Year 12 Economics Exam Semester 1 2022
Marking Guide
Section 1 (24 marks)
Question Answer
1 C
2 D
3 B
4 D
5 B
6 A
7 C
8 D
9 A
10 D
11 C
12 A
13 A
14 C
15 B
16 D
17 B
18 D
19 C
20 B
21 C
22 A
23 A
24 B
Question 25 (12 marks)
2
Year 12 ATAR Economics
(a) i Determine the expected increase in trade ($USbn) as a result of the RCEP tariff concessions.
(1 mark)
Description Mark
Expected increase in trade
$US 42 billion 1
ii State which of Australia’s top four trading partners is not a member of the RCEP. (1 mark)
Description Mark
Not a member of the RCEP
United States 1
(b) State which economy is the most protected and which economy is the most open. (2 marks)
Description Mark
Most protected
Republic of Korea 1
Most open
Australia 1
Total 2
(c) Identify and the sector which benefits the most from the RCEP and the sector which benefits
the least and provide an explanation for your answers. (4 marks)
Description Mark
Identifies the sector
Manufacturing benefits the most 1
Natural resources benefits the least 1
Explains the benefit
Most global trade is in manufacturing & so reducing tariffs in this sector will 1
generate the greatest benefits
Natural resource sector has very low tariffs already so minimal gain 1
Total 4
(d) Describe how reducing tariffs can result in both trade creation and trade diversion. (4 marks)
Description Mark
Trade Creation
Lowering tariffs would stimulate new trade between member countries, i.e. 1-2
increasing imports and exports for each economy
Trade Diversion
Lowering tariffs within RCEP would redirect trade away from non-members where 1-2
tariffs are relatively higher to members which still creates a net gain
Total 4
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Year 12 ATAR Economics
Question 26 (12 marks)
(a) i. Identify the commodity that has the greatest weight in Australia’s commodity price index.
(1 mark)
Description Mark
Iron ore 1
ii. If the commodity price index was 105 in December 2020, calculate the percentage increase to
December 2021. (1 mark)
Description Mark
Increase from 105 to 136 – this is a 30% increase 1
Accept answers 29%-31%
(b) Explain how a rise in the commodity price index could increase both the export price index and
the import price index. (3 marks)
Description Mark
Explains how a rise in the commodity price index could increase both the export 3
price index and the import price index.
Describes that that a rise in commodity prices would increase the export price 2
index since commodities comprise over 60% of Australia’s exports such as iron
ore, coal, natural gas, gold.
Identifies that a rise in commodity prices would increase the export price index 1
Answers could include:
A rise in commodity prices would increase the export price index since commodities
comprise over 60% of Australia’s exports such as iron ore, coal, natural gas, gold.
A rise in commodity prices could also increase the import price index if the price of oil rises
given that oil/petrol is a major import for Australia.
Total 3
(c) Use an exchange rate model to illustrate and outline the effect of the change in the commodity
price index during December 2020 - December 2021 on the value of the Australian dollar.
(3 marks)
Description Mark
Model
Shift of the D(AUD) to the right causing the AUD to appreciate 2
Correctly labelled model showing the D/S of the AUD 1
Sub-total 2
Outline the effect
A rise in commodity prices increases the value of Australia’s exports which 1
increases the demand for AUD.
Total 3
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Year 12 ATAR Economics
(d) Outline three effects of the change in Australia’s terms of trade since December 2020.
(4 marks)
Description Mark
Outlines the change
Rise in the terms of trade due to a ride in the export price index 1
Sub-total 1
Outlines the effects (x3)
Outline an effect of an increase in the terms of trade (x3) 1
Sub-total 3
Answers could include:
A rise in the export price index will, ceteris paribus, increase the terms of trade.
The ToT = XPI/MPI x 100.
A rise in the terms of trade will:
increase the trade balance (& the current account balance).
increase real GDP, given the increase in net exports.
increases living standards by boosting real income
will appreciate the currency making imports relatively cheaper
Total 4
Question 27 (12 marks)
(a) For 2021, estimate the value of
i. Australia’s total foreign assets (1 mark)
Description Mark
Approximately $3,400 billion 1
ii Australia’s total foreign liabilities (1 mark)
Description Mark
Approximately $4.200 billion 1
iii Australia’s net foreign liabilities (1 mark)
Description Mark
Approximately $800 billion 1
(b) Identify the two main types of foreign investment in Australia. (2 marks)
Description Mark
For each of the two main types of foreign investment (x2)
Identifies direct & portfolio investment 1
Answers could include any of the following: 1
Direct: when a foreign firm establishes a new business or acquires 10% or
more of an Australian enterprise, and so has some control over its
operations.
Portfolio: refers to the purchase of securities (e.g. shares or bonds) that do
not offer the investor any control over the operation of the enterprise (< 10%
ownership).
