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STAGE 2 ECONOMICS
ASSESSMENT TYPE 1: SKILLS AND APPLICATIONS TASK
Task 2: Macroeconomics test
This test, an extract from a country’s economic report, gives you the opportunity to
use, interpret, evaluate, and reflect on a selection and range of primary and secondary
sources in relation to economic issues.
Answers should be written in spaces provided. The test should take 50 minutes.
Economic Report
Cash rate
Inflation rate
Retail sales
Change in consumer sentiment
Capital inflows
Exchange rate (against US$)
Dec.
2007
4.5%
3%
$400bn
3%
$65bn
80c
Mar. 2008
5.2%
3.6%
$405bn
2%
$69bn
85c
June
2008
5.6%
4.2%
$410bn
-1%
$75bn
90c
Sept. 2008
6%
4.2%
$405bn
-8%
$78bn
95c
AD-AS diagram representing economic conditions in September 2008
The government has highlighted low rates of unemployment as its main achievement.
However, the opposition has criticised the government for not using the correct policy mix to
achieve its macroeconomic objectives and has argued that supply management policies
should be implemented to achieve these objectives. A university economics professor has
supported the call for the use of supply management policies, arguing that the short-term
costs of implementing such policies could be overcome. However, he pointed out that
whatever the government does, it will experience a range of problems, such as the limitations
of available measurement and institutional and political factors. He also pointed out that the
expenditure multiplier effect must be considered by the government when making policy
decisions.
Page 1 of 6
Stage 2 Economics annotated student work for use from 2011
493699177 (October 2010)
© SACE Board of South Australia 2010
(a)
Refer to the aggregate demand – aggregate supply (AD-AS) diagram above.
(i) Which one of the following types of unemployment would not occur in September
2008 in the economy represented in this diagram? Tick the appropriate box.
Frictional unemployment
Structural unemployment
Seasonal unemployment
Cyclical unemployment
(1 mark)
(ii) With reference to the AD-AS diagram, explain one economic reason why the
state of the economy in September 2008 is not desirable.
Inflationary gap occur. The economy is in a situation where employment of
resources are more than the ideal nature rate unemployment. General price
Communication
Clear and
appropriate use of
economic
terminology.
level are unlikely to increase and inflation tend to occur.
(2 marks)
(b)
(i) Using information from the table on page 1, state one factor that could have
caused the change in the exchange rate from December 2007 to September
2008.
Inflation in the economy will make our export less competitive in foreign
market.
Demand for our currency drop. Inflation also causes imports more
Knowledge and
Understanding
Provides some
evidence of
knowledge,
understanding, and
application of
economic concepts,
principles, models,
and skills.
cheaper and thus supply of our currency to buy imports are likely to
increase. Currency depreciate.
(1 mark)
(ii) Illustrate, on the following diagram, the effect on the exchange rate of the factor
you stated in part (b)(i).
Page 2 of 6
Communication
Clear and accurate
communication of
economic principles.
Stage 2 Economics annotated student work for use from 2011
493699177 (October 2010)
© SACE Board of South Australia 2010
(iii)
List two possible effects on the economy of the change in the exchange rate from
December 2007 to September 2008.
Effect 1:
Our country equity and resources are now at a higher risk to be take over
by foreigners.
Effect 2:
Analysis and
Evaluation
Evidence of
evaluation of the
effects of
interdependence
on individuals,
business, and
government,
locally, nationally,
and globally.
Increase in foreign debt if the debt is express in foreign currency. We now
need more money to pay the debt.
(2 marks)
(c)
(i) With reference to the table on page 1, identify one:
(1)
leading indicator of economic performance.
Change in consumer sentiment
(1 mark)
(2)
lagging indicator of economic performance.
Inflation rate.
(1 mark)
(ii) Explain how a government could use leading and lagging indicators of economic
performance to achieve its macroeconomic objectives.
Leading indicators: government can predict the economic performance
through leading indicators. Suitable policy may be planned to adjust the
economy so that macroeconomic objectives can be planned.
(1 mark)
Communication
Clear
communication of
economic
principles, models,
and concepts.
Appropriate use of
economic
terminology.
Lagging indicators: government can confirm the economy performance and
the exact magnitud and mix policy can be implementated to achieve its
macroeconomic objectives.
(1 mark)
(d)
Why is knowledge of the expenditure multiplier effect important to a government
when making policy decisions?
Knowledge of the expenditure multiplier effect is important as the exact magnitud
Knowledge and
Understanding
Comprehensive
knowledge,
in-depth
understanding,
and focused
application of
complex economic
concepts,
principles, models,
and skills.
to policy can be measure so that the effects of the policy implemented is ideal.
(2 marks)
Page 3 of 6
Stage 2 Economics annotated student work for use from 2011
493699177 (October 2010)
© SACE Board of South Australia 2010
(e)
Present an argument for the most appropriate monetary policy response by the
government to the state of the economy in September 2008, as described in the
economic report on page 1.
Contractionary monetary policy should be employed. It is to cool off the economy
which have high inflation and to reduce the inflationary gap. Increase in interest rate will
cut down the consumption and investment in the economy. AD are likely to shift to the
left. General price level will drops and thus improve the external balance. Besides that,
with the drop of AD, Ye is closer to Yf although structural unemployment may occur
but full employment objective are likely to achieve. With higher interest rate, it also can
appreciate the exchange rate of the country.
(5 marks)
(f)
Analysis and
Evaluation
Perceptive
evaluation of the
effects of
interdependence
on individuals,
business, and
government
locally, nationally,
and globally.
Analysis and
Evaluation
Well-informed
evaluation of the
way in which
economic
decisions involve
costs and benefits.
(i) What are supply management policies?
Supply management policies are micro economic reform that aim to increase
productivity and reduce cost of production.
