Download Marking Schedule Economcs 2010 File

NCEA Level 2 Economics (90794) 2010 — page 1 of 4
Assessment Schedule – 2010
Economics: Describe inflation and its causes and effects using economic models (90794)
Evidence Statement
Q
ONE
(a)
Evidence
Merit
Excellence
General
explanation of
why both
depreciation of
the $NZ
AND falling
worker
productivity affect
the AS curve OR
affect inflation /
price level.
In-depth
explanation
linking
depreciation of
the $NZ and
falling worker
productivity to
increase in cost
of production and
shift in the AS
curve.
General
explanation for
EITHER of:
In-depth
explanation for an
increase in
exports AND
investment,
linking both to
increase output
and increased
growth.
Code
A/M/E
A period when the CPI
decreases OR inflation is
negative OR the general level
of prices is falling.
(b)
See Appendix One.
(c)
A depreciation of the $NZ will
result in a rise in the NZ price of
imported raw materials. This
has the same effect as falling
worker productivity in that it
increases cost of production
and, consequently, shifts the
AS curve to the left.
(d)
Achievement
Exports will increase because
low inflation will make them
more price-competitive.
So exporters will produce more
to meet the extra demand for
their goods, so growth
increases.
Investment will increase
because of increased business
confidence, or less uncertainty
about future costs and profit
levels or because of low
interest rates. With more
investment, the productive
capacity will increase, so more
produced. Hence, growth
increases.
Any ONE of:
 a correct
definition is
given for
deflation
 AS curve is
shifted to the
left, labels or
arrows used
 states that a
depreciation of
the $NZ will
shift AS to the
left.
States that
exports and
investment will
increase.
 exports
increasing
 investment
increasing
AND linked to
economic growth.
A/M/E
NCEA Level 2 Economics (90794) 2010 — page 2 of 4
Q
TWO
(a)
(b)
Evidence
Achievement
Merit
Excellence
Code
A/M/E
MV = PQ or MV = PT
Given that MV = PQ:
The price level increases when
the money supply increases.
However as a result of the
lower V, any increases in M will
result in:
 a smaller increase in P or
 no change in P or
ONE of:
 the correct
formula
 states that the
price level
would
increase
because of
increases in
M.
General
explanation of the
effects on P when
M increases and
V decreases.
In-depth
explanation of the
effects on P of an
increase in M.
Must make
reference to the
importance of the
relative size of
the changes in M
and V.
General
explanation of the
effects on P of an
increase in M in
ONE of:
In-depth
explanation of the
effects on P of an
increase in M in
BOTH a boom
and recovery.
Must give a
reason for the
differences in the
effect on Q.
 a decrease in P
depending on the size of the
drop in V relative to the
increase in M (assuming Q is
constant).
(c)
When an economy is in a
boom, the ability to increase Q
when M increases is limited
(because of economy operating
at full capacity / shortages of
resources) and, therefore, P is
likely to rise significantly. When
an economy is in the recovery
phase, there is likely to be an
increase in production and
productive capacity (Q)
(because of spare capacity /
resources in the economy),
which is likely to reduce any
impact on P when M increases.
ONE of:
 states that the
increase in the
price level will
be significantly
more during a
boom
 states that the
increase in the
price level will
be significantly
less during a
recovery.
 boom
 recovery.
A/M/E
NCEA Level 2 Economics (90794) 2010 — page 3 of 4
Q
THREE
(a)
(b)
(c)
Evidence
Achievement
Merit
Excellence
Code(s)
A/M/E
See Appendix Two.
Rising business confidence will
result in higher expectations of
investment returns and
increased investment by firms,
which will increase aggregate
demand and result in demand
pull inflation / inflation
increasing.
Electricity is an input into the
production of most goods and
services. An increase in the
price of electricity is likely to
increase the costs of production
and, therefore, the prices of
most goods and services. This
will lead to an increase in the
general level of prices, which is
inflation. An increase in the
price of rice is less likely to
increase the costs of production
of other goods and services
and, therefore, less likely to
result in inflation.
When inflation occurs, prices
are lower now than they are in
the future. This means that the
real value of savings and the
real interest rate decrease.
Both these factors discourage
savings.
Rising prices also decrease the
real value of any borrowed
funds, so borrowing may
increase.
Households may also borrow
more now for spending to beat
further price rises.
Any ONE of:
 AD curve is
shifted to the
right, labels or
arrows used
 identify that
rising
business
confidence
increases
inflation
 states that an
increase in the
price of
electricity will
lead to a
higher cost of
production
 states
significance of
electricity in
the basket of
goods
General
explanation of
TWO of:
In-depth
explanation of
ONE of:
 effect of rising
business
confidence on
AD curve or
inflation
 effect of rising
business
confidence
 effect of an
increase in the
price of
electricity on
cost of
production
and its impact
on inflation
 why an
increase in the
price of rice is
less likely to
cause
inflation.
 comparing
effect of an
increase in the
price of
electricity and
rice
AND
 general
explanation of
the other.
 states that an
increase in the
price of rice is
an increase in
only a single
market.
States that the
real value of
savings / interest
rate / borrowed
funds decrease
OR
states that
inflation
expectations
have led people
to borrow and
spend rather than
save.
General
explanation of
decline in savings
OR increase in
borrowing,
making reference
to real values.
In-depth
explanation of
decline in
savings, making
reference to real
value of savings /
interest
AND
increase in
borrowing,
making reference
to real value of
borrowed funds
or reference to
rising incomes
making debt
repayments
easier.
A/M/E
Judgement Statement
Achievement
Achievement with Merit
Achievement with Excellence
4A
3M
1A
3E
1A
NCEA Level 2 Economics (90794) 2010 — page 4 of 4
Appendix One – Question One (b)
Model One: AS and AD of an Economy
Appendix Two – Question Three (a)
Model Two: AS and AD of an Economy