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2009 HSC Notes from the Marking Centre – Economics



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 2009 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 2009 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.

Teachers and students are advised that, in December 2008, the Board of Studies approved changes to the examination specifications and assessment requirements for a number of courses. These changes will be implemented for the 2010 HSC cohort. Information on a course-by-course basis is available on the Board’s website

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 mark allocated to the question and the answer space (where this is provided on the examination paper), are a guide to the length of the required response. A longer response will not in itself lead to higher marks. Writing far beyond the indicated space 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

  1. This question required the candidates to calculate which expenditure group contributed most to the inflation rate. The correct response was ‘food’.
  2. Better responses clearly indicated the distinction between the two types of inflation by providing the correct definitions or correctly comparing the cause(s) of demand and cost inflation.

    Weaker responses identified either cost or demand inflation and had difficulty in providing distinguishing factors. Some responses paraphrased the question.

  3. Better responses demonstrated a clear understanding of how depreciation of the $AUS affects inflation by applying correct economic terminology to explicitly identify the connections between depreciation and imported, cost and/or demand inflation. Candidates referred to concepts such as the relative inelasticity of Australian imports; reliance of Australia’s economy on imported intermediate and capital inputs and the implications to the measurement of inflation and capital inflows.

    Weaker responses demonstrated a limited understanding of the effects of depreciation, sketching effects in general terms and confusing interest rates, terms of trade and international competitiveness, or incorrectly stating the effect of depreciation on imports or exports.

  4. Better responses demonstrated a depth of understanding and used relevant economic terminology to provide a balanced, concise and precise explanation of how or why inflation affects an economy in one positive and one negative way. The responses provided explicit and logical causal links to indicate an understanding between the cause and effect of inflation in a positive and negative way, often supported by examples to specific sectors and relevant time frames, and incorporating correct theory, terms and concepts. Many answers used the Phillips curve to successfully indicate the positive effect of inflation, clearly connecting the short-term relationship of inflation and unemployment and the effect this could have on an economy. Responses identified effects of inflation on economic growth, wage/price spiral, speculation, interest rates, government policies, distribution of income, terms of trade and international competitiveness.

    Weaker responses demonstrated a more generalised understanding of the positive and negative effect of inflation on an economy, often failing to provide consistent or complete connections or a clear and concise understanding of a positive or negative effect, and gave a limited description of the alternative effect rather than a deeper explanation of both.

    Some responses provided several unconnected statements regarding inflation and failed to provide links between inflation and an economy. Poorer responses superficially described or listed effects of inflation, often confusing the concepts and terminology.

Question 22

    1. Most candidates correctly answered that the budget outcome recorded in Year 1 was $15b surplus and in Year 2 a $12b deficit.
    2. In the better responses, candidates were able to correctly identify ‘defence’ as the only discretionary item that had increased in expenditure from Year 1 to Year 2 and had contributed to the budget outcome moving from a surplus to a deficit. These candidates correctly identified the non-discretionary item as either income tax or welfare spending, as income tax receipts had fallen and welfare spending had increased.

      Weaker responses identified health as the discretionary item. Although health expenditure is discretionary, the expenditure on health had decreased and so it did not contribute to the change in the budget outcome from surplus to deficit.

    3. Better responses identified welfare spending as their non-discretionary item and demonstrated a clear understanding of how an increase in this expenditure redistributed income from higher income earners to lower income earners and the impact that this had in changing the income distribution. Some used relevant economic terminology such as the changes to the Gini coefficient in describing this change.

      Weaker responses tended to use income tax receipts as the non-discretionary item and, as the tax rates were unchanged from Year 1 to Year 2, they had difficulty in sketching how these changes impacted on income distribution.

  1. Better responses provided significant depth, using relevant economic terms in examining a range of impacts. These responses inquired clearly and concisely into the impacts of ‘crowding out’ and related the potential shortage of funds on economic growth and investment in the economy. As well, these candidates recognised that this shortage would impact on interest rates in the economy. Some also made reference to the current state of the economy and the difference that crowding out would have if the economy were in a boom or in an economic downturn. These better responses followed their arguments logically and assessed the impact of the private sector’s need to source funds from overseas. They also tended to examine the impact on the current account, exchange rate, investment and/or debt servicing.