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Year 12 ATAR Economics
Total 2
(c) Account for the change in Australia’s net international investment position since 2018.
(3 marks)
Description Mark
Australia’s net international investment position
Accounts for the change in Australia’s net international investment position 3
Outlines a reason for the change in Australia’s net international investment 2
position
Identifies the change in Australia’s net international investment position 1
Answers could include any of the following:
Identifies the change:
Australia’s net international investment position (net foreign liabilities) has
declined from around $1,000 billion in 2018 to around $800 billion in 2021.
Accounts for the change:
• The reason is that Australia’s foreign assets have been growing faster than our
foreign liabilities.
• This is due to Australia recording current account surpluses (financial account
deficits) which means that less foreign investment is flowing into Australia. At
the same time, more Australian investment has been flowing abroad.
Total 3
(d) Explain two effects of a decrease in Australia’s net foreign liabilities. (4 marks)
Description Mark
For each effect (x2)
Explains the effect of a decrease in Australia’s net foreign liabilities 2
Describes the effect of a decrease in Australia’s net foreign liabilities 1
Answers could include any of the following:
A decrease in net foreign liabilities means that net foreign investment into
Australia is falling. This can have a negative effect on GDP/employment growth if
the fall is due to a decrease in foreign direct investment. This will result in less
transfer of technology & managerial expertise.
A fall in net foreign liabilities may mean that the level of Australia’s net foreign
debt will decline which will reduce interest payments & thereby reduce the income
deficit in the current account.
A fall in net foreign liabilities is due to Australia’s foreign assets increasing will
increase income receipts in terms of dividends and interest payments increasing
Australia’s national income.
Total 4
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Year 12 ATAR Economics
Question 28 (20 marks)
(a) Define trade liberalisation and discuss three arguments that are often used against trade
liberalisation. (11 marks)
Description Mark
Define trade liberalisation
A detailed definition of trade liberalisation 2
A simple definition of trade liberalisation 1
Subtotal 2
Arguments against trade liberalisation
Discusses an argument against trade liberalisation with a supporting example 3
Explains of an argument against trade liberalisation 2
Outlines an argument against trade liberalisation 1
Subtotal 9
Total 11
Note – this is not simply discussing 3 arguments for protection.
Answers should include:
Demonstrates understanding of trade liberalisation
Trade liberalisation refers to the removal and/or reduction in trade barriers such as tariffs,
quotas & subsidies in order to promote free trade
Effects of trade liberalisation:
Trade liberalisation may lead to specialisation in just a few industries, increasing
dependence/reliance on other economies for certain types of goods & services, which may be
of strategic importance. This is the diversification argument, not placing ‘all your eggs in the
one basket’.
Trade liberalisation may result in structural change causing certain sectors in the economy
such as manufacturing to decline due to greater competition from imports & increasing
structural unemployment.
Trade liberalisation may expose a country to national defence issues – the argument is that a
country should not be dependent on the supply of essential/strategic goods/services from
another country in case of conflict with that country
Other arguments – trade liberalisation may lead to the loss of culturally important sectors;
trade liberalisation may lead to income inequality in the short term.
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Year 12 ATAR Economics
(b) Using an appropriate model, evaluate the argument that protection can ‘save domestic jobs’.
(9 marks)
Description Mark
Model
Correctly labelled tariff diagram showing D & S curves; tariff line above the world 4
price line. Effect of tariff on domestic production (increases), on domestic
consumption (decreases) and on imports (decrease).
Correctly labelled tariff diagram showing D & S curves; domestic production 3
increases and imports decrease.
Correctly labelled tariff diagram showing D & S curves; tariff line above the world 2
price line.
Correctly labelled model showing demand and supply curves 1
Sub-total 4
Evaluation
Evaluates the argument that protection does not save domestic jobs with 5
supporting evidence
Discusses that protection does not save other domestic jobs with supporting 4
evidence
Explains how protection will lead to an increase in domestic production and 3
therefore an increase in employment within the protected industry
Describes how protection will lead to an increase in domestic production within 2
the protected industry
Identifies that protection with preserve employment in the protected industry 1
Total 5
Answers may include:
With reference to the model, a tariff will lead to an increase in domestic production and
therefore an increase in employment within the protected industry (sector).
However, the tariff will increase costs for other producers and therefore lead to a decrease in
output in other sectors which will reduce employment.
The argument, therefore, that tariffs can save domestic jobs is fallacious – there will be a net
decrease in jobs.
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Year 12 ATAR Economics
Question 29 (20 marks)
Australia has recorded eleven consecutive current account surpluses since June 2019.
