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Exemplar for internal assessment resource Economics 2.6B for Achievement Standard 91227
Exemplar for Internal Assessment Resource
Economics Level 2
Resource title: Closing the gap between NZ and Australia
with significant, and sustainable economic growth policies
This exemplar supports assessment against:
Achievement Standard 91227
Analyse how government policies and contemporary economic issues
interact
Student and grade boundary specific exemplar
The material has been gathered from student material specific to an A or B assessment
resource.
Date version published by
Ministry of Education
© Crown 2010
December 2011
To support internal assessment from 2012
Exemplar for internal assessment resource Economics 2.6B for Achievement Standard 91227
Grade Boundary: Low Excellence
1.
The student has comprehensively analysed how government policy and contemporary
economic issues interact, which is required for Excellence.
The student has comprehensively explained the objectives of government policies
relating to significant and sustainable economic growth in the introduction.
The student has fully explained how the three policies will achieve significant economic
growth and explained in detail the direct impacts on growth and the flow-on effects to
employment and inflation, integrating the changes shown on the AS/AD model into the
explanations. Refer to part A.
The student also justified how the policies would minimise any negative flow-on effects
of growth on inflation and employment, integrating changes on the AS/AD, PPF and
circular flow models into the explanations. Refer to part B.
The analysis included a justification for using these economic policies to achieve
significant economic growth, which was explained in detail using economic concepts,
and changes shown on the AS/AD models were integrated into the explanations. Refer
to part C.
A more secure Excellence would include supporting evidence in the analysis of how
the three policies would have also achieved sustainable growth, as part of the
justification.
For example:
Policy One: Encouraging immigration will not be a problem for the environment as long
as resource management codes are followed (forests or national parks aren’t being
destroyed to house a larger population) increases in revenue can be spent on using
city planners, which protect the environment and reduce congestion so that cities are
better in the future. In the long term these policies will not have negative effects on the
environment, if a negative were to arise the government could use some of the
increased taxation it will gain from these policies to counteract any problems.
Policy Two: Because there are more companies and workers with higher wages in the
economy the government will receive more tax. Increased Crown revenue will affect
other areas of the economy. Currently government has a requirement to pay for
education and health sectors and uses surplus funds (if any) to pay for growth
boosting-policy. If Crown revenue has increased (from taxes) the government can
afford to spend more on growth related policy, which will further promote growth for
later generations, making them better off than people today.
Policy Three: As the government gains increased revenue from tax it can further
reduce company and/or MTR taxes making producers and consumers better off today
and in the future.
© Crown 2010
Student 1: Low Excellence
Student included introduction, and explanations of sustainable and significant growth.
Policy 1: Immigration laws will be relaxed. Cutting ‘red-tape’ or deregulation of immigration will increase
the number of workers moving to NZ. Since human workers are a resource in production the immediate
consequence of this policy is that the potential output will increase. This is shown as an increase on the ‘Y
full’ limit of the graph (At maximum utilisation of resources market equilibrium would be on the Y full line).
Because there will be more people in the economy the total quantity of goods and services purchased in
the mid-term will increase, this is because of an increase in AD (Shown by a movement of the AD curve to
the right). This shows that at every price level the real output increases. Immediately in increase in AD will
push inflation up (consumer competition forces
prices upwards) and inflation will occur. More output
will be produced in response to higher prices. In the
long run competition between workers for jobs will
force wage rates down. In paying lower wages firms
can afford to employ more people than before and
can produce more for the same cost. This means
more goods will be supplied at each price level. This
is shown as an increase in AS.
Conclusion: Policy one gives a double shift of the AS
and AD curves and therefore significant economic
growth due to more workers and the multiplier effect
through consumption, firms selling more
A
goods/services, workers receiving more income and purchase again, the circulation of money and physical
flows will increase AD and output meaning more Real GDP. Inflation rate stays constant because the two
shifts offset each others inflationary effect and in the long run inflation will return to its starting rate. The
labour price falls and so employment increases, due to increased DL from firms.
Policy 2: Subsidise desirable university education. The purpose of this policy is to target specific tertiary
education which will further promote growth. Reducing prices of economically beneficial degrees (which
lose funding) will become more expensive, and will lose demand. Funding will go toward making degrees
free or relatively less expensive for training specific workers which NZ needs, like training managers and
marketing directors who can start or operate companies which promote unique goods and services and add
value to NZ’s raw exports. For example exporting
high value pastries instead of just milk solids or
producing designer fashion labels which use high
quality wool which is readily available in NZ. The
innovation needed to make these products could be
taught in University, and should be encouraged by
Government. This policy will fill the current deficits in
some industry (for example IT), up-skill workers in
anticipation of future growth in already powerful
sectors (Agricultural) and encourage innovation in
new sectors.
