Student Number _____________________

ABBOTSLEIGH
2021

TRIAL HIGHER SCHOOL

CERTIFICATE

Economics
Marking Guidelines

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 Question Answer Question Answer
1 C 11 C
2 A 12 C
3 A 13 B
4 B 14 C
5 D 15 B
6 D 16 D
7 B 17 A
8 A 18 C
9 A 19 C
10 B 20 C

Section I
20 marks

1. Which of the following cyclical changes to taxation revenue and transfer payments is
most likely to occur if the economy enters a downswing?

Taxation revenue Transfer payments

a) Increases Increase
b) Increases Decrease
c) Decreases Increase
d) Decreases Decrease

2. Which of the following might be an impact on Australia if global interest rates start to
rise, while in Australia interest rates remain unchanged?

a) Australia’s debt servicing ratio would start to rise

b) The Australian dollar would start to appreciate
c) Foreign investors will start to buy less Australian assets
d) There could be an unfavourable movement in Australia’s Terms of Trade

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3. The following table shows selected data for an economy.

Real GDP ($b) Net foreign liabilities ($b) Net foreign debt ($b)
1800 800 500

What is the value of the net foreign equity as a percentage of real GDP?

a) 16.7%
b) 72.2%
c) 62.5%
d) 44.4%

4. The table shows selected economic data for 2 countries, A and B

Country Nominal GDP Consumer Price Index Human Development

($US) (CPI) Index
Country A $390 billion 114 0.97
Country B $400 billion 120 0.75

According to the data in the table, which statement correctly describes the value of
real GDP and the level of economic development between Country A and Country B?

a) Country A has a higher real GDP but lower economic development level than
Country B
b) Country A has a higher real GDP and higher level of economic development than
country B
c) Country A has a higher level of economic development but lower real GDP than
Country B
d) Country A has a lower real GDP and lower level of economic development than
country B

5. Australian shareholders receive dividends from their international shares held in their
superannuation funds. How would these transactions be recorded in the Balance of
Payments?

a) A credit in the Secondary Income account of the Current Account

b) A credit in the Capital Account
c) A credit in the Financial Account
d) A credit in the Primary Income account of the Current Account

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6. The following diagram shows the level of income in an economy over two years.

What combination of changes could have caused the shift in the Lorenz curve from
Year 1 to Year 2?

Change in Taxation Labour Market

a) An increase in the tax-free threshold A reduction in spending on training

b) Reduced company tax An increase in underemployment

c) A reduction in the number of steps in An increase in award wages

the progressive tax system
d) A reduction in excise duty An increase in unemployment
benefits

7. Which of the following are negative impacts of transnational corporations in the

global economy?

a) Reduced labour mobility and less access to funds in the global economy
b) Increased tax minimisation strategies and increased environmental degradation
c) Greater trade protection and less sharing of technology
d) Increased global financial volatility and higher costs of production

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8. The following diagram shows an increase in aggregate demand.

Assuming the economy has a marginal propensity to consume of 0.6, what change of
AD would have caused the change in national income above?

a) 200
b) 500
c) 300
d) 125

9. The table shows population and employment data for two countries, A and B.

Country Population Working age Full-time Part-time Unemployed

(m) population (m) employed employed (m)
(m) (m)
A 25 17 12 3 1
B 300 250 150 50 9

Which of the following statements is correct?

a) Country A has both a higher participation rate and higher unemployment rate than
Country B.
b) Country A has a higher participation rate but a lower unemployment rate than
Country B.
c) Country A has a lower participation rate but a higher unemployment rate than
Country B.
d) Country B has both a higher participation rate and higher unemployment rate than
Country A.

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10. The graph below shows the demand and supply of the $A. Which of the following is
most likely to be the cause of the shift in the demand for the $A from D1 to D2?

$A/$US
S

D2
D1

Quantity of $A

a) An increase in Australians buying imports

b) An increase in Australian interest rates

c) A decrease in Australian economic growth

d) An increase in Australia’s net primary income deficit

11. The table below shows selected data for the Australian economy.

Year Exchange rate Export Price Index Import Price Index

$A/$US
Year 1 0.78 160 105
Year 2 0.72 168 108

According to the data, which statement is correct in relation to the changes from
Year 1 to Year 2?
a) International competitiveness has improved, and the terms of trade has deteriorated
b) International competitiveness has deteriorated, and the terms of trade has improved
c) Both international competitiveness and the terms of trade has improved
d) Both international competitiveness and the terms of trade has deteriorated

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12. Which of the following is an example of foreign direct investment?

a) An Australian investor buys a small parcel of shares on the Japanese stock market

b) A domestic trader purchasing foreign currency on the foreign exchange market

c) A transnational company establishes a subsidiary in another country

d) A state government borrowing funds from overseas to build road infrastructure

13. The Chinese government puts a tariff on all of their imports from Australia. All other
things being equal which of the following would most likely occur?

