Report on the 2012 WACE examination in

Economics Stage 3
Year
2012
2011
2010

Number who sat

1879
2045
1988

Number of absentees
19
28
23

Summary
This was the third year that Stage 3 of the WACE Economics course has been examined.
The structure and difficulty of this years paper conformed to that of the previous WACE
examination. All but 1.3% of the 1879 candidates attempted all sections of the paper.
This suggests that the length of the paper was appropriate.
The mean of the examination was 52.94%. The low mean was due to the lower than
expected means for Sections Two and Three. Statistical analysis suggests there was strong
internal reliability of the examination paper with a coefficient 0.90. The correlation of section
totals with the examination total was strong, with Section One: Multiple-choice at 0.85,
Section Two: Data interpretation/Short response at 0.94 and Section Three: Extended
response at 0.93. The correlation of individual questions with each section total was very
good, ranging from 0.88 for Question 25, to 0.93 for Question 29. The paper allowed for
good discrimination among the candidate responses, with a standard deviation of 18.00.
Scores ranged from 4% to 96%.

General comments
The 2012 paper examined candidates understanding of contemporary macroeconomic
events and issues, including budget surpluses, subsidies to the local car industry,
appreciation of the Australian dollar and rising levels of foreign investment in Australia.
This allowed candidates to apply their theoretical knowledge to contemporary issues facing
the Australian economy and policy makers. Generally speaking this was completed well by
candidates. However, some candidates still have difficulty identifying the correct economic
model and integrating the model into their answers.
Candidate answers in the examination highlighted the following:
Many candidates demonstrated a good understanding of recent developments in
the economy.
Many candidates could not distinguish between the public and private sector
components of Australias net foreign debt.
A key weakness was that many candidates did not understand the relationship
between the level of domestic economic activity and Australias current account position.
Many candidates were aware of the strong appreciation of the Australian dollar, but few
understood the broader macroeconomic effects of an appreciation on the economy.
The AD/AS framework continues to be one of the more difficult sections of the course
for many candidates.

Comments on specific sections and questions

Each section of the paper performed as expected. Section One had a good blend of
questions. Sections Two and Section Three covered a range of topical and important
theoretical areas of the syllabus. The paper was a good test of candidates understanding
of the Australian economy.

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WACE Examination Report: Economics Stage 3

Section One: Multiple-choice. Mean 13.57 (24 marks).

Within the section there were no relatively easy questions, in that no question had a mean
exceeding 80%. There were four questions that proved relatively difficult with means less
than 40%: Questions 8, 10, 13 and 24.
Question 8.
Candidates did not recognise that the US dollar had depreciated which meant that the $A
appreciated. Of the alternatives listed, only a rise in commodity prices (c) could lead to an
appreciation.
Question 10.
Candidates seemed to find the graphical questions difficult. The diagram showed that both
inflation and unemployment had increased, so that the likely cause would have been (a) an
increase in wages.
Question 13.
Candidates were required to recognise from the data that both the inflation rate and the CAD
had fallen, indicating a decrease in domestic spending. A rise in the MPS (a) would indicate
a decrease in consumption spending which would lead to decrease in the inflation rate and a
fall in the CAD.
Question 24.
Candidates tend to find the theory dealing with macroeconomic equilibrium challenging.
The condition for equilibrium is that spending equals production (or the sum of all leakages
equals the sum of all injections), which means that there is no change to inventories.
Alternative (b) is the correct answer. Most candidates chose (a) which would be correct for
a closed economy with no government sector.
Section Two: Data Interpretation/Short response. Mean 18.78 (36 marks).
There was a good range of topical questions which incorporated different data sources and
covered key aspects of the syllabus.
Question 25. Number of candidates: 1878. Mean 6.74 (12 marks).
Parts (a) and (c) performed as expected. Answers to part (b) were relatively poor. In this part
candidates were asked to explain why Australias public sector net foreign debt increased
after 2009. Many candidates did not know that the public sector was referring to the
government sector and that the rise in public debt was linked to the government borrowing
from overseas to fund its budget deficits.
Question 26. Number of candidates: 1877. Mean 6.44 (12 marks).
Parts (a) and (b) performed as expected, although many candidates could not state correctly
the forecast budget outcome. The correct answer was a $1.5 billion surplus. Many
candidates either left out the billion or did not write surplus. In part (b) many candidates
did not understand all aspects of the monetary policy transmission mechanism.
This question highlighted that candidates need to understand the fiscal/monetary policy mix
and how changes in fiscal policy can have a bearing on the setting of monetary policy.
Question 27. Number of candidates: 1871. Mean 5.63 (12 marks).
Part (a) was well answered but part (b) and especially part (c) were answered poorly.
In part (b) candidates were asked to account for the significant change that occurred in
the Services balance in 201011. A key factor was the appreciation of the $A increasing
services imports such as outbound tourism, and decreasing services exports such as
education. Part (c) recorded a very low mean because most candidates did not understand
the relationship between the level of domestic economic activity and Australias current
account position. Candidates need to be aware that as the level of domestic economic

WACE Examination Report: Economics Stage 3

activity expands, spending increases which increases imports of both capital and consumer
goods. During periods of high economic activity, investment increases relative to savings
which increases the CAD (CAD = I S).
Section Three: Extended Response. Mean 20.87 (40 marks).
Question 28. Number of candidates: 1180. Mean 10.97 (20 marks).
The was a relatively straight-forward textbook style question. In part (a) the mean was 4.44
(out of 8 marks). Many candidates could not draw accurately the subsidy diagram showing
the world price below the domestic price and could not identify domestic production and
imports. Many candidates were not able to elaborate on the effects of the subsidy on other
sectors of the economy. For part (b) the mean was 6.58 (out of 12 marks). Candidates
performed well generally in this part.
Question 29. Number of candidates: 542. Mean 11.45 (20 marks).
It was apparent that many candidates had prepared or memorised a standard answer to this
style of question. Many candidates referred to examples that related to the 1980s and
1990s, the era of most significant microeconomic reform.
Question 30. Number of candidates: 1320. Mean 10.36 (20 marks).
Part (a) was well answered. The mean score was 4.76 (8 marks) with most candidates
demonstrating a good understanding of the causes of the recent $A appreciation. Part (b)
however was poorly answered, the mean score was 5.67 (12 marks). While most candidates
could explain the effects of an appreciation on trade, they could not explain correctly the
effects on foreign investment and the macro economy.
Question 31. Number of candidates: 626. Mean 9.35 (20 marks).
Candidates were not confident with using and/or explaining the AD/AS model. While many
candidates could show that a decrease in aggregate demand (AD) could cause a recession,
few could explain that a recession can also be caused by a decrease in aggregate supply
(AS). The AD/AS framework is a key part of the syllabus and while it is one of the more
difficult parts of the syllabus, it is important for candidates to be able to apply this model.

WACE Examination Report: Economics Stage 3