Conclusion: Policy two gives a double shift of the
AS and AD curves and therefore significant growth due to the investment in human capital and total output
that could be produced (potential productive capacity) increases because workers are more capable of
producing more in the same set time level, this means the frontier on the PPC graph will expand and Y full
will shift right (student included a PPF model). The inflation rate will fall slightly as AS increases (due to
B
improved productivity of labour) are larger than the AD increases, improving growth without the high prices
(inflation). Labour prices increase and employment increases due to targeted funding which encourages
students to take specific courses or receive specific training, leading to up-skilled workers who are more
valuable and can demand a higher wage, this will increase consumption spending and growth.
Policy 3: Reduce corporate tax. Businesses which are mainly ‘human skill’ based will be able to apply for
reduced corporate taxation to the Inland Revenue. Businesses will be granted reduced tax rates based on
their size, rate of growth and their employment of NZ workers. This policy will mean that expanding and/or
larger companies will come to NZ and bring money into the country, whilst existing NZ companies who are
granted the reduced tax will become more profitable and as a result produce more at the same price level.
At first the government will lose income (taxes) but in the longer term the increases of new businesses
and/or expansion of existing businesses in NZ will increase the amount of workers who are employed and
therefore increase the total amount of income tax collected, the government will also be receiving company
tax from a wider base of companies. Eventually the government will be receiving more income than before
the policy was introduced. The government will run a deficit until the increasing taxation passes the starting
level. Conclusion: Policy three gives a double shift of the AS and AD curves and therefore significant
growth, by attracting overseas firms and local firms expanding so more is being produced at each price
level. Also total output and Real GDP will increase due to the multiplier effect as firms use other local
resources; growth in one sector in the economy bolsters flows to others. Inflation rate will fall slightly as AS
increases (excess stock will produce more competition between suppliers to sell the excess stock and will
lower prices) are larger than the AD increases. Labour prices will increase and employment increases due
to more DL which will put pressure on wages to rise as firms are forced to outbid others for workers, higher
wages means a higher standard of living which is an important goal of government (student included
AS/AD and circular flow models).
Summary of policies: (student included AS/AD models)
C
Labour prices: The labour price decreases that would come from policy 1 are offset by increases from
policy 3. Wage rates will therefore increase in line with policy 2. Pay increases from policy 2 are a result of
a skilled economy with value adding skills. These workers rates are high because of the high quality of their
labour not a shortage of workers. This means that businesses will thrive; producing high quality valuable
products and standards of living will increase. Because education is unlimited policy 2 can continue to offer
growth to future generations. I have not needed to introduce additional policy as policy 1 and 3’s effects
balance themselves.
Inflation rates: Policy 1 has no inflation, as the double shift of the curves offset each other. Policy 2 and 3
will have minor disinflation as the AS shift is larger than the AD shift. Inflation rate will therefore stay in a
low and controllable range. Having low inflation is important because high inflation causes costs of
production to rise, limits firms’ ability to reinvest and creates difficulty in planning. Because inflation stays at
a low level I have not used additional policy.
Significant growth: Policy 1, 2 and 3 each have a double curve shift, this means growth will be significant.
The three policies are directed towards making NZ a ‘high value’ economy where our goods fill niche
markets and make larger profits. Policy 1 also bring in foreign business and workers into the country,
induced spending will further boost the economy to make growth significant. Induced spending makes all
people in the economy better off as funds trickle down to skilled and unskilled workers. Corporations thrive
in close proximity. Porter style growth, where corporations fight for a market share would take hold and the
companies would expand, the result being that future generations will benefit from the increased growth of
these companies.
Sustainable growth: All the policies are fair and plastic as it will suit the people of today as much as future
generations. The government alters education funding in a reactionary way (to the current situation) and
also allocates spending in anticipation of future industry. This technique is flexible and will continue to offer
sustainable growth for future generations. As NZ becomes a high growth nation, people will want to migrate
here and we can choose from the best workers. Growth will increase Crown revenue and as a result will
increase the operating budget; with more money to spend on growth based policies that will further
increase Real GDP.
Exemplar for internal assessment resource Economics 2.6B for Achievement Standard 91227
Grade Boundary: High Merit
2.
The student has analysed in depth how government policy and contemporary
economic issues interact, which is required for Merit.
The student has explained in detail the objectives of government policies relating to
significant and sustainable economic growth.
The student has explained how the three policies will achieve significant but not
sustainable economic growth and explained in detail the direct impacts on growth and
some flow-on effects to employment and inflation, integrating the changes shown on
the AS/AD model into the explanations. Refer to part D.
The analysis included a description of how the policies would minimise any negative
flow-on effects of inflation on growth, using the AS/AD model, but these were not fully
justified, which is required for Excellence. For example; the statement that the only
negative effect on inflation will be the initial government spending and this will be
minimal compared to the positive effects later on was not fully explained. Refer to part
E.
Additionally, the explanation of there being no negative flow-on effects to employment
needs to be fully justified, by using an economic model, and explaining the related
changes in unemployment levels due to the growth policies. Refer to part F.
