this unemployment on the Australian economy. Some responses referred only to the social costs of long-term unemployment and their effects on the individual. - In better responses, candidates demonstrated an understanding of the labour force participation rate and suggested a range of policies to attract additional participants into the labour force, frequently identifying the importance of attracting discouraged workers to this process. Many of these responses also suggested policies to attract non-working parents into the labour force as well as measures to maintain mature workers in the labour force.
In weaker responses, candidates exhibited confusion between increased employment levels and increasing the labour force participation rate. In many of these responses, candidates were content to draw the relationship between expansionary economic policy and its impact on the derived demand for labour. Some candidates proposed a range of economic policies in addition to fiscal policy, including interest rates, regulatory measures such as protection, and also micro economic reforms.
Question 24
- In better responses, candidates clearly drew a shift of the supply curve to the left, indicating a decrease in the supply of the Australian dollar and clearly plotted points E1Q1 on the diagram provided.
In weaker responses, however, candidates either did not correctly draw the new supply curve with the new equilibrium point, inaccurately plotted price and quantity P1 and Q1, resorted to various random guesses with the supply and demand curves, or did not attempt to answer this question at all. - In better responses, candidates demonstrated a clear understanding of the trends and were able to briefly and concisely explain possible reasons for these and for Australia's exchange rate. These reasons included such things as foreign investment levels, protection levels, global financial crisis (GFC), exports and imports, and so on. They clearly articulated their responses by using appropriate terminology to communicate in a sophisticated manner the processes involved in the appreciation and depreciation of exchange rates.
In weaker responses, however, candidates only identified the trends and were confused in terms of reading/interpreting the stimulus material provided. Moreover, in these responses, candidates neglected to explain what could possibly be behind these trends and, as a result, presented fairly elementary and/or sketchy answers. - In better responses, candidates clearly and concisely articulated the impacts of a loose monetary policy on Australia's exchange rate and economic growth. These impacts may have included considerations such as a depreciation of Australia's exchange rate due to lower anticipated returns by foreign investors as a result of lower interest rates. Other impacts may have included price stability, transmission mechanism, multiplier effect, international confidence as well as other relevant domestic and global factors. Candidates also identified both the short-run and long-run implications and provided a balanced consideration of the impacts of a loose monetary policy or reduced interest rates. They integrated a range of economic terms, concepts, data and theory to support their response in their answers.
In weaker responses, however, candidates tended to provide vague notions of the impacts and/or their responses tended to be short in length, and lacked adequate explanations as to what the nature of these impacts were on the Australian economy.
Section III
Question 25
In better responses, candidates provided a comprehensive discussion of the reasons for the Australian government’s formulation of policies to manage the environment. Economic concerns about market failure, negative externalities, free riders, common property (tragedy of the commons), and ecological sustainable development featured prominently in these responses through a discussion of relevant microeconomic theory.
Discussion about the price mechanism and the market failure to price environmental resources at their social or opportunity cost rather than allowing a private cost regime to prevail was typical. Government policies to address this failure through market-based mechanisms such as the ETS approach, a taxation regime such as the carbon tax, or some form of regulatory regime (direct intervention) was also evident. In these responses, candidates typically made reference to recent approaches to environmental policy, such as the use of renewable energy targets and subsidies for low-emission technologies as preferred strategies to the issue of carbon pollution.
In better responses, candidates also provided a macroeconomic approach to the question by providing a comprehensive discussion of the impacts of the Australian government’s formulation of policies to manage the environment. Economic concerns about the impacts on economic growth, inflation, unemployment and external stability as a result of government environmental management policies, were discussed. Budgetary impacts of such policies were also addressed.
Accurate and relevant diagrams commonly supported these better responses.
In weaker responses, candidates provided a description of some economic concerns faced by governments when formulating environmental management policies. These candidates described economic concerns about the impact of government environmental management policies and were general in nature.
In weaker responses, candidates often referred to relevant microeconomic theory such as free riders, common property (tragedy of the commons) and externalities but failed to relate these sources of market failure to various policy instruments appropriate for their correction. They provided a general description of more recent 'topical' government programs or initiatives directed towards environmental issues such as 'cash for clunkers’, ceiling insulation batts, the option of a carbon tax and direct intervention type programs.
