2024 HSC Economics: Worked Solutions

Worked solutions to the 2024 HSC Economics examination.

Get the paper first. These solutions describe each question rather than reproducing it, so open the official paper alongside. NESA publishes it free in the 2024 Economics exam pack. The answers below are checked against the official marking guidelines. The explanations are our own.

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Section I: multiple choice

Answer key

Q	A	Q	A	Q	A	Q	A
1	A	6	D	11	A	16	D
2	C	7	C	12	D	17	C
3	A	8	B	13	C	18	C
4	C	9	D	14	A	19	D
5	D	10	B	15	B	20	B

The reasoning

1. Improving quality of life in developing countries. A. The World Bank provides long-term development finance for infrastructure, health and education with poverty reduction as its goal. The IMF does short-term crisis lending, the WTO administers trade rules, and the OECD researches and benchmarks advanced economies. This IMF and World Bank distinction is tested almost every year and reversed by candidates almost every year.

2. Benefit of centralised wage determination. C. A safety net for workers. Centralised systems deliver equity and protection for the low paid. Wage flexibility and structural change are arguments for decentralisation, and greater income inequality is a cost rather than a benefit.

3. Two objectives conflicting in the short term. A. Price stability and full employment, which is the short-run Phillips curve. Option B is not a conflict at all, because economic growth and unemployment move together in the desired direction: growth reduces unemployment.

4. Disadvantage of free trade. C. Higher rates of dumping, meaning exposure to foreign producers selling below cost. Greater competition and economies of scale are benefits, and free trade lowers domestic prices rather than raising them.

5. A 5% shareholding. D. Two decisions. A stake below 10% confers no control, so it is portfolio rather than direct investment. And money is flowing into Australia, so it is a credit. Portfolio investment credit.

6. Participation rate. D.

Labour force = employed + unemployed = 7m + 2m = 9m
Participation rate = 9m ÷ 11m × 100 = 82%

The trap is dividing by the total population of 16 million, which gives 56%, sitting there as option B.

7. Marginal propensity to consume. C.

ΔIncome = 475 − 375 = 100
ΔSavings = 200 − 160 = 40
MPS = 40 ÷ 100 = 0.4   →   MPC = 1 − 0.4 = 0.6

Option B (0.4) is the MPS, which is what you get if you forget the final subtraction.

8. Shortest implementation lag. B. Monetary policy. The Board meets eight times a year and a cash rate change takes effect immediately. Fiscal policy is tied to the annual Budget cycle and requires legislation. Microeconomic and environmental policy are slower still.

9. Better job search agencies. D. Frictional unemployment, meaning the unemployment of people between jobs. Better matching reduces search time. It cannot touch cyclical unemployment, which is caused by deficient aggregate demand.

10. Appreciating the AUD. B. Both levers must push the same way: increase the cash rate, which widens the interest rate differential, attracts capital inflow and raises demand for AUD, and buy Australian dollars in the foreign exchange market, which directly increases demand. Options mixing directions cancel out.

11. Shifting aggregate supply. A. Reduced tertiary education fees raise participation in education, building human capital and therefore productive capacity, which is a genuine supply-side effect. Increased government spending on pensions shifts aggregate demand, fewer migrants would shift AS the wrong way, and a higher GST raises costs.

12. Exports of goods. D.

CA + capital + financial = 0  →  CA = −(24 + 66) = −90
CA = (X − 36) + 12 + (−120) + (−6) = −90
X − 150 = −90   →   X = $60 billion

13. Local content rules. C. Requiring more locally produced content means fewer imports and greater short-term employment in the domestic industry. The long-term picture is less favourable, with higher costs and reduced competitiveness, but the question asks about the short term.

14. Rising Gini coefficient. A. A rising Gini means more inequality, so both policy changes must be regressive. Decreasing childcare subsidies removes support that disproportionately assists lower-income families, and decreasing the tax-free threshold brings low earners into the tax net. Both push the same direction.

15. Net primary income factors. B. Interest rates are the cyclical driver, because they determine the servicing cost of foreign debt in any given period. Low national savings is the structural driver, because the savings and investment gap is what created the foreign liabilities being serviced.