The policies were tied to the objective of significant economic growth, and the changes
on the AS/AD model were integrated into the explanations. Refer to part G.
However, as part of justifying for Excellence the three policies links to the objective of
sustainable economic growth also need to be fully explained, integrating the changes
shown on an economic model into the explanations.
© Crown 2010
Student 2: High Merit
Sustainable Development: Sustainable development requires that actions taken at the present do not inhibit
prospects of future generations to enjoy the level of consumption, wealth, utility or welfare compared to
those enjoyed by the present population.
Significant Economic Growth: Significant economic growth is achieved when the policy introduced has a
multiplier effect on the economy. This means that growth in one section of the economy will have flow on
effects which result in even more growth effects for this section of the economy. For example if firms
benefited from an increase in export receipts and so increased production, they would pay more wages out
to their workers (households). This increase in disposable income (HDI) of the households will lead to
increased consumer spending which will lead to firm’s further increasing production. This further increase in
production is the multiplier effect.
Policy 1: The government will provide free
tertiary education for students studying in
AS/AD
Analysis
Price
I.T. provided they meet the preLevel
requirements for courses. The initial
AS
AS1
government spending on education will
increase real GDP and also cause prices to
go up. This is illustrated on the AS/AD
model with a shift right of the AD curve from
PL1
AD to AD1 and results in PL going up from
PL to PL1 and Y moving right form Y to Y1.
PL2
In the long run when the educated I.T
graduates come into the workforce there
AD1
will be an increase in human capital
AD
therefore productive capacity will increase.
Real GDP
Y Y1 Y2
This is shown with blue on the AS/AD
model with a shift right of the AS curve from AS to AS1. Also as the graduates are specialised in the I.T
field they will be more efficient and so productivity will increase. This will cause real output to go up and so
an increase in real GDP and a decrease in price level.
D
Policy 2: The government will provide a tax credit for firms that engage in research and development
provided they have an annual turnover of at least $1 million. The initial government spending on the tax
credit will cause real GDP to increase and price levels to rise. This is shown on the AS/AD model by a shift
right of the AD curve from AD to AD1 and results in PL going up from PL to PL1 and Y moving right form Y
to Y1. Provided that the R&D is successful (this is likely because only firms that are already relatively
successful will be eligible for the scheme), in the long run firms will have higher productive capacity due to
better equipment/workers from the R&D and they will increase production. This will cause real GDP to
increase further and price levels to fall. This is illustrated by the blue on the AS/AD model above and a shift
right of the AS curve from AS to AS1.
Policy 3: The government will lower company taxes and this will entice overseas firms to come and
operate in New Zealand. The initial result of the government spending on lowering company taxes will
cause an increase in real GDP and also cause prices to increase. This is shown by a shift right of the AD
curve from AD to AD1 on the AS/AD model and results in PL going up from PL to PL1 and Y moving right
from Y to Y1. In the long run more firms will come and start operating in New Zealand and this will result in
an increase in production. This will further cause real GDP to increase and price levels to decrease. This is
shown by the blue on the AS/AD model above and a shift right of the AS curve from AS to AS1.
Government Policies:
 The government will provide free tertiary education for students studying in I.T provided they meet
per-requirements for courses.
 The government will provide a tax credit for firms that engage in research and development
provided they already have an annual turnover of at least $1 million.
 The government will lower company tax to entice overseas firms to come and operate in New
Zealand.
Inflation Analysis: (student included AS/AD model)
Originally when the government spends on the three policies it will increase inflation because the demand
will increase, pushing up prices. We can see this from the AS/AD model from the price level shifting up
from PL to PL1 due to the shift right of the AD curve. In the long run however we will see inflation decrease
because as human capital increases due to the education policy we will see production increase. Also as
firms increase their capital due to the research and development policy we will see production increase
further. Furthermore we will see an increase in the number of firms operating in New Zealand due to the
company tax policy and this will also increase production. This overall increase in production will lower
prices and cause inflation to decrease. This is shown on the AS/AD model by the price level dropping from
PL1 to PL2. Additional Policies for Inflation: The growth policies proposed will not need any additional
policies to minimise negative effects on inflation. This is because the only negative effect on inflation will be
E
the initial government spending and this will be minimal compared to the positive effects later on. The
negative effects will be outweighed by the continued increase in output from the policies which is shown on
the AS/AD model by the AS curve shifting right from AS to AS1 and resulting in PL moving down from PL1
to PL2.
Employment Analysis: (student included AS/AD model)
The initial injection of government spending will cause an increase in employment and in the long run will
lead to a further increase. As the price is pushed up firms will increase production and so will need more
labour to cover the higher output. This is shown on the AS/AD model with a shift in Y form Y to Y1 caused
by the AD curve shifting right. In the long run because of the education policy employment will increase.
