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NCEA Level 3 Economics 91403 (3.5) — page 1 of 6 SAMPLE ASSESSMENT SCHEDULE Economics 91403 (3.5): Demonstrate understanding of macro-economic influences on the New Zealand economy Assessment Criteria Achievement Achievement with Merit Demonstrate understanding typically involves: Demonstrate in-depth understanding typically involves: providing an explanation of the current state of the New Zealand economy in relation to macroeconomic goals identifying, defining, calculating, describing or providing an explanation of macro-economic influences on the New Zealand economy using an economic model(s) to illustrate concepts relating to macro-economic influences on the New Zealand economy providing a detailed explanation of macro-economic influences on the New Zealand economy using an economic model(s) to illustrate complex concepts and/or support detailed explanations of macro-economic influences on the New Zealand economy Achievement with Excellence Demonstrate comprehensive understanding typically involves comparing and contrasting: the effectiveness of a government policy(s) in achieving macro-economic goal(s) the impacts of another macroeconomic influence(s) on the New Zealand economy in relation to a macro-economic goal(s) integrating an economic model(s) into detailed explanations of macroeconomic influences on the New Zealand economy NCEA Level 3 Economics 91403 (3.5) — page 2 of 6 Evidence Statement Achievement Not Achieved One Expected Coverage NØ No response; no relevant evidence. N1 1/6 requirements for Achievement met. N2 2/6 requirements for Achievement met. A3 3/6 requirements for Achievement met. A4 4/6 requirements for Achievement met. Evidence of understanding includes: (a) (b) (c) (d) (e) (f) Economic growth is calculated using the percentage change in Real GDP. The figures provided show a growth rate of 2.5%, so the objective has not been met. Investment is spending on capital goods. AD is increased and PLnew and Ynew identified. (See Appendix One) The effects on inflation, employment, and output correspond to the changes made by the candidate to the diagram in (c). Identifies that savings is income not spent. Explains fiscal policy OR monetary policy. Fiscal policy involves changes in government spending and /or revenue to achieve economic goals. Monetary policy involves influencing levels of interest rates and money supply to achieve economic goals. Evidence of in-depth understanding includes: Investment (I) is a component of aggregate demand. Assuming ceteris paribus, when I increases AD increases. This causes price levels to increase to the new equilibrium where AD and AS intersect. At the new equilibrium, output has increased, which is economic growth, unemployment has decreased and there is inflation as price levels have increased. (e) Increased savings will lead to financial institutions having more funds available to lend to firms and consumers. This will lead to an increase in investment in capital goods and also increased consumer spending by consumers. Both are components of AD. An increase in AD leads to an increase in output in the economy which is economic growth. (f) Fiscal policy involves changes in government spending and/or revenue to achieve economic goals. Fiscal policy could be used by increasing household disposable incomes through less tax or more government spending on such things as transfer payments and Kiwisaver contributions (specific examples not required). This could encourage saving by leaving households with money left over to save OR Monetary policy involves influencing levels of interest rates and money supply to achieve economic goals. Monetary policy could be used by increasing interest rates as an incentive to save. Households may look to save their income rather than spend. 1/3 requirements for Merit met. Merit M5 (d) M6 2/3 requirements for Merit met. Excellence Evidence of comprehensive understanding in (f) includes comparing and contrasting the effectiveness of government policies in achieving macroeconomic goals through: E7 E8 i. AND ii of Excellence. All requirements for Excellence met. i. Fiscal policy and monetary policy BOTH correctly explained. ii. Fiscal policy could be used by increasing household disposable incomes through less tax or more government spending. This could encourage saving by leaving households with money left over to save. Monetary policy could be used by increasing interest rates as an incentive to save. Households may look to save their income rather than spend. NCEA Level 3 Economics 91403 (3.5) — page 3 of 6 iii. Achievement Not Achieved Two Expected Coverage NØ No response; no relevant evidence. N1 1/6 requirements for Achievement met. N2 A3 A4 Fiscal policy is likely to be more effective as it involves increasing households’ and firms’ disposable income. Because saving is income not spent an increase in income is likely to lead to increased savings. Monetary policy may not be effective, as increased interest rates causes interest rates on loans and mortgages to increase; firms and households with debt will be forced to pay more interest on their debt, leaving less income left for saving. Evidence of understanding includes: (a) The current account measures: The balance on goods + the balance on services + the balance on investments + the balance on current transfers. 2/6 requirements for Achievement met. (b) A balanced current account is where the inflows are equal to the outflows meaning the balance is zero. The graph shows the current account is in deficit so the goal has not been met. 3/6 requirements for Achievement met. (c) Links trade agreements with increased exports. (d) Shows a decrease in demand for NZD which leads to depreciation of exchange rate. (See Appendix Two) (e) Recognises that depreciation in the $NZ can lead to exports increasing. (f) Explains how exchange rates OR the world economy can affect economic growth. 