16. Headline rising faster than underlying. D. A cyclone in tropical fruit-producing areas is exactly the kind of volatile, one-off supply shock the trimmed mean is designed to strip out. It lifts headline inflation while leaving underlying inflation largely unchanged.

17. Rising imported input costs. C. Buying dearer imports requires supplying more Australian dollars on the foreign exchange market, so the AUD depreciates. The higher input costs then feed through to higher domestic prices, which is imported cost-push inflation. Note the reinforcing loop: the depreciation makes imports dearer still.

18. External stability. C. Work both ratios:

Net foreign liabilities = net foreign debt + net foreign equity
Year 1: (700 + 200) ÷ 1200 = 75%
Year 2: (600 + 250) ÷ 1250 = 68%

Current account as % of GDP
Year 1: 35 ÷ 1200 = 2.92%    Year 2: 36 ÷ 1250 = 2.88%

Both ratios improved. Options A and B pair a correct calculation with the wrong conclusion, which is the standard two-part trap. Read the second half of each option as carefully as the first.

19. TWI and terms of trade both falling. D. A fall in global demand for exports reduces export prices, lowering the terms of trade, and at the same time reduces demand for the currency, lowering the TWI. It is the only option that moves both in the same direction.

20. Real growth and inflation. B.

Inflation = (120 − 110) ÷ 110 × 100 = 9.1%
Real GDP Year 1 = 600 ÷ 1.10 = 545.5
Real GDP Year 2 = 675 ÷ 1.20 = 562.5
Real growth = (562.5 − 545.5) ÷ 545.5 × 100 = 3.1%

The 12.5% option is nominal growth. The 10% inflation option divides by the wrong base year.

Where marks were lost. Six calculation questions again: 6, 7, 12, 18, 19 and 20. Question 18 is the hardest in the paper because it requires two ratio calculations and a judgement about what improving external stability means.

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Section II: short answer

Question 21 (10 marks): protection

(a)(i) Quantity of imports at the world price (1 mark). Read the horizontal gap between domestic supply and domestic demand at the world price line. Imports are the shortfall domestic producers cannot supply at that price.

(a)(ii) Tariff revenue with a $20 tariff (1 mark).

Tariff revenue = tariff per unit × quantity of imports remaining after the tariff

The universal error is multiplying by total consumption instead of by the remaining imports. Government collects nothing on domestically produced units.

(b) An implication of participation in one multilateral agreement (3 marks).

You must name the agreement, because the answer space asks for it explicitly.

Australia's participation in the Regional Comprehensive Economic Partnership has reduced tariffs on Australian goods exports across the fifteen member economies and, more significantly, harmonised rules of origin across the region. This lowers the administrative cost of trading through regional supply chains, improving the competitiveness of Australian exporters in Asian markets and increasing export volumes. The implication is greater market access, though it also exposes import-competing domestic industries to stronger regional competition.

Name it, state the implication, explain the mechanism.

(c) Impact of other countries' protectionist policies on components of Australia's current account (5 marks).

Note the wording: components of the current account. Structure the answer around them.

Protectionist policies abroad restrict Australian access to foreign markets. Agricultural protection in the European Union, United States and Japan is the clearest case, because tariffs and quotas exclude Australian producers despite our comparative advantage, while subsidised foreign production creates global surpluses that depress world prices. Australia therefore loses twice, through restricted access and through a lower price for what it does sell elsewhere.

The balance on goods and services deteriorates directly, as export volumes and values fall while imports are unaffected. Lower export income also reduces the profitability of export-oriented firms, many of which are foreign-owned, which slightly reduces the profit outflows recorded as debits on net primary income. That is a partial and perverse offset.

Under a floating exchange rate there is a self-correcting mechanism. Weaker export demand reduces demand for the AUD, causing a depreciation that restores some competitiveness and partially offsets the deterioration in the goods and services balance over time.

Five marks needs at least two components named, plus the exchange rate adjustment.

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Question 22 (10 marks): inflation

(a) One cause of inflation in Australia (2 marks).