This is because people can now acquire free tertiary education in I.T and so will be employed in jobs they
couldn’t be without the education. The research and development policy will increase employment because
when firms do the R&D they will need to employ other firms to do this which will increase jobs and so
increase employment. The company tax policy will increase employment because as firms move to operate
in New Zealand they will need workers which will increase employment. The increase in firms will also
require more infrastructure which will need to be built and this will cause employment to increase further.
This overall increase of employment in the long run is illustrated on the AS/AD model by a shift right in Y
F
from Y1 to Y2. Additional Policies for Employment: The growth policies proposed will not need any
additional policies to minimise negative effects of employment because there will only be positive effects on
employment from these policies. The first positive effect will be from the initial government spending. We
can see this on the AS/AD model from the AD curve shifting right form AD to AD1 resulting in Y moving
right from Y to Y1. The second positive effect will occur when firms increase production and is shown on
the AS/AD model by a shift right of the AS curve from AS to AS1 which results in Y moving further right
from Y1 to Y2.
Significant Economic and Sustainable Growth: (student included AS/AD model).
These government policies will achieve significant economic growth because firstly the government
spending towards the policies will cause a shift right of the AD curve from AD to AD1 resulting in an
G
increase in real GDP from Y to Y1. In the long run the policies will cause productive capacity to increase
and also firms to increase production. This is shown on the AS/AD model by a shift right of the AS curve
from AS to AS1 and will result in a further increase in real GDP from Y1 to Y2. This will lead to an increase
in employment and therefore cause an increase in household disposable income (HDI) which will increase
consumer spending from households to firms and will cause firms to expand production further which will
lead to a further boost in employment and increase in (HDI). This multiplier effect will cause significant
economic growth and will help close the gap between Australia and New Zealand. These policies will
achieve sustainable economic growth because in the long run it will not inhibit prospects for future
generations to have the same level of wealth, consumption, utility or welfare as we have today. In fact the
economic policies proposed will allow future generations to have greater prospects for these things than we
do today because it will create a more economically thriving society. The policies are perfectly viable and
bearable and will not have huge effects such as resource depletion does on the environment. Also the
policies are economically equitable because the returns in the long run will far outweigh the costs in the
beginning.
Exemplar for internal assessment resource Economics 2.6B for Achievement Standard 91227
Grade Boundary: Low Merit
3.
The student has analysed in depth how government policy and contemporary
economic issues interact, which is required for Merit.
The student has explained the objectives of government policies relating to significant
and sustainable economic growth, but not in detail.
The student has explained how the three policies will achieve significant but not
sustainable economic growth and explained in detail the direct impacts on growth using
the AS/AD model to support the explanations. Refer to part H.
The flow-on effects to inflation and employment have been explained in detail using the
AS/AD model to support the explanations. Refer to part I.
The summary ties the policies to the objectives of significant and sustainable economic
growth, but the explanations have not been supported with an economic model. Refer
to part J.
A more secure Merit would be attained if policy one was better explained using the
AS/AD model. For example; the increase in AD is due to an increase in (G), but an
increase in skills would also lead to an increase in AS due to improved productivity of
labour.
Policy three needs clearer explanation of what has caused AS and AD to shift. For
example; Increased (I) shifts AD curve right, but if (I) in R&D leads to improved
productivity through better technology, this also shifts the AS curve right, and for
exporting firms means more price competitiveness overseas and higher export
receipts, more (Y) domestically leads to more (C) so AD curve shifts right.
Additionally, the flow-on effects to inflation would be explained in more detail as to how
the overall effect of two polices counteracts the negative impact of inflation with policy
one, or considering the example above for policy one another explanation could be;
due to improved productivity of labour there is now a double shift of the AS and AD
curves for policy one, so all three policies have double shifts which means price level
returns to the same level or decreases, so minimising the impact of growth policies on
inflation and easing inflationary pressure.
© Crown 2010
Student 3: Low Merit
Significant and Sustainable economic growth: Sustainable development requires that actions being
taken by the present decision-makers do not diminish the prospects of future persons to enjoy levels of
consumption, wealth, utility or welfare comparable to those enjoyed by the present population. Significant
growth relates to closing the gap between NZ and Australia.
Policy One: Subsidisation of tertiary education; I think the NZ government should invest in certain areas of
tertiary education. This will create a more skilled workforce, as students who go to university and see that
their course is cheaper are more likely to stick to it until they graduate. The areas I would like to look at
subsidising would be science, information
technology (IT), and farming. This is because
PL
AS
science and IT are changing the world that we
live in, and farming as it is, is one of NZs biggest
industry. As these industries can reward you with
Y full
a sizable income return (e.g. science=cancer
research; technology experts=facebook/twitter,
PL1
and farming=dairy products). The workers
PL
demand for goods and services, as seen as an
AD1
increase on the graph will overall increase. The
AD
AD curve has shifted to the right. For example, if
there is an increase in dairy farmer’s products, his
RO
RO
RO1
income will increase. This may result in an
OO
increase in firms supplying spa pools demand
(this is called induced spending). An indirect expenditure flowing on from a farmers increase in dairy
production could be a purchase of more fertiliser products for the farmer’s pastures. A way for the
government to get maximum benefits out of this is to lay down some guidelines for the subsidised courses.