Impact on Australian economy Value of the $A

a) Decreased demand for Australian exports Appreciation
b) A deterioration in Australia’s Current Account Depreciation
c) An improvement in Australia’s Terms of Trade Depreciation
d) A deterioration in the Net Primary Income Account Appreciation

14. The information in the table below refers to a hypothetical economy.

Year Income ($billion) Consumption ($billion)

1 500 400
2 700 550
3 900 700

Assuming that the marginal propensity to consume (MPC) remains constant, what
will be the level of income in Year 4 if investment increases by $100 billion?

a) $1000 billion
b) $975 billion
c) $1300 billion
d) $750 billion

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15. An economy’s NAIRU is 4.5%. The current rate of unemployment has recently fallen
from 5.2% to 4.9%. Which of the following is most consistent with this change?

Inflation Rate Wage Expectations Economic Activity

a) Decrease Increase Increase
b) Increase Increase Increase
c) Decrease Decrease Decrease
d) Increase Decrease Decrease

16. Examine the following graph which illustrates the effects of introducing a subsidy
to dairy farmers producing milk in a hypothetical closed economy.

Price per litre S

D S1

60

50

40

S1 D

80 100 Q of milk (litres)

Which of the following statements is CORRECT in relation to introducing the

subsidy?
a) Government spending increases by $1600 and these farmers are less competitive
on the global market
b) Government spending increases by $2000 and the price of milk falls by $20 a litre
c) Government spending increases by $1600 and the price of milk falls by $10 a litre
d) Government spending increases by $2000 and the price of milk falls by $10 a litre

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17. Which of the following best describes dumping in international trade?
a) When foreign firms sell their products in another country at a lower price than the
selling price in the country of origin.
b) When foreign firms sell more goods in another country than local producers sell in
that country.
c) When foreign firms sell their products in another country, at a cheaper price than
local producers in that country.
d) When a foreign country signs a free trade agreement with another country and
trade is diverted there.

18. The graph below shows information about a tariff where the world price is $20 and
the price with the tariff is $40.

Price D S
$

50
40

20
S D
Quantity
20 40 60 80 100

Which of the following statements is CORRECT in relation to this tariff being

implemented?

a) Domestic producers’ revenue will increase by $2600 and the government will
receive $400 in taxation
b) Domestic producers’ revenue will increase by $1600 and the government will
receive $1600 in taxation
c) Domestic producers’ revenue will increase by $1200 and the government will
receive $800 in taxation
d) Domestic producers’ revenue will increase by $1600 and the government will
receive $800 in taxation

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19. The following shows balance of payments data for an economy with a floating
exchange rate.

Item Value $b
Exports 1000
Imports 1050
Net Primary Income ?
Net Secondary Income 60
Capital Account 200
Financial Account 400

What is the value of the Net Primary Income?

a) -$1510b
b) - $660b
c) - $610b
d) - $1900b

20. Which of the following is an example of a multilateral trade agreement that Australia
is NOT part of?

a) The Comprehensive & Progressive Agreement for Trans-Pacific Partnership

(CPTPP)
b) APEC
c) ASEAN
d) ANZCERTA

END OF SECTION I

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Section II
40 marks

Question 21 (10 marks)

a) Define the term Trade Weighted Index. (1 mark)

Criteria Marks

Clearly defines Trade Weighted Index 1

Possible answers:
A measure of the value of the Australian dollar against a basket of currencies of
trading partners. These currencies are weighted according to their significance to
Australia’s trade flows.

b) Explain the advantages and disadvantages of having a floating exchange rate.

(4 marks)

Criteria Marks

Comprehensive explanation of advantages and disadvantages of having a floating 4

exchange rate
Sound explanation of advantages and disadvantages of having a floating exchange rate 3

Outlines the advantages and disadvantages of having a floating exchange rate 2

Identifies a relevant point in relation to an advantage or disadvantage of having a 1

floating exchange rate

Possible answers:
Advantages:
The $A floating acts like an automatic stabiliser. It floats up in a boom which helps
slower X sales and dampen AD. It floats down in a slowdown which helps boost X
demand and helps raise AD
Monetary policy becomes more independent and more effective because there is no
change in the money supply
Market forces determine the value of the currency
Greater integration into global capital markets if a country has a floating $

Disadvanatges:
The dollar becomes much more volatile
More volatility makes for more uncertainty for exporters and importers