4/6 requirements for Achievement met. Evidence of in-depth understanding includes: (c) Trade agreements remove or reduce barriers to trade between countries. For New Zealand, trade agreements should open up markets for exports, which should increase the inflows into the current account making the current account deficit smaller. However there may also be increased imports, making the deficit larger. (e) A decrease in the demand for the $NZD causes the exchange rate to depreciate. This either makes New Zealand exports more price competitive, or New Zealand exporters receive higher returns when converting export receipts into $NZ. The depreciation causes imports to become more expensive. As a result inflows of export receipts should increase, and outflows of import payments will decrease, and the current account deficit will get smaller as shown in the graph. (f) Detailed explanation of how the world economy OR exchange rates affect the level of net exports in the economy, which leads to increase or decrease in AD, which either increases OR decreases output in the economy. This is either economic growth OR decline. Merit M5 1/3 requirements for Merit met. Excellence M6 E7 2/3 requirements for Merit met. i. AND ii of Excellence. Evidence of comprehensive understanding in (f) includes comparing and contrasting the impacts of influences on the New Zealand economy through: i. Exchange rates influence the revenue received by NZ exporters and the price paid by New Zealand importers. When the $NZ depreciates, the revenue received by New Zealand exporters NCEA Level 3 Economics 91403 (3.5) — page 4 of 6 increases as the price received for our exports is worth more in $NZ. The depreciation causes imports to become more expensive. The net result is an increase in net exports as exports revenue increases and import payments decrease. This leads to an increase in AD which is an increase in output. Note – candidates could also explain this vice versa when the $NZ appreciates. E8 ii. The world economy also affects the revenue received for exporters, as the world economy expands the demand for internationally traded goods increase causing the world price to rise. This will mean revenue for NZ exporters will increase which will increase net exports which is an increase in AD. Note – candidates could also explain this vice versa for a contraction of the world economy. iii. Key difference is that the world economy affects the demand for NZ goods. Exchange rates influence revenue received for exports and price paid for imports. The exchange rate affects the revenue received for exports; demand may not change or the world price may not change but through exchange rate movements the revenue received for exports and the price paid for imports will change. ALL requirements for Excellence met. Achievement Not Achieved Three Expected Coverage NØ No response; no relevant evidence. N1 1/6 requirements for Achievement met. N2 2/6 requirements for Achievement met. A3 3/6 requirements for Achievement met. Evidence of understanding includes: (a) (b) (c) (d) (e) A4 4/6 requirements for Achievement met. (f) Tax cuts increase disposable income, so consumer spending (C) will increase. C causes an increase in AD, or increase in C leads to economic growth $2 Billion. Moves AS to left with increase in PL and decrease in Y. (See Appendix Three) Identifies that cost of production will increase, which leads to PL increasing and prices not stable. Supply side policies are designed to increase the productivity of producers, and reduce costs of production. Examples: deregulation, indirect tax cuts, and incentives to invest in new technology. Evidence of in-depth understanding includes: Consumer spending (C) is a component of AD, and when consumer spending increases because of tax cuts, AD increases. This leads to an increase in output in the economy which is economic growth. (e) Increases in petrol and electricity prices cause costs of production for producers to rise, which shifts the AS to the left, causing price levels to increase. Increases in petrol and electricity are inflationary so they may cause prices to rise above the target of 1–3% on average over the medium term. This means prices may not remain stable in the economy. (f) Supply side policies are designed to increase the productivity of producers, and reduce costs of production. Examples: deregulation, indirect tax cuts, and incentives to invest in new technology. These increase production (increasing AS) therefore leading to more output (economic growth). Merit M5 (b) 1/3 of requirements for Merit met. M6 (b) and (e) OR (e) and (f). NCEA Level 3 Economics 91403 (3.5) — page 5 of 6 Evidence of comprehensive understanding includes comparing and contrasting the effectiveness of government policies in achieving macroeconomic goals through: (b) and (f)(i). Excellence E7 E8 ALL requirements for Excellence met. Appendix One: Question One (c) (b) Consumer spending (C) is a component of AD, and when consumer spending increases because of tax cuts, AD increases. This leads to an increase in output in the economy which is economic growth. (f)(i) Supply side policies explained with two examples. Supply side polices enable producers to increase production (increasing AS) by reducing costs of production or improving productivity, therefore leading to more output (economic growth). (f)(ii) Supply side policies increase AS leading to PL decreasing, so there is no inflationary effect. Tax cuts lead to economic growth by increasing AD, which causes PL to increase, which is an increase in inflationary pressure. NCEA Level 3 Economics 91403 (3.5) — page 6 of 6 Appendix Two: Question Two (d) Appendix Three: Question Three (d)