One thing I would do is make students who benefit from the cheaper course would be, that they have to
stay and work in NZ for seven years after graduating. This will mean their income that they earn will be
spent around the NZ economy. Another thing would be, if they try and leave or quit the course they have to
pay the government back. Also from the graph you can see that because demand for products has
increased, prices have risen. This will increase our inflation rate (PL-PL1). Also, real output has increased
(RO-RO1), so more jobs will be created/needed to cater for the needs of the economy.
H
Policy Two: Lower company tax; A low company tax policy in NZ could attract overseas investors to start
new firms, and our higher skilled workforce would make the decision to invest here easier. But we wouldn’t
allow just any new companies to start; they would need to be labour intensive (employ a certain amount of
New Zealanders). If the overseas investors
use our higher skilled scientists or IT
AS/AD Analysis
Price
experts, to help create a new product, or
Level
faster ways to produce already invented
AS
AS1
products it would lead to a double shift in
the AS/AD graph. The AD curve will shift to
the right as the employees will demand
more goods and services with their
PL1
incomes. This will increase induced
spending (e.g. workers will increase luxury
PL2
goods, like going out for tea at fancy
AD1
restaurants or buying new cars). The AS
curve will shift right, as they have found a
AD
Real GDP way to increase productivity. As there is a
Y Y1 Y2
double shift, inflation has been counter
balanced. The increase in AD pushed up prices, but as new technology has helped supply increase
(creating a surplus); firms will decrease prices to sell extra products. Employers will need more workers
because of an AD/AS increase. More products are wanted and more products can be made faster, so more
workers will cover the needs of the NZ economy.
Policy Three: Subsidisation of research and development (R&D); the government should help firms by
subsidising a certain percentage of the firms R&D. If firms are willing to invest $10,000 dollars in R&D, the
government will pay an extra 10% of this. The government will give $1,000 dollars extra to the cause. If a
firm is willing to invest more then the percentage will increase. As firms are now more willing to invest in
R&D, this shifts the AS curve to the right. They will find better ways to use their resources and faster ways
to produce. This will push down prices; on the world market our NZ exports (e.g. dairy products) will be
more competitive. This will mean we will sell more and have higher incomes. This is why our AD shifts to
the right. The increase in income will flow onto the rest of the economy. More luxury goods will be
demanded, as a higher disposable income has occurred. This double shift on the graph (see above) again
counter-balances the inflation rate. Demand pushes up prices and supply decreases prices. This means it
has no effect on prices in general on the NZ market.
Additional Policies: Minimum wage increase; this policy should be introduced to help the low income
earners who were not able to go to university. It means it will close the gap between the wealthy (rich) and
poor. This will mean their quality of life will increase and they can then demand more goods and services.
Also the new firms that are created might need employees to do ordinary tasks like cleaning the firm’s
floors, windows, and toilets. This will decrease the unemployed as you don’t need to be qualified to do
these jobs.
Flow-on effects-Inflation: After all my policies, two have double shifts that have counter-balanced
inflation. But my subsidisation of tertiary education has shifted AD to the right; this increases prices and
therefore increases inflation. However, the other two show no increase or decrease in inflation, because the
policies result in double shifts, so the only real thing that has happened is real output has increased, shifted
right so this means we have successfully achieved economic growth (student included AS/AD model).
Flow-on effects-Employment: All three of my policies create more jobs in NZ. Either AD is causing firms
to hire more workers so they can cater for consumers and for our exports, or supply is causing need for
more workers due to new technology as the machines need people to operate them with the shift right of
real output. This means unemployment is decreasing (student included AS/AD model).
J
Summary: My policies have achieved significant economic growth, because our newly higher skilled
workforce and low company tax have increased our households’ disposable income. This means their net
social welfare will increase, and stay that way as they keep on earning more money. The new jobs create
employees with money they can now spend on goods and services. The owners/employers who benefit
from this induced spending will be able to increase their spending so this cycle will continually repeat itself.
Overall the government will also cover its costs from my policies, this is because they will benefit from an
increase in the income PAYE tax, and more GST from consumers buying more goods and services. They
achieve sustainable economic growth as well, because of the R&D policy. The firms benefit from new ways
of production and their costs of production decrease, because firms found better ways to utilise resources
that they use in the production line (e.g. a better way to use timber in the production of furniture making will
save the firm from buying as much timber). If the government decided to adopt my policy package they
would benefit from it for many years to come. It will close the gap between NZ and Australia, which has
been a target they are trying to reach. It will mean the government will be more liked and they will stay in
power for longer. NZ will be better off and be a much happier country.