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 c) Explain how the Reserve Bank’s intervention in the foreign exchange market
and the domestic money market, could influence the value of the Australian
dollar. (5 marks)

Criteria Marks

Comprehensive explanation of how the Reserve Bank’s intervention in the foreign

exchange market and the domestic money market, could influence the value of 5
the Australian dollar.
Sound explanation of how the Reserve Bank’s intervention in the foreign exchange
market and the domestic money market, could influence the value of the 3-4
Australian dollar.
Outlines how the Reserve Bank’s intervention in the foreign exchange market and 2
the domestic money market, could influence the value of the Australian dollar.
Identifies a point in relation to how the Reserve Bank’s intervention in the foreign
1
exchange market and the domestic money market, could influence the value of
the Australian dollar.

Possible answers:
The RBA can intervene directly in the FOREX market by buying and selling foreign
currency ie. a “dirty float” eg. During the GFC, the $A depreciated 30% so the RBA
purchased $3.3b to increase the demand and help stabilise the currency.

They can intervene indirectly in the domestic money market by changing the level of
the cash rate (thus other interest rates)
Higher interest rates could encourage more capital inflow to Australia, thus causing
more demand for the $A and an appreciation. Lower interest rates could discourage
capital inflow to Australia, (thus causing less demand for the $A) and encourage
capital outflow (more supply of $A) which both cause a depreciation.

Jawboning
When the RBA governor gives talks to businesses and others, they can give signals
which influence speculator activity. Eg. if there is a hint that the cash rate will
drop, the speculators may start to sell the $A in anticipation of a future depreciation,
thus actually causing it. So, the RBA can actually talk the $ down or up to help
influence its direction.

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Question 22 (10 marks)

a) Outline the link between public goods and free riders. (2 marks)

Criteria Marks

Correctly outlines the link between free riders and government provision of public goods 2

May outline what free riders are but no link to government provision of services 1

Suggested responses could include:

Free riders refer to groups or individuals who benefit from a good or service without
contributing to the cost of supplying the good or service.

The potential for free rider behaviour means private markets either don’t provide or they
underprovide certain goods and services because they are not profitable. They are not
reflected in the price mechanism and setting a price doesn’t limit consumption. Therefore, the
government tends to provide these goods. Eg cost of cleaning up the environment, libraries,
streetlights

b) Explain an example of market failure and the associated negative externalities that
could arise in relation to ONE environmental issue. (3 marks)

Criteria Marks
One mark for explaining an example of market failure 1

Two marks for explaining more than one externality associated with that market failure 1-2

Only one mark if there is only one externality explained

Possible answers

Climate Change is an example of market failure where the price mechanism fails to take
into account the negative externalities associated with a rise in CO2 levels.
Some of the negative externalities could include:
- Rising sea levels
- Stronger storms/ floods/ intense weather patterns
- Longer droughts and more intense bushfires
- More species becoming endangererd/ loss of habitat
- Environmental refugees

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 c) Explain how market-based policies and targets could be used by the Australian
government to help reduce climate change. (5 marks)

Provides a detailed analysis of how market-based policies and targets could be 5

used by the Australian government to help reduce climate change

Provides a general analysis of how market-based policies and targets could be 3-4
used by the Australian government to help reduce climate change

Provides a limited analysis of how market-based policies and targets could be 1-2
used by the Australian government to help reduce climate change

Non attempt 0

Possible Answers could include discussion of:

- Carbon tax
- Emissions Trading Scheme
- Emissions Reduction Fund (Direct Action)
- Renewable Energy Targets
- Paris Agreement emissions target
- Short/medium/long term emissions targets

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Question 23 (10 marks)

a) Define the terms net foreign liabilities and debt servicing ratio. (2 marks)

Criteria Marks

Clearly defines both NFL and debt servicing ratio 2

Clearly defines either NFL or debt servicing ratio 1

Possible Answer

Net Foreign Liabilities are Australia’s obligations to the rest of the world (foreign debt plus
foreign equity) minus the rest of the world’s financial obligations to Australia.

Debt Servicing Ratio is the proportion of export revenue used to make repayments on
foreign debt. It is a common measure used to assess sustainability of our foreign debt.

b) Explain how continued budget deficits could impact Australia’s external stability.