Demand-pull inflation occurs when aggregate demand grows faster than the economy's productive capacity. With the economy at or near full capacity, excess demand bids up prices instead of calling forth additional output.

Name the type and give the mechanism. Naming without the mechanism is one mark.

(b) How domestic inflation affects international competitiveness (3 marks).

If Australia's inflation rate exceeds that of its trading partners, Australian goods and services become relatively more expensive in world markets. Exporters lose price competitiveness, which reduces export volumes, while imported substitutes become relatively cheaper, which increases import volumes. This worsens the balance on goods and services. Higher domestic inflation also raises input costs for producers, compounding the loss of competitiveness.

The word relatively is doing the work. Competitiveness is about inflation differentials, not the absolute rate.

(c) Analyse the impact of labour market policies on inflation (5 marks).

Labour market policies influence inflation principally through wage costs, since wages are the largest single component of production costs. Under Australia's decentralised system, enterprise bargaining links wage increases to productivity at the level of the individual firm. Where wage growth is matched by productivity growth, unit labour costs are stable and no cost-push pressure is generated. Where wages rise faster than productivity, unit labour costs rise and firms pass this into prices.

Minimum wage decisions have a similar effect. The Fair Work Commission's annual review must weigh the needs of the low paid against the inflationary consequence of raising the wage floor across the economy.

Education and training policies work on inflation from the supply side. By reducing the skills mismatch they lower the NAIRU, the rate of unemployment consistent with stable inflation, which allows the economy to sustain lower unemployment without generating inflationary pressure.

The implication is that labour market policy is a structural instrument for inflation control. It cannot respond to a cyclical inflation shock the way monetary policy can, but it determines the wage-cost environment within which monetary policy operates.

Analyse wants relationships and implications drawn out, which the last paragraph does.

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Question 23 (10 marks): environmental sustainability

(a) An environmental issue affecting the Australian economy (2 marks).

Climate change. More frequent and severe droughts, bushfires and floods reduce agricultural output, damage infrastructure and raise insurance costs, lowering productive capacity and imposing significant costs on the Budget through disaster recovery.

Name the issue and give an economic consequence. The question says "affecting the Australian economy", so an answer that is purely environmental misses half the marks.

(b) One private and one social benefit of an EV charging station (3 marks).

Private benefit: electric vehicle owners who use the station gain convenient access to charging, and the shopping centre attracts additional customers, raising retail revenue. These benefits accrue directly to the parties involved in the transaction.

Social benefit: by making electric vehicle ownership more practical, the station encourages a shift away from internal combustion vehicles, reducing greenhouse gas emissions and local air pollution. These benefits accrue to third parties who are not part of the transaction, which is a positive externality, and it explains why the market under-provides charging infrastructure and why government intervention is justified.

The distinction that earns the marks: private benefits go to the parties in the transaction, social benefits include third parties.

(c) Assess the effectiveness of one market-based policy (5 marks).

Assess requires a judgement.

A tradable emissions permit scheme caps total emissions and allows firms to trade permits. Its principal strength is efficiency. Firms that can abate cheaply do so and sell surplus permits, while firms facing high abatement costs buy permits instead. Abatement is therefore concentrated where it is cheapest, achieving the cap at the lowest total cost to the economy. It also provides certainty over the environmental outcome, because the government fixes the quantity of emissions directly. That is the key advantage over a carbon tax, which fixes the price and leaves the quantity uncertain.

Its weaknesses are equally real. The permit price is volatile, creating uncertainty for long-term investment decisions. The initial allocation is politically fraught, because granting free permits to incumbents transfers windfall value to polluters. It is administratively complex, and being national it cannot address a global externality where other economies do not act, which is the free rider problem.

Australia's experience illustrates the deepest limitation. A carbon pricing mechanism operated from 2012 and was repealed in 2014, and the resulting policy uncertainty deterred energy investment for years afterwards. Market-based mechanisms are the most efficient instruments available in theory, but their effectiveness depends on policy durability, which in Australia has been the binding constraint rather than the economics.

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Question 24 (10 marks): the global economy

(a) Distinguish between international and regional business cycles (2 marks).