I
Exemplar for internal assessment resource Economics 2.6B for Achievement Standard 91227
Grade Boundary: High Achieved
4.
The student has analysed how government policy and contemporary economic issues
interact, which is required for Achieved.
The student has explained the objectives of government policies relating to significant
and sustainable economic growth, but not in detail. Refer to part K.
The student has explained how the three policies will achieve significant but not
sustainable economic growth, and explained the direct impacts on growth using the
AS/AD model to support the explanations. Refer to part L.
The flow-on effects to inflation and employment have been explained using the AS/AD
model to support the explanations. Refer to part M.
The summary ties the policies to the objective of significant economic growth, but the
explanations have not been supported with an economic model. And the policies have
not been linked to sustainable economic growth, the other objective described in the
introduction. Refer to part N.
Additionally, the explanations provided for policies two and three were not detailed
enough for Merit. Policy two needed more explanation as to what tax on imported
materials could be reduced, maybe GST and if so how this targeted approach would
work as a growth policy. Policy three required more explanation of how this
government policy to increase subsidies would affect production, and for which
markets, and the effect on AS.
© Crown 2010
Student 4: High Achieved
Significant and Sustainable Economic growth: Sustainable economic growth is when actions take place in
the present that will cause economic growth but does not diminish the prospects of future generation’s level
of consumption, wealth, and utility or welfare compared to the people in the present. Sustainable
economics takes greater account of the social and environmental consequences of growth strategies. For
example, sustainable economic growth will consider if the strategy for growth causes any environment
K
damage or resource depletion. Significant growth relates to closing the gap between NZ and Australia.
Policy 1: Increasing the saving interest rate will encourage people to save money as it is profitable for them.
People are saving instead of
Price
AS
AS1
spending so there will be a decrease
in consumer spending. This will
Level
cause a decrease in aggregate
demand which will shift the aggregate
demand curve to left. This will cause
a fall in price level (PL-PL1) and real
PL
output (Y-Y1). This will decrease
economic growth. However, increase
PL1
in saving will make an increase in
AD
PL2
investment in firms. When there is an
AD1
increase investment, there will be an
increase in productivity. This will
increase aggregate supply which will
Y1 Y Y2
shift aggregate supply to right. The
Real Output
price level will fall (PL1-PL2) and the
real output will increase (Y1-Y2). As the real output increase caused by shifting aggregate supply is greater
than the decrease in real output caused by shifting aggregate, there will be an increase in real output
overall. As the price level decreased and the real output has increased, there is an increase in economic
growth.
L
Policy 2: Decrease the tax on imported raw materials. This will cause an increase in aggregate supply,
which means aggregate supply will shift to the right. This happens because firms are able to produce more
as the cost of production decreased. Cost of production decreased as the tax on imported raw materials
decreased and therefore firms are able to buy same amount of material at lower costs. This makes an
increase in aggregate supply and will cause the price level to decrease and real output to increase. As
there is an increase in real output which means productivity has increased so there is an increase in
economic growth (student included AS/AD model).
Policy 3: Increase subsidy on firms. This means there was an increase in government spending. This will
increase aggregate demand (C+G+I+X-M=AD) which means the aggregate demand curve shifts to the
right. This will cause an increase in price level and real output. As there was an increase in real output
there was an increase in economic growth (student included AS/AD model).
Impact on inflation: Increasing the saving interest rate will make people save money. People are saving
instead of spending so there will be a decrease in consumer spending. This will cause a decrease in
M
aggregate demand which will shift aggregate demand curve to left. This will cause a fall in price level.
Increase in saving will make an increase in investment. When there is increased investment, there will be
an increase in productivity. This will increase aggregate supply which will shift aggregate supply to right.
The price level will fall. As the price level decreased there was deflation. Decrease the tax on imported raw
materials. This will cause an increase in aggregate supply which means aggregate supply will shift to right.
This happens because firms are able to produce more because the costs of production have decreased.
This makes an increase in productivity which will increase aggregate supply and will cause the price level to
decrease. As there was decrease in price level, there was deflation. Increase subsidy on firms. This means
there was an increase in government spending. This will increase aggregate demand (C+G+I+X-M=AD)
which means the aggregate demand curve shifts to the right. This will cause an increase in price level. The
price level increased and therefore there was inflation. The shift of aggregate supply to the right was much
greater than shift of aggregate demand to the right so overall the price level decreased which means there
was deflation, (see graph below).
Impact on employment: As the equilibrium has shifted closer to the Y-Full, suggests there was an increase
AS
Price Level
AS1
PL
PL2
PL1
AD
Y
Y1 Y2
AD1
Y-Full
Real Output
in employment. As increasing the saving interest rate, decreasing tax on imported raw materials and
increasing subsidy for firms caused an increase in real output, which means there was an increase in
productivity. As productivity has increased firms may have to employ more people to work because firms
may not be able to produce at their full capacity as there are not enough people and therefore firms employ
more people to produce at full capacity. As more people are employed, the unemployment rate will
decrease and employment rate will increase.