(3 marks)
Provides a detailed explanation of how continued budget deficits could 3
impact Australia’s external stability.
Provides a general explanation of how continued budget deficits could 2
impact Australia’s external stability.
Provides a limited explanation of how continued budget deficits could 1
impact Australia’s external stability
Non attempt 0

Possible answer could include:

- Discussion of how continued budget deficits add to our foreign debt because deficits
are financed partly by selling bonds to foreigners
- Servicing cost of the yield payments on the bonds sold to foreigners, so impact on the
current account and NPY
- Australia’s AAA credit rating could be impacted which would add to the cost of
servicing foreign loans
- Discussion of “twin deficit” hypothesis
- Continued budget deficits mean that the S-I gap is more difficult to reduce if there is
continued borrowing by government, private sector may need to borrow offshore
- Crowding out impact could impact the exchange rate (if the private sector needs to
borrow more offshore

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c) Analyse the reasons why Australia has achieved a current account surplus in the
last few years.
(5 marks)
Provides a detailed analysis of why Australia has achieved a current 5
account surplus in the last few years
Provides a general analysis of why Australia has achieved a current account 3-4
surplus in the last few years
Provides a limited analysis of why Australia has achieved a current account 1-2
surplus in the last few years
Non attempt 0

Possible responses:
Slowing economy has meant less dividends and profits flowing out of the NPY
account as debits.
Australian have a lot of money in superannuation which is often invested overseas.
This means profits, dividends and interest is flowing into Australia as NPY credits
High iron ore prices recently due to Brazilian mining problems (collapsed dam walls
& COVID) affected global supply
Higher quantity of iron-ore to China as they stimulate their economy creates bigger
BOGS surplus and bigger CAS
Slowing imports due to disrupted supply chains and less demand for imported goods
during lockdowns etc
Demand for agricultural products is still strong despite global slowdown
Rural exports have increased since the drought improved

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Question 24 (10 marks)

a) Distinguish between a trade bloc and a monetary union. (2 marks)

Criteria Marks

Clearly distinguished between a trade bloc and monetary union 2

Defines either trade bloc or monetary union 1

Possible Answer
Trade Bloc occurs when a number of countries join together in a formal preferential trading
agreement to the exclusion of other countries (eg the EU)
Monetary Union is where 2 or more countries share a common currency (eg the euro is used
by several countries in Europe)

b) Outline the role of the International Monetary Fund during an international

business cycle downswing. Provide a specific example. (3 mark)

Criteria Marks
Student outlines the roles of the IMF and provides a specific example 3
Student outlines a role of the IMF and provides a specific example 2
Student outlines one role of the IMF but no example, or example but no role 1

Possible answers:
The IMF's main goal is to ensure the stability of the international monetary and financial
system. It helps resolve crises and works with its member countries to promote growth
and alleviate poverty.

Any example of a country that has received a bailout or other assistance would be OK.
Eg. Greece received 3 bailouts during the EU debt crisis

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c) Discuss ONE recent policy conflict in Australia and ONE recent policy conflict in a
country other than Australia. (5 marks)

Provides a detailed analysis of ONE recent policy conflict in Australia and ONE 5
recent policy conflict in a country other than Australia.

Provides a general analysis of ONE recent policy conflict in Australia and ONE 3-4
recent policy conflict in a country other than Australia.

Provides a limited analysis of ONE recent policy conflict in Australia and ONE 1-2
recent policy conflict in a country other than Australia.

Non attempt 0

Possible answers could include discussion of:

Australia:

reducing inflation v increasing unemployment

economic growth v less sustainable external stability
economic growth v rising inequality
expansionary fiscal policy v external stability (via increased foreign debt)

China:

economic growth v environmental sustainability

economic growth v inequality

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Section III 20 marks

Question 25 (20 marks)

Analyse the impact and effectiveness of current fiscal policy in achieving the Australian
government’s recent economic objectives.

Criteria Mark
Integrates relevant economic terms, concepts, relationships and 17-20
theories
Integrates both the data and quote from the stimulus into response
Provides a sustained, logical and cohesive response
Demonstrates a clear and comprehensive understanding of the impact
of current fiscal policy in achieving the Australian government’s
recent economic objectives.
Demonstrates a clear and comprehensive understanding of the
effectiveness of current fiscal policy in achieving the Australian
government’s recent economic objectives.
Applies relevant economic terms, concepts, relationships and theories 13-16
Includes either the data or quote from the stimulus into response
Provides a logical and cohesive response
Demonstrates a sound understanding of the impact of current fiscal
policy in achieving the Australian government’s recent economic
objectives.
Demonstrates a sound understanding of the effectiveness of current
fiscal policy in achieving the Australian government’s recent economic
objectives.
Uses economic terms and concepts, and shows some relationships 9-12
May not include stimulus
Develops a coherent response
Outlines of the impact of current fiscal policy in achieving the
Australian government’s recent economic objectives.
Outlines some aspects of the effectiveness of current fiscal policy in
achieving the Australian government’s recent economic objectives.
Develops a generalised response 5-8
Uses some economic terms or concepts
Sketches the impact of current fiscal policy in achieving the Australian
government’s recent economic objectives.
Sketches some aspects of the effectiveness of current fiscal policy in
achieving the Australian government’s recent economic objectives.
Presents a limited response 1-4
May attempt to use some economic terms
Attempts to address the impact and/or effectiveness of current fiscal
policy

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Question 26 (20 marks)

Analyse the global and domestic factors that have caused changes in Australia’s
external stability. Discuss some of the impacts of these fluctuations.

