What is going on with this question? (2020 HSC Economics Q20)

I was reviewing the 2020 Economics HSC Exam and found myself frustrated with Q20. After flipping the table, I decided to figure it out for myself.

Let’s start with the question — see below. There’s a lot going on here for one mark. 

Source: NESA

Step one: What the hell is going on?

If you look at the first part of the question and the graph, the labour market starts at We. This is the equilibrium wage. At We, the demand for labour equals the supply of labour — there is NO UNEMPLOYMENT. It’s really important we set this up.

Step two: The government sets a minimum wage

The government decides to set a minimum wage which sits ABOVE the equilibrium wage. The government has decided that the equilibrium wage is too low and therefore it should be higher.

The minimum wage is a price floor. This is because the price cannot fall below the level of W1. 

But let’s think about what happens with the price floor. Now, supply of labour exceeds demand (see my annotations below). This means that there will be unemployment in the economy because, at a higher wage, more workers are willing to supply their labour BUT employers demand fewer workers because they are more expensive at W1.

I’ve identified the size of unemployment in the graph below.

My annotations. At We, there is no unemployment — demand for labour and supply of labour are equal. Notice how at W1 we get unemployment (UE) where the supply of labour exceeds the demand for labour.

Step three: The Lorenz Curve comes into play

The Lorenz Curve is a measure of income inequality. Have a look at the curve below. You’ve got the line of perfect equality and then the Lorenz Curve.

Source: economicshelp.org

If the Lorenz Curve moves left, it is moving closer to the line of perfect equality. So income inequality is improving. This is a move inward of the Lorenz Curve.

If the Lorenz Curve moves right, it is moving further away from the line of perfect equality. So, income inequality is worsening. This is a move outward of the Lorenz Curve.

The question wants us to think about the impact on the Lorenz Curve on the minimum wage.

Step four: What’s the answer? 

Now, let’s go through the possible answers.

A: The Lorenz Curve would move inwards as all employees receive a higher wage.

This is incorrect. Not all employees receive a higher wage. Only those who are on the minimum wage would receive a higher wage. So we can eliminate this response.

B: The Lorenz Curve would move inwards as there is an increase in the level of employment.

Go back to the graph. When the government imposes a minimum wage, there is not an increase in employment. Instead, there is an increase in unemployment because, at W1, the supply of labour EXCEEDS the demand for labour. So we can eliminate this response.

C: The Lorenz Curve would move outwards as all employees receive a higher wage.

If we go back to answer A, we can see that all employees DO NOT receive a higher wage. Only those on the minimum wage receive a higher wage. So we can eliminate this response.

D: The Lorenz Curve moves outwards as there is an increase in the level of unemployment.

Okay. So we know that the level of unemployment rises because the supply of labour exceeds the demand for labour. But would the Lorenz Curve move outwards?

The graph shows us that unemployment rises. Who loses their jobs? Those on the minimum wage who now earn more money (W1>We). This means that low income earners would earn less income (i.e. now income because they’re unemployed), which could worsen income inequality. This would cause the Lorenz Curve to move outwards. 

Our answer is D. It takes a lot of work to get there.

My advice to you

With the multis, do everything you can to eliminate as many answers as possible. You can see that by ruling out the least likely, we came to the correct answer. Make it at least a 50/50. 

Australia’s economic data is released when?

In Australia, key economic data is released throughout the year. By understanding Australia’s economic data calendar, you can be aware of when key data will drop and then incorporate that consistently into your responses.

I tell you this: the use of current (and correct) economic data is extremely important in allowing you to access higher marks in Eco exam situations.

The best source I’ve found for this is Trading Economics.

(If you’ve got trouble only getting Aussie info to appear, or if the timezones are out of whack, try this:  select the calendar tab, then countries and make sure only Australia is selected.)

Now you can see the pattern of how economic data is released in Australia. For example, in October 2021, on Tuesday 5 October we get some heavy hitting data:

• Balance of trade (Balance on goods and services — the comparison between the value of exports and the value of imports)

• Monthly change in exports and imports

• Monthly retail sales data (extremely important as it is a vital part of consumption)

• Reserve Bank of Australia’s (RBA) cash rate decision

A snippet of the eco data goodness being released in October 2021

Trading Economics shows you what the last result was (“previous”) and the “consensus” view which relates to the average of what economists think the result will be. 