Summary
Policies:
Increasing saving interest rate
Decrease the tax on imported raw materials
Increase subsidy for firms
N
These policies showed a significant economic growth as the graph above shows there was a significant
increase in real output which means productivity has increased significantly and the increased subsidy for
firms made an increase in aggregate demand as it is government spending and therefore increased price
level a little bit making sure that the price level was not too low. There was significant real output and the
price level decreased showing us there was deflation but not too much and this shows there was significant
economic growth.
Exemplar for internal assessment resource Economics 2.6B for Achievement Standard 91227
Grade Boundary: Low Achieved
5.
The student has analysed how government policy and contemporary economic issues
interact, which is required for Achieved.
The student has explained the objectives of government policies relating to significant
and sustainable economic growth, but not in detail. Refer to part O.
The student has explained how the three policies will achieve significant but not
sustainable economic growth, and briefly explained the direct impacts on growth using
the AS/AD model to support the explanations.
The flow-on effects to inflation and employment have been briefly explained using the
AS/AD model sometimes to support the explanations, but more consistent use of the
AS/AD model and more explanation are expected for Achieved. Refer to part P.
The summary ties the policies to the objectives of significant and sustainable economic
growth, but the explanation is brief and has not been supported with an economic
model. Refer to part Q.
A more secure Achieved would address the above points and the direct impacts on
growth of the government policies would be explained more, using the AS/AD model.
Policy two for example; more (I) in R&D will increase AS, shifting the curve right from
AS to AS1 due to increased productivity due to better technology, so this will result in
real output increasing from RO to RO1 and this means an increase in economic
growth.
© Crown 2010
Student 5: Low Achieved
Significant and Sustainable Economic Growth
Significant growth is large growth that would in this case help to close the income gap between NZ and
O
Australia. Sustainable economic growth is when growth is being achieved, but is also not destroying a
resource while doing it, so not only can the present generation enjoy the effects also future generations can
use both the resources and benefit from the effects of the plan.
Policy one
The first policy is to lower income tax. This will
PL
produce economic growth because this will
AS
increase the amount of deposable income for the
average household leading to an increase in
Y full
consumption. This increase in aggregate demand
will result in a higher level of scarcity for
PL1
commodities, so the price will increase, and thus
supply will also increase as a higher level of
PL
AD1
output will be needed to satisfy the increase in
demand and also move AD up as well as price
AD
and demand as you can see on the graph. This
policy will effect inflation by increasing it,
RO
RO
RO1
because the increase in AD causes the price to
OO
rise because households are able and willing to buy more. As for unemployment it will decrease because
firms need more resources in order to produce a higher level of output. More resources are employed and
the equilibrium moves closer to Y full as shown on the graph.
P
Policy two
My second policy is putting incentives into research
AS
AS 1
and development (R&D); this will be achieved by as
PL
long as the firm research’s increases aggregate
supply the government will pay for all its research
costs. This means that firms will want to invest in R
Y full
& D that will increase AS as shown on the graph. Its
PL
effect on inflation is that it will decrease because
there is more competition on the market they will
PL1
have to lower their prices that decreases inflation.
The impact on employment is that it will decrease
because with the new technology they can replace
RO
RO1
RO
some of their workers.
Policy three (student included a AS/AD model)
My third policy is to increase welfare spending. This will produce economic growth because the lower
income earners have more income this means that they spend more on goods and services and therefore
increasing AD which leads to an increase in supply which leads to an increase in economic growth.
The effect on inflation is that it will increase because with increased AD comes an increase in price level;
the effect of this policy on employment will decrease because firms need more resources in order to
produce a higher level of output.
Summary
So all of these policies as a whole will increase economic growth significantly because all the policies
produce economic growth and some also have other positive effects such as increasing employment. So
overall I think these policies will increase economic growth as well as being sustainable, because R&D
encourages more efficient and productive use of resources.
Q
Exemplar for internal assessment resource Economics 2.6B for Achievement Standard 91227
Grade Boundary: High Not Achieved
6.
The student has not adequately analysed how government policy and contemporary
economic issues interact, which is required for Achieved.
The student has explained the objectives of government policies relating to significant
and sustainable economic growth, but not in detail. Refer to part R.
The student has described how the three policies will achieve significant but not
sustainable economic growth, and briefly explained the direct impacts on growth using
the AS/AD model to support the explanations.
Policy one has no clear explanation as to why the AS curve shifts right, and no
discussion of Y and PL. Refer to part S.
Policy two also has no reference to Y and PL and the student has not explained how
the increase in (G) in R&D would affect AD. Refer to part T.