Criteria Mark
Integrates relevant economic terms, concepts, relationships and 17-20
theories
Integrates both the data and quote from the stimulus into
response
Provides a sustained, logical and cohesive response
Demonstrates a clear and comprehensive understanding of the
global and domestic factors that have caused changes in
Australia’s external stability.
Demonstrates a clear and comprehensive understanding of the
impacts of these fluctuations.
Applies relevant economic terms, concepts, relationships and 13-16
theories
Includes either the data or quote from the stimulus into response
Provides a logical and cohesive response
Demonstrates a sound understanding of the global and domestic
factors that have caused changes in Australia’s external stability.
Demonstrates a sound understanding of the impacts of these
fluctuations.
Uses economic terms and concepts, and shows some 9-12
relationships
Does not include stimulus
Develops a coherent response
Outlines some of the global and domestic factors that have
caused changes in Australia’s external stability.
Outlines some aspects of the impacts of these fluctuations.
Develops a generalised response 5-8
Uses some economic terms or concepts
Sketches the global and domestic factors that have caused
changes in Australia’s external stability.
Sketches the impacts of these fluctuations.
Presents a limited response 1-4
May attempt to use some economic terms
Attempts to address the global and domestic factors that have
caused changes in Australia’s external stability and the impacts
of these fluctuations.

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Section IV 20 marks

Question 27 (20 marks)

Analyse the reasons for and the potential effects of rising global protectionist trade
policies on both the global economy and the Australian economy.

Criteria Mark
Integrates relevant economic terms, concepts, relationships and 17-20
theories
Provides a sustained, logical and cohesive response
Demonstrates a clear and comprehensive understanding of the
reasons for rising global protectionist trade policies on both the
global economy and the Australian economy.
Demonstrates a clear and comprehensive understanding of the
potential effects of rising global protectionist trade policies on
both the global economy and the Australian economy.
Applies relevant economic terms, concepts, relationships and 13-16
theories
Provides a logical and cohesive response
Demonstrates a sound understanding of the reasons for rising
global protectionist trade policies on both the global economy and
the Australian economy.
Demonstrates a sound understanding of the potential effects of
rising global protectionist trade policies on both the global
economy and the Australian economy.
Uses economic terms and concepts, and shows some relationships 9-12
Develops a coherent response
Outlines some reasons for rising global protectionist trade policies
on both the global economy and the Australian economy.
Outlines the reasons for rising global protectionist trade policies
on both the global economy and the Australian economy.
Develops a generalised response 5-8
Uses some economic terms or concepts
Sketches reasons for rising global protectionist trade policies on
both the global economy and the Australian economy.
Sketches the potential effects of rising global protectionist trade
policies on both the global economy & the Australian economy.
Presents a limited response 1-4
May attempt to use some economic terms
Attempts to address the reasons for and effects of rising global
protectionist trade policies on both the global economy and the
Australian economy.

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Question 28 (20 marks)

Compare the impact of globalisation on economic growth, environmental sustainability,

and inequality in Australia and ONE other economy.

Criteria Mark
Integrates relevant economic terms, concepts, relationships and 17-20
theories
Provides a sustained, logical and cohesive response
Demonstrates a clear and comprehensive understanding of the
impact of globalisation on economic growth, environmental
sustainability, and inequality in Australia and ONE other
economy.

Applies relevant economic terms, concepts, relationships and 13-16

theories
Provides a logical and cohesive response
Demonstrates a sound understanding of the impact of
globalisation on economic growth, environmental sustainability,
and inequality in Australia and ONE other economy.

Uses economic terms and concepts, and shows some 9-12

relationships
Develops a coherent response
Outlines the impact of globalisation on economic growth,
environmental sustainability, and inequality in Australia and
ONE other economy.

Develops a generalised response 5-8

Uses some economic terms or concepts
Sketches the impact of globalisation on economic growth,
environmental sustainability, and inequality in Australia and
ONE other economy.

Presents a limited response 1-4

May attempt to use some economic terms
Attempts to address the impact of globalisation on economic
growth, environmental sustainability, and inequality in Australia
and/or ONE other economy.

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