    Weaker responses sketched in general terms some effect of crowding out, stating that this would occur, but failed to follow through with the impact on the economy. Often these responses made sweeping generalisations. Weaker responses often did not describe the effects of the government’s funding a deficit from the private sector and they merely described the impact of a budget deficit on an economy. A common mistake among this group of candidates was stating that the budget deficit could be funded by increasing taxation or by decreasing government expenditure.

Question 23

  1. Better responses suggested an unambiguous example of a public good: for instance, a public footpath or streetlights.

    Weaker responses demonstrated a degree of confusion between a public good and the range of goods and services provided by governments. Not all government goods are public goods. In some instances, candidates wrongly proposed natural resources or free gifts of nature as public goods.

  2. Better responses concisely stated the characteristics of a public good as non-excludable or non-rival. More basic responses gave a very general outline, often focusing on government provision or stating that the good was free to the consumer.

    Weaker responses simply identified one characteristic of a public good.

  3. Better responses identified the relationship between economic growth and the environment as both complex and in conflict. These candidates also referred to a short-run and long-run perspective of economic growth and its relationship to the environment. Many of these better responses also made reference to environmentally sustainable development and the positive contribution that some aspects of economic growth could make to the environment.

    Weaker responses merely identified that economic growth was damaging to the environment. Some candidates suggested that there was an inverse relationship between economic growth and the environment.

  4. Better responses identified consequences of a new airport that were clearly unintended outcomes, for example increased employment opportunities relating to the building of the airport and its ongoing operation, or improved transport links around the new airport. Responses identified negative consequences such as air and noise pollution or increased congestion on surrounding roads. These better responses often gave a precise definition of externalities.

    More basic responses identified relevant externalities but gave only a simple explanation, while weak responses only listed potential externalities. Some candidates identified the intended consequences of the second airport, such as decreased congestion at the original airport, as externalities.

Question 24

  1. Better responses clearly identified the impact of the removal of the subsidy as a shift of the supply curve to the left of the original, thereby denoting a decrease in supply subsequent to the reduction of the subsidy. Also, better responses clearly and accurately plotted the new equilibrium price and quantity as P1 and Q1 on the graph.

    Weaker responses did not draw the new supply curve with the new equilibrium point, or else they inaccurately plotted price and quantity P1 and Q1, or resorted to random guesses.

  2. Better responses demonstrated a clear understanding of the impact of ONE trading bloc OR an international organisation on global trade flows. They clearly articulated the impact of the bloc or international organisation on the volume, composition and direction of global trade support, in some responses, supporting with current economic data.

    Weaker responses provided some facts unrelated to the question and/or wrongly used examples of TNCs such as Nike, McDonalds and Microsoft as international organisations.

  3. Better responses clearly articulated the impact of reducing a subsidy on BOTH economies. Impacts included international competition considerations, terms of trade, employment/ unemployment, economic growth, balance of payments and other economic variables for both economies. They identified both the short-run and long-run implications and provided a balanced consideration of the positive and negative impacts on both economies. Furthermore, better responses identified Australia’s comparative advantage in agricultural production and integrated knowledge acquired from Topics 1 and 2 of the syllabus. Better responses also integrated into their answer a range of economic terms, concepts, data and theory to support their response.

    Weaker responses tended to provide vague notions of the impacts and/or tended to assert wrongly that the reduction of the subsidy was instigated by the Australian government and not its trading partner.

Section III

Question 25

The majority of responses made use of or referred to the economic information provided.

Better responses identified and explained a range of microeconomic reforms implemented in Australia over time. These responses typically developed clear and comprehensive arguments linking the microeconomic reforms to their positive and/or negative impacts on Australia’s economic performance. A common feature of these responses was the incorporation of relevant economic theory and diagrams related to changes in aggregate supply and prices. Better responses typically referred to both the short-term and long-term impacts of microeconomic reform on Australia’s economic performance. These responses often linked these changes over time to the data provided in the stimulus. They identified and explained the impacts on internal economic performance, such as lower inflation and more sustainable economic growth, as well as improved international competitiveness. These responses typically demonstrated sophisticated literacy skills, synthesising arguments in a sustained and well-structured response.

Weaker responses were typically general, simply describing different types of microeconomic reform. These responses sometimes offered a limited explanation of the link between microeconomic reforms and economic performance. For example, they may have stated that microeconomic reforms reduced inflation but did not demonstrate an understanding of how particular reforms might have increased efficiency for businesses and lowering their costs, which may translate into lower prices. Some candidates relied on the stimulus material too much, rather than using it to support particular arguments. These responses typically made little or no reference to relevant economic theory.