Policy three does not explain how Kiwisaver increases (G), or how this leads to an
increase in (I), there is no clear explanation of how Kiwisaver would increase AD or AS,
and no reference to Y or PL. Refer to part U.
The flow-on effects to inflation have been explained, but the AS/AD model was not
directly used to support the explanations. Additionally, the flow-on effects to
employment were not explained and an economic model was not used. Refer to part V.
The summary ties the policies to the objective of significant economic growth, but the
explanations have not been supported with the AS/AD model, and there is no
explanation of sustainable economic growth. Refer to part W.
The analysis is limited due to a lack of reference to the AS/AD model to support the
explanations, and clearly explained government policies. The flow-on effects to
employment were also not covered, so overall the student has not met the
requirements of Achieved.
© Crown 2010
Student 6: High Not Achieved
Significant and sustainable economic growth is large growth that ensures that the use of resources and the
environment today doesn’t damage prospects for use by future generations i.e. can be continued long into
the future without negative effects further in time.
R
Policy 1: My first policy is to remove university fees for specific courses, which NZ has a shortage of, and
that have been selected by the government. The objective of this policy is to get people in NZ that have
specified qualifications for areas of
Price
AS
AS1
work that are having shortages of
S
staff. This policy will reduce the
Level
amount of unemployed as people will
have qualifications for vacancies that
are occurring at that time hence they
will go straight into work. This is
PL
shown on the model by the eventual
shift closer to ‘Y full’. This will cause
PL1
government transfers to decrease as
AD
PL2
the numbers of unemployed has
AD1
decreased so the government won’t
be paying out as much money shown
Yf
by the shift from AD to AD1.
Y1 Y Y2
Therefore there will be a double shift
Real Output
in price levels going down as the AD
shifts to AD1 and the AS curve shifts right from AS to AS1. This will mean price levels decrease, however
due to the AD shift there will be a decline in economic growth initially before the AS growth kicks in and in
the long run there will be significant economic growth.
Policy 2: Involves the government refunding some tax/giving tax credits to higher earning firms once they
have invested money into research & development (R&D). This will increase (G), therefore shifting AD to
AS
Price Level
AS1
PL
PL2
PL1
AD
Y
Y1 Y2
AD1
Y-Full
Real Output
the right to AD1. This will increase firms productivity if the R&D is successful, thus decreasing their costs of
production. This will increase the firm’s profit, therefore Real GDP and economic growth will occur. The
money is only refunded to the firms once the R&D has been completed. This will create demand-side
growth. This increase in productivity will cause a shift in the AS curve to the right to AS1.
T
Policy 3: Keep the Kiwisaver scheme going so that as well as people saving their money, both firms and
the government will invest into this scheme shown in the graph above by the shift in the AD curve to AD1 U
as the government is spending more money due to this scheme. This will lower current consumption and
give firms more money to spend on capital goods. This is shown in the model above by the shift from AS to
AS1. This will create both supply-side and demand-side growth (student included AS/AD model).
Effect on Inflation:
1.
As shown on the AS/AD model inflation (price levels) will decrease with more qualified workers,
R&D will be more successful so productivity will increase; hence production becomes less expensive so
prices can go down.
2.
There is some demand-side growth that occurs due to this policy hence there is some inflation, but
this is inflation only in the short term. In the long term the inflation will be countered due to the AS growth
making this a sustainable policy to use.
3.
There would have been a short period of inflation when this policy was first started. But now there
will be disinflation as we are well into this policy. However, this inflation will only occur in the short term as
the supply-side growth in the same policy will lower the inflation (disinflation) over a longer term effectively
‘undoing’ the small amount of inflation created by the demand-side growth when the policy was first
introduced.
Overall, disinflation will occur in the long run as there is supply-side growth. However, there will be a small
amount of inflation in the short term at first when the policy package is introduced. This is due to their being
some demand-side inflation (student included AS/AD model).
Effect on Employment:
In all three of the policies the levels of unemployment decrease as in each case we move closer to Y-Full,
thus increasing levels of employment.
Summary:
Therefore these policies would be suitable as it has significant and sustainable growth shown by the large
amount of supply-side growth. This is the best option as it doesn’t increase inflation unlike demand-side
growth. These policies will achieve significant economic growth as there will be a multiplier effect such as
when R&D is successful and other firms will have to set up to produce this new good/service/technology.
This will cause an increase in employment to fill the new jobs created but these firms will also need raw
materials which could be purchased locally thus creating an increase in local demand. Hence some
W
induced spending will occur as local firms would be receiving more income and there will also be an
increase in local employment. Also there would be both supply-side and demand-side growth so the growth
will be a lot faster than if there was only one type of growth.
Therefore my policies don’t need any extra policies as there is already a multiplier effect for growth which
will achieve significant growth. The policies don’t need any additional policies to combat the effects of
inflation as despite there being a small increase in inflation in the short term, the supply-side growth will
counter that and in the long term there will be deflation (negative inflation).
V