You can also start to see the longer-term patterns of when data is released. For example, on 28 October, we get the latest read on inflation data. You can see that it is QoQ (quarter on quarter) and YoY (year on year). And you can see that the previous yearly rate was 3.8% (with a forecast of 2.8%) while the last quarterly rate was 0.8% (with a forecast of 0.7%). The forecasts are done by Trading Economics, while the consensus comes from market economists.

You can also see that on the same day we get the RBA’s own measures of inflation — trimmed mean and weighted mean. This helps the RBA develop its core measures of inflation, which strip out one-off changes and help to give the underlying trend in prices. 

One practical way to use this info is to list the key dates in your calendar so you’re reminded when the last eco data releases.

Pay attention to every word

In the HSC exam, every word in every question is deliberate. Each word has a purpose. 

That’s why decoding exam questions is so important if you want to access the higher marks on offer. 

Let’s take an example. Below is Q18 from the 2020 NSW Economics HSC. It’s a tariff question with lots of words and numbers. I got asked about this specific question by a student and it’s a great example of the power of decoding exam wording.

I think the trickiest part of the question is the expression “total consumption”. What even is total consumption? 

Let’s say we’re in the exam and we’re feeling a bit lost. We can decode the words to come to the answer.

First, we can think about consumption as being demand, and demand involving how much of something consumers want over a range of prices. 

So — if we think about consumption, consider the fact that the question has told us that:

• the economy has introduced international trade

• there are imports.

Given all this, total consumption will include the total amount consumers actually want to consume. That is, locally produced goods AND imports. So the 35,000 kg figure includes the amount of cotton produced by the economy AND the 10,000 kg of cotton that is now imported. If 35,000 kg includes exports and imports, and imports are 10,000kg, that leaves domestic production at 25,000 kg. 

You can then work out the answer. If domestic product, after the tariff is 25,000 kg, then domestic production has fallen by 5,000 kg. Just calculate tariff revenue and you’re golden.

You can see my working out process below.

My brain in action.

Also, check out the video below for the step-by-step strategies. 

Pay very close attention to the wording. Every word serves a purpose in HSC exam questions.

They won't plan their essay (but they should)

Teaching is a great profession for throwing around the phrase, “If I had a dollar for every time I’d told them…” As teachers, we apply it to many things. As an Economics teacher, I apply it to essay planning.

Economics essays are challenging. In my experience, there are no magic formulas or winning scaffolds. Students have to fully engage with the unique question and provide a solid mix of economic theory and current stats to support their discussion. 

And it really is more of a discussion. That’s how I view it. In the NSW Economics HSC, you’re not really creating a thesis statement and rattling it off at every opportunity. Instead, you’ve got to engage with the question...as messy as it might be (I see you 2018 Eco HSC Q26). 

Well, this escalated quickly. From the 2018 Eco HSC.

But this is hard. Students, understandably, want scaffolds and structures and guaranteed ways to land Band 6s. And lots of people promise this. So, as a teacher, how do you get students to think differently about essays?

My ongoing challenge is to have students make meaningful attempts to plan their extended responses. With 20 marks on offer, I don’t want them to simply start writing and see where it leads. I want them to have a roadmap and follow this closely as the clocks ticks. 

In working with students, I’m not fussed about how their essay plans look. I prefer them to be messy with lots of evidence of exploration and thinking. Practice plans can be long; in an exam, they’d probably need to be shorter and tighter. If I had to sum up my ideal process, I’d like students to throw all their ideas out there (in response to the question), and then rearrange them in a way that makes sense.

Perhaps the best way to demonstrate this is to show you. The video below is my process of engaging with a tricky but common Balance of Payments essay question. You can see how I go about addressing the question, in a comprehensive way, before I’d even write a formal word.

How important is essay planning in your practice? How do you get students to undertake planning in exam situations?

It's the night before HSC Eco (or other big exam)...

...and I think you should stop studying.