Question 26

A large number of candidates divided their responses into two main components – their case study country and Australia – and two to three sentences referring to the stimulus material. Better responses, however, related a case-study country and Australia back to the issue of the positive and negative impacts of globalisation on development and the distribution of global wealth.

Better responses were well structured and gave a reasonably equal weighting to both Australia and an overseas case study country (or countries), while discussing how globalisation has had an impact on the respective economies. They drew on comparisons between newly industrialising economies and high-income economies. They also included mention of disparities in the distribution of wealth linked to trade, foreign direct investment and portfolio investment. In addition, better responses also drew links between the given pie chart and the graph of changes in the human development index (HDI) over time, stating that higher GDP and a growing share of global output normally leads to a higher standing in terms of the HDI.

Better responses discussed the links between growth and development, referring to the HDI and other quality-of-life indicators. They also examined the negative impacts of globalisation on development, such as environmental degradation and increasing income inequality. They gave a clear definition of the components of the HDI and linked these components to quality of life. They also examined the impact of inequalities in global financial architecture and trade blocs that limit access to markets for many countries. They mentioned sophisticated material such as the international flow of savings from regions including China and East Asia to the US and other low-saving countries, and the growth of sovereign wealth funds in countries such as China, relating these phenomena to trade surpluses made possible by globalisation.

Weaker responses relied heavily on prepared stock responses involving a case study country, without directly relating features of the studied country back to the specific question. Another common aspect of weaker responses was a lengthy discussion of the impact of globalisation on growth rather than development. Many candidates spent time discussing the distribution of wealth in their case study country and/or Australian, while largely ignoring the issue of the global distribution of wealth.

A number of candidates showed some knowledge of the recent global financial crisis, but some were unable to adequately relate this to the examination question.

Section IV

Question 27

The best responses demonstrated an ability to identify and explain relationships between the macroeconomic policy mix and the issues of inflation and unemployment in the Australian economy, and to draw out the implications of these.

Better responses gave a balanced coverage of both monetary and fiscal policies as the main components of the government’s macroeconomic policy mix and the impacts of these policies on the issues of inflation and unemployment. They provided clearly described relationships between these policies and issues, and many included relevant and well-labelled diagrams such as the Phillips curve and Keynesian diagrams. Many also looked at the limitations of the use of monetary and fiscal policies in addressing inflation and unemployment.

Most of these responses made detailed and accurate reference to the impact of the global financial crisis on the Australian economy and provided a substantial quantity of data in relation to this. Some responses also made reference to the use of the macroeconomic policy mix in managing the issues of inflation and unemployment prior to the global financial crisis.

A small number of candidates decided to leave monetary policy out of their response, as it is administered by the Reserve Bank of Australia, not the Federal Government.

Many weaker responses did not provide a balanced coverage of the policies (monetary and fiscal) or the impact of these policies on the issues (inflation and unemployment). Many did not demonstrate a clear link or explanation as to how the policies impacted on the issues. In addition, these candidates tended to provide generalised responses that lacked specific detail or accurate descriptions as to the operation of monetary and fiscal policies in the Australian economy.

Question 28

Better responses analysed the relationship between changes in the global economy and its impact on Australia’s economic growth and external stability. The impact of the global financial crisis (GFC) on Australia’s economic growth was well supported by reference to economic data. These responses then developed the flow-on impacts on Australia’s policy responses. They analysed the impacts of the global financial crisis on external stability and how changes in trade volumes, terms of trade, investment flows and exchange rates affected Australia’s current account deficit (CAD).

Better responses also analysed changes other than the GFC, such as the trade liberalisation of the past two decades and the emergence of China. Impacts of these changes on Australia’s economic growth and external stability were well analysed and supported by economic data.

Weaker responses gave lengthy descriptions of the causes of changes in the global economy, in particular the GFC. Detailed accounts of the mechanisms of exchange rate changes and interest rate changes were also prevalent in weaker responses.

The effects of changes were poorly dealt with in weaker responses. Very detailed accounts of the Australian government’s recent fiscal policy and monetary policy initiatives were itemised without reference to the question asked. Clear understanding of some key terms like ‘external stability’ and ‘terms of trade’ was not evident in weaker responses.


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