(1 mark)
Communication
Consistent, clear
and appropriate
use of economic
terminology.
(ii) State one example of a supply management policy.
Competition policy.
(1 mark)
(iii) Refer to the following AD-AS diagram, which has been reproduced from the
economic report on page 6. It represents the country’s economic conditions in
September 2008.
Knowledge and
Understanding
Focused
application of
complex economic
concepts
principles, models
and skills.
On the diagram above, illustrate the long-term impact on this economy of
implementing supply management policies.
(1 mark)
Page 4 of 6
Stage 2 Economics annotated student work for use from 2011
493699177 (October 2010)
© SACE Board of South Australia 2010
(iv)
State one example of a short-term cost of implementing supply management policies.
Unemployment, as structural unemployment are likely to occur when structural change
in implementing the supply management policies.
(1 mark)
(g)
Explain why each of the following is regarded as a problem of economic
management:
(i) Limitations of available measurement.
The available measurement is limited, the picture of the whole economy is uncertain.
The exact magnitude of policy and mix of policy used will not adjust the economy
to the desire situation to achieve macroeconomic objectives.
(2 marks)
Analysis and
Evaluation
Well-informed
evaluation of the
way in which
economic
decisions involve
costs and benefits.
Analysis and
Evaluation
Perceptive
evaluation of the
effects of
interdependence
on individuals,
business, and
government
locally, nationally,
and globally.
(ii) Institutional and political factors.
Institutional and political factors will cause problem to economic management.
Example, during election, the government might employ expansionary fiscal policy
to win votes but instead it is not a desirable policy to be implemented on that time.
(2 marks)
Communication
Consistent, clear
and appropriate
use of correct
economic
terminology.
Additional comments
A review of the student’s work provides evidence of:



Page 5 of 6
Comprehensive knowledge, in-depth understanding, and focused application of complex
economic concepts, principles, models, and skills. (Knowledge and Understanding)
Perceptive evaluation of the effects of interdependence on individuals, business, and
government locally, nationally, and globally. (Analysis and Evaluation)
Consistent, clear, and appropriate use of correct economic terminology. (Communication)
Stage 2 Economics annotated student work for use from 2011
493699177 (October 2010)
© SACE Board of South Australia 2010
Performance Standards for Stage 2 Economics
A
Knowledge and
Understanding
Analysis and Evaluation
Communication
Comprehensive knowledge, in-depth
understanding, and focused application
of complex economic concepts,
principles, models, and skills.
Astute and logical analysis and evaluation of economic
issues and events (past and current) using economic
models and the skills of economic inquiry.
Sophisticated communication of
economic principles and models, and
complex concepts.
Perceptive evaluation of the effects of interdependence on
individuals, business, and government locally, nationally,
and globally.
Consistent, clear, and appropriate use of
correct economic terminology.
Comprehensive and well-informed
understanding of the role of economic
systems in dealing with the economic
problem of scarcity.
Incisive analysis and evaluation of the impact of economic
change locally, nationally, and globally.
Insightful and well-informed evaluation of the way in which
economic decisions involve costs and benefits.
B
Some depth of knowledge and
understanding, and focused application,
of a variety of economic concepts,
principles, models, and skills.
Well-informed understanding of the role
of economic systems in dealing with the
economic problem of scarcity.
Well-considered analysis and evaluation of economic issues
and events (past and current) using economic models and
the skills of economic inquiry.
Clear and accurate communication of
economic principles and models, and a
variety of concepts.
Well-considered evaluation of the effects of
interdependence on individuals, business, and government
locally, nationally, and globally.
Clear and appropriate use of economic
terminology.
Well-informed analysis and evaluation of the impact of
economic change locally, nationally, and globally.
Well-informed evaluation of the way in which economic
decisions involve costs and benefits.
C
Considered knowledge and
understanding, and competent
application, of economic concepts,
principles, models, and skills.
Informed understanding of the role of
economic systems in dealing with the
economic problem of scarcity.
Considered analysis and evaluation of economic issues and
events (past and current) using economic models and the
skills of economic inquiry.
Competent communication of some
economic principles, models, and
concepts.
Considered evaluation of the effects of interdependence on
individuals, business, and government locally, nationally,
and globally.
Appropriate use of economic
terminology.
Informed analysis and evaluation of the impact of economic
change locally, nationally, and globally.
Informed evaluation of the way in which economic decisions
involve costs and benefits.
D
Superficial understanding and partial
application of some basic economic
concepts, principles, models, and skills.
Basic consideration and description of one or more
economic issues and/or events (past and current) using
some skills of economic inquiry.
Some recognition of the role of
economic systems in dealing with the
economic problem of scarcity.
Basic consideration and description of one or more of the
effects of interdependence on individuals, business, and
government locally, nationally, and globally.
Communication of some basic economic
principles, models, and concepts.
Some appropriate use of some
economic terminology, with
inconsistencies.
Recognition of aspects of the impact of economic change
locally, nationally, and globally.
Some awareness of the way in which economic decisions
involve costs and benefits.
E
Identification and attempted application
of one or more basic economic
concepts, principles, models, or skills.
Emerging awareness of one or more economic issues or
events (past and current), with limited use of skills of
economic inquiry.
Attempted communication of one or
more simple economic principles,
models, or concepts.
Limited recognition of the role of
economic systems in dealing with the
economic problem of scarcity.
Limited recognition of one or more of the effects of
interdependence on individuals, business, and government
locally, nationally, and globally.
Limited use of economic terminology.
Emerging recognition of an aspect of the impact of
economic change locally, nationally, and globally.
Limited awareness of the way in which economic decisions
involve costs and benefits.
Page 6 of 6
Stage 2 Economics annotated student work for use from 2011
493699177 (October 2010)
© SACE Board of South Australia 2010