(a) Discuss four cyclical factors that have contributed to the increase in Australia’s current
account balance. (12 marks)
Description Mark
For each cyclical factor that impact the trade balance (x4) the student:
Discusses a cyclical factor that have contributed to the increase in Australia’s 3
current account balance
Explains a cyclical factor that have contributed to the increase in Australia’s 2
current account balance
Identifies a cyclical factor that has changed the current account balance 1
Sub-total 3
Total 12
Answers may include:
Cyclical factors that impact the trade balance:
• High commodity prices (iron ore, coal, gold, natural gas) increased the value of
Australia’s exports increasing both the trade balance & the current account balance
• During 2020, the COVID pandemic caused consumption spending to fall dramatically
which decreased import spending, esp. on services such as overseas tourism, increasing
both the trade balance & the current account balance
• Since 2019, investment spending declined due to low business confidence & low
economic growth. This decreased imports of machinery & capital good (e.g. motor
vehicles, computers) resulting in an increase in both the trade balance & the current
account balance
• During 2019-2020, the AUD depreciated which boosted net exports by making Australian
goods/services cheaper to overseas buyers and making imported goods/services more
expensive to Australian consumers.
(b) Explain how the increase in Australia’s current account balance is related to changes in
Australia’s saving-investment gap. (8 marks)
Description Mark
Marks awarded for the following points in explanation:
The current account balance is equal to the difference between a country’s saving 1
and its investment: CAB = S - I
If S > I, then the current account will be in surplus 1
If I > S, then the current account will be in deficit 1
Since June 2019, Australia’s savings have increased relative to investment, 1
creating a positive S – I gap and a current account surplus.
Savings have risen because consumption has fallen. Economic growth has fallen 1-2
during this time (pandemic) forcing the economy into recession in 2020. Increased
uncertainty will reduce spending & increase saving. Investment has fallen due to
falling economic growth reducing firms’ sales & profits.
Given that S now exceeds I, Australia does not need to rely on an inflow of foreign 1-2
investment to fill the gap. With less foreign investment, income payments fall
which increases the income balance in the current account. Higher savings has
also led to an increase in Australia investment abroad, increasing Australia’s
9
Year 12 ATAR Economics
overseas assets and boosting increases income receipts.
Question 30 (20 marks)
(a) Explain how different transactions in the current account, the financial account and the
capital account can affect the demand for and supply of the Australian dollar. (12 marks)
Description Mark
Transactions in the current account:
Transactions involving the export of goods/services & income receipts will affect
1-3
the demand for AUD – e.g. an increase in iron ore exports will increase demand of
(AUD); an increase in dividends from foreign companies will increase demand of
(AUD).
Transactions involving the import of goods/services & income payments will affect
the supply of AUD – e.g. an increase in car imports will increase S(AUD); an 1-3
increase in interest payments to foreign residents will increase supply of (AUD).
Sub-total 6
Transactions in the financial account:
Transactions involving foreign investment into Australia such as an increase in
foreign direct investment into the mining sector or an increase in borrowing from 1-2
overseas residents will increase the demand of (AUD).
Transactions involving foreign investment from Australia to overseas such as an
increase in portfolio investment into foreign share markets or Australian super 1-2
funds purchasing overseas assets will increase the supply of (AUD).
Sub-total 4
Transactions in the capital account:
Transactions involving foreign aid such as Australia providing aid to another 1-2
country to construct schools will increase the supply of (AUD).
Sub-total 2
Total 12
(b) Use a demand/supply model to illustrate and explain the effect of rising world interest rates
on the value of the Australian dollar. (8 marks)
Description Mark
Model
Correctly labelled model showing demand & supply of AUD, a shift of the D(AUD) 4
to the left showing a depreciation in the AUD and a shift to the right of the S(AUD)
also showing a depreciation in the AUD
Correctly labelled model showing demand & supply of AUD and a shift of the 3
D(AUD) to the left showing a depreciation in the AUD.
Correctly labelled model showing demand & supply of AUD. 2
Partially correct labelled model showing demand and supply curves 1
Sub-total 4
Explanation
Rising world interest rates relative to Australian interest rates will decrease 1-2
Australia’s interest rate differential - less capital inflow into the Australian economy
Australia’s speculative investment will flow out of Australia to other economies 1-2
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Year 12 ATAR Economics
Sub-total 4
Total 8
Answers may include:
Rising world interest rates relative to Australian interest rates will decrease Australia’s
interest rate differential. Interest rates affect the flow of ‘hot’ (speculative) money between
economies i.e. high interest rates attract portfolio investment. So if interest rates rise
overseas, there will be less capital inflow into the Australian economy reducing the demand
for AUD (shift the demand of AUD to the left) causing the AUD to depreciate.
At the same time, Australia’s speculative investment will flow out of Australia to other
economies chasing the higher rate of return. This will increase the supply of AUD (shift the
supply of AUD to the right) causing the AUD to depreciate.