The international business cycle is the tendency for business cycles across the world economy to move together, transmitted through trade, financial flows, transnational corporations and confidence. The regional business cycle is the same synchronisation among a geographic group of economies, and it is typically stronger, because regional economies trade more intensively with each other. Australia's cycle is more closely linked to East Asia, and to China in particular, than to Europe.

Distinguish requires both defined and the difference made explicit.

(b) One reason for the difference between advanced and emerging economies (3 marks).

Institutional quality. Advanced economies typically have the rule of law, secure property rights, enforceable contracts and low corruption. These reduce the risk of investment, so firms are willing to commit capital to long-term projects, raising the capital stock and productivity. Emerging economies with weaker institutions face higher risk premiums and lower investment, which constrains the accumulation of productive capacity and slows convergence with advanced economies.

One reason, developed properly, beats four listed.

(c) For an economy other than Australia, analyse the effects of globalisation on economic development (5 marks).

Name the economy, because the answer space requires it.

Globalisation has transformed Chinese economic development through two principal channels. Trade integration, accelerated by WTO accession in 2001, gave labour-intensive manufacturers access to developed-country markets, enabling specialisation according to comparative advantage and the movement of hundreds of millions of workers from low-productivity agriculture into higher-productivity manufacturing. Foreign direct investment, concentrated in Special Economic Zones, brought capital, technology and management practice the domestic economy lacked.

The developmental effects have been substantial. Roughly 500 million people were lifted out of poverty in a generation, and China's Human Development Index of about 0.815 places it in the very high human development band, which indicates gains in health and education rather than merely income.

The effects have been uneven. The coastal concentration of foreign investment widened regional inequality, and the hukou system limited migrants' access to urban services, leaving the Gini coefficient around 0.47. Rapid industrialisation also imposed severe environmental costs.

Globalisation has therefore delivered extraordinary aggregate development while distributing its benefits unevenly, which demonstrates that the rate of development and the distribution of its gains are determined by separate policy choices.

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Section III: stimulus-based extended response

Question 25: macroeconomic and microeconomic policies to achieve sustainable economic growth

The stimulus contrasted Australia's strong inflation-targeting record since the early 1990s with a declining labour productivity trend from 2007 to 2022. That contrast is the whole question. Macro policy has worked, and the constraint on sustainable growth is now supply-side.

Thesis. Macroeconomic policy has successfully stabilised the Australian business cycle since the early 1990s, but sustainable growth, meaning growth that can be maintained without generating inflation, depends on microeconomic reform to reverse the productivity slowdown evident in the stimulus.

The paragraph plan:

1. Define sustainable growth as the highest rate consistent with the other objectives, particularly price stability and external stability.
2. Monetary policy. Flexible inflation targeting since the early 1990s, the interest rate transmission mechanism, and the stimulus statement that inflation averaged around the midpoint of the target while output and unemployment variability fell. Quote it.
3. Fiscal policy. Counter-cyclical stabilisation, automatic stabilisers, and infrastructure investment as the supply-side element of the Budget.
4. The limitation of macro policy, which is that it manages demand and cannot raise capacity. At full capacity, further stimulus produces inflation instead of growth.
5. Microeconomic policy. Competition policy, deregulation, tariff reduction, labour market reform, education and training, all raising aggregate supply.
6. The productivity problem. Use the stimulus graph: labour productivity growth trended down over 2007 to 2022. Since productivity growth is the only sustainable source of rising income per person, this is the binding constraint.
7. Judgement. Macro policy has done its job, the marginal return to further demand management is low, and sustainable growth now requires microeconomic reform.

What the top band needed: synthesising both policy types with the stimulus, and reaching a judgement about their relative contribution instead of describing each in turn.

Question 26: macroeconomic and microeconomic policies to achieve full employment

Same structure, different objective.

Thesis. Macroeconomic policy can eliminate cyclical unemployment but cannot reduce unemployment below the NAIRU sustainably, so achieving full employment requires microeconomic and labour market policy to lower the NAIRU itself.