Question 26
In better responses, candidates provided a balance between the consequences of an unequal distribution of income and wealth and a range of policies that could be used to reduce inequality. They highlighted both the positive and negative consequences of inequality and related this to government initiatives that have been undertaken to reduce the impact of inequality. Some examples of the government initiatives that were addressed in these responses included, the compulsory superannuation levy, raising the tax-free threshold, and specific labour market programs. As well, a number of these candidates made reference to industrial relations reforms, including recent increases in the minimum wage, and the shift from Australian Workplace Agreements to Enterprise Agreements. In better responses, candidates examined the indirect impact of monetary policy on the distribution of income and wealth, highlighting the benefits of increasing interest rates to higher-income earners and owners of assets and the resulting increase in income inequality.
In addition, in better responses, candidates distinguished between the concepts of income and wealth, as well as highlighting the relationship between the two. The use of the stimulus material, together with additional economic data and examples, was a feature of these responses. This was coupled with an integration of relevant terminology and an analysis of appropriate economic theory.
In weaker responses, candidates tended to focus on one part of the question (either consequences or policies) rather than providing a balanced response. Alternatively, the discussion of policies tended to be generalised, without offering specific examples of policies that related directly to inequality. Commonly, candidates who used prepared responses placed an emphasis on the measurement and causes of inequality rather than consequences and policies. Typically, there was a limited use of economic terms and concepts in these responses.
Section IV
Question 27
In better responses, candidates analysed and explained the relationship between the cause and effect of fluctuations in Australia’s external stability. These responses were well structured, with a clear understanding of external stability and provided a balance between the causes and effects of these fluctuations.
They typically developed a concise and comprehensive analysis, linking the relationship and implications of current economic information. For example, they identified and analysed the issue of a low level of national saving, resulting in a need to borrow from overseas, and the implications of this on foreign liabilities, debt-servicing costs and the current account deficit. These responses often linked these effects back to fluctuations in Australia’s external stability.
A common feature of these responses was the integration of relevant economic theory and diagrams related to external stability. Typically, they discussed other features of external stability such exchange rate movements, Australia’s terms of trade, the Pitchford thesis and international competitiveness. In better responses, candidates commonly referred to both positive and negative effects of fluctuations in Australia’s external stability and were supported with current economic examples and data.
Weaker responses were typically general, with candidates merely stating causes and sketching in general terms a limited explanation of external stability. For example, candidates may have stated that a low level of national savings exists, but did not explore the relationship between the cause and effect of this on Australia’s external stability. Some candidates relied heavily on prepared responses, for example, on exchange rates, without directly relating fluctuating exchange rates to external stability or on policy responses without relating it to the causes or effects. Commonly, in weaker responses, candidates did not provide a balanced coverage of the causes and effects and simply described some causes and/or effects of fluctuations in Australia’s external stability.
Question 28
In better responses, candidates addressed the short-term and long-term impacts of both domestic and international protectionist policies on a range of variables in the Australian economy, including efficiency, productivity, economic growth, inflation, international competitiveness, standard of living, unemployment and structural change. These candidates also drew out implications for the Australian government of protectionist policies. These included reductions to protection implemented by the Australian government in recent years to counter the negative effects of high levels of protection until the 1980s. In better responses, candidates also showed understanding of how international protection policies such as the EU’s CAP have led to changes in the composition and direction of Australia’s trade flows and the pursuit of bilateral and multilateral trade agreements for Australia.
In better responses, candidates also integrated economic theory with economic information and data, including frequent reference to specific Australian industries. Candidates briefly outlined or described the types and reasons for protection by way of introduction but focused on the effects of protection on the Australian economy. Responses were well structured, included key definitions and candidates made clear links in a specific, rather than generalised way.
In weaker responses, candidates tended to be more descriptive and general in nature. They focused on describing the types and reasons for protection rather than the effects of protection. These responses typically included diagrams for tariffs, subsidies and quotas and provided detailed descriptions of those diagrams, with little reference to the question. Some weaker responses included diagrams that were incorrect.
In weaker responses, candidates commonly made little or no reference to data and specific examples in the Australian economy. Many of these responses did not refer to international protection or Australia’s involvement with bilateral and multinational trade agreements.
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