The plan:

1. Define full employment as the NAIRU, meaning the elimination of cyclical unemployment rather than zero unemployment. This definition is worth marks on its own.
2. Macro policy and cyclical unemployment. Expansionary fiscal and monetary policy raise AD, then output, then derived demand for labour.
3. The limit. Below the NAIRU, wage growth accelerates and inflation rises. Use the short-run and long-run Phillips curves: expansionary policy buys lower unemployment only until expectations adjust.
4. Structural unemployment needs a different instrument, meaning education, training, retraining, job matching and relocation assistance.
5. Labour market policy. Enterprise bargaining links wages to productivity, and minimum wage settings trade off equity against employment.
6. Judgement. The two policy types address different types of unemployment. Matching the wrong policy to the wrong type is the central error, and the sustainable route to lower unemployment is lowering the NAIRU.

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Section IV: extended response

Question 27: factors contributing to international economic integration

The verb is explain, so relate cause and effect and provide why and how. Not evaluate. A response arguing whether globalisation is good is answering a different question.

Thesis. International economic integration has deepened through four reinforcing channels, being trade, financial flows, investment, and the technology that enables both, each driven by identifiable reductions in the cost of crossing borders.

The plan, one factor per paragraph, each with a mechanism:

1. Trade in goods and services. Falling transport costs and containerisation, multilateral liberalisation through the GATT and WTO, the proliferation of bilateral and regional agreements, and the rise of global supply chains where a single good crosses several borders.
2. Financial flows. Deregulation of financial markets from the 1980s, floating exchange rates, and technology permitting instantaneous cross-border transactions. Note that financial integration is far deeper and far more volatile than trade integration.
3. Investment and transnational corporations. FDI as the vehicle for capital, technology and management practice, with TNCs organising production across borders.
4. Technology, transport and communication, the enabling factor behind the other three. Containerisation and cheap air freight collapsed the cost of moving goods, while fibre optics and the internet collapsed the cost of moving information.
5. The international division of labour and migration. Specialisation by comparative advantage, and the point that labour is the least globalised factor, because migration is politically restricted almost everywhere.
6. Institutional factors. The WTO, IMF and World Bank, regional blocs, and the G20.

What separates the top band: explaining how each factor produces integration, instead of listing them. Naming the counter-forces, meaning protectionism, geopolitical fragmentation and restricted migration, shows you understand integration is contested rather than inevitable.

Question 28: impacts of an appreciation of the AUD on individuals, firms and government

Three named groups. Give each roughly equal weight. This is the structural requirement most candidates fail.

Thesis. An appreciation redistributes purchasing power towards importers and consumers and away from exporters and import-competing producers, while reducing inflationary pressure and worsening the balance on goods and services.

Individuals:

• Imported goods become cheaper, raising real purchasing power
• Overseas travel becomes cheaper
• Employment and income fall in export and import-competing industries: mining, agriculture, manufacturing, tourism, education

Firms:

• Exporters lose competitiveness. Their goods cost more in foreign currency, so volumes fall.
• Import-competing firms are squeezed by cheaper foreign substitutes.
• Importers gain, as do firms using imported inputs and capital equipment, which reduces production costs.
• Firms with foreign-currency debt benefit from a lower AUD servicing cost.

Government:

• Lower inflation through cheaper imports, giving the RBA room to keep rates lower
• Lower tax revenue from export industries, particularly company tax from mining, worsening the Budget
• Higher unemployment benefits if export-sector employment falls
• The value of foreign-currency-denominated public debt falls in AUD terms

Then add the mechanism and the diagram. Draw the foreign exchange market showing demand for AUD shifting right or supply shifting left, and refer to your own labels. Note the J-curve in reverse for the trade balance, and the fact that under a float the appreciation itself is often a symptom of a commodity price boom that is simultaneously raising national income.

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What to do with this paper

Do it timed and closed-book first. Then mark against NESA's published guidelines before reading any of the above, and classify every lost mark as knowledge, verb, data, timing or diagram.

Related: 2025 worked solutions · The complete diagram guide · Every formula you need

Questions are described rather than reproduced. The 2024 examination paper and marking guidelines are © NSW Education Standards Authority and are available free from the NESA website. Answers verified against the official marking guidelines; explanations are our own.