Sometimes the temptation can be to keep cramming until the very end. But I encourage you to stop.

I don’t have much science to support it, just experience. I think that the brain has a finite capacity, particularly right before a stressful test. There’s a limit to what can be absorbed. You can read and revise notes and highlight — but in terms of whether it will actually sink in...I’m not sure. 

The other reason to stop studying is to ease some of the stress. Maybe you feel less stressed studying. But maybe it would be easier to switch off for a few hours, relax and take some pressure off before the day of the test.

This screams Year 12 for me.

Let’s rewind to my Economics HSC exam, many decades ago. I remember I shocked my classmates because I watched an episode of Dawson’s Creek on TV the night before our Eco exam instead of doing last minute study. This was an ancient time when if you missed a show, you really missed a show. And I was an enormous Dawson’s fan.

If you’re sitting the 2019 NSW Economics HSC tomorrow, or subsequent Eco HSCs or massive exams, good luck and maybe take the night off.

Taking a long look at short answers

In the NSW Economics HSC exam, short answer questions constitute 40 per cent of the marks on offer. 

For context: this is the same weighting as the two extended response questions. So it’s hard to do very well on the exam without performing to a high standard on the ‘shorts’.

Short answers are difficult. Students must be precise because no half marks are given. I find that students get frustrated in terms of how they should structure their responses. Do they need definitions? Stats? Quotes? Graphs? Should they write just the amount of lines or go over? 

“I no longer give students ‘model’ answers...what I find useful is giving students an idea of how to approach specific questions; to give them a process.
”

Initially, I’d deal with this frustration by giving students ‘model’ answers for this section. I’d write carefully crafted responses that went into substantial detail. I don’t do this anymore. This is because short answers can be answered in myriad ways. Also, questions are rarely asked in identical ways, so what’s the point in receiving a ‘model’ answer?

Instead, what I find useful is giving students an idea of how to approach specific questions; to give them a process. I work with them in class to list bullet points of what we could include in a response, including relevant theory and evidence. My hope is that, over time, this process will give them the confidence to attack whatever short response they’re given.

I’ve included links below to my walk through of the 2016 HSC Economics short answer section (parts one and two). This will give you a good idea of my approach with students...and my refusal to provide sample answers.

Some other ideas for students:

• Definitions might be relevant. Be guided by the scope of the question.

• Stats are useful. Look for opportunities to provide relevant evidence, even in relatively small mark questions.

• Quotes are probably better suited for essays.

• Graphs can be super relevant. Consider them particularly for trade protection questions.

• Absolutely go over the lines provided. Provide more rather than less.

A potentially tricky BoP question

The 2018 NSW Economics HSC exam was full of challenging multiple choice questions. Here’s one that involves the Balance of Payments (BoP).

Check out the question below:

Source: NESA, 2018 Economics HSC

Let’s consider what we’ve got. From the question we know that we need to focus on Australia’s BoP, not the foreign country (whoever it is).

First bit of info: an Australian company purchases a foreign company.

This involves funds leaving Australia. And because it involves the purchase of a foreign company, this is likely to be a large amount of money. And and because it involves the purchase of a whole company, it is going to be classified as foreign direct investment (FDI).

FDI is recorded on the financial account. Therefore, this first bit of info would be recorded as a debit on the financial account. 

Second bit of info: this foreign company then pays dividends to Australian shareholders.

Dividends are classified as an income flow. This means they are recorded on the current account, under primary income. If the dividends are paid to Australian shareholders, this represents an inflow (or credit) to Australia’s current account.

Then, this second bit of info would be recorded as a credit on the current account.

Our answer is A.

My working out process. See suggestions below.

My recommendation

Exams can be tricky situations. It can be easy to get the answer categories mixed up. I’d suggest working through the question first, putting your thinking down on paper, and THEN looking at the answer categories.

This way, you’ll know what you’re looking for and might be less likely to get tricked.

Talk like an economist

Economics has its own language. In general, I have mixed feelings about jargon. It’s nice to have subject-specific terms that convey a very particular meaning. But jargon also makes things unnecessarily complex.

Either way, jargon is part of economics. And students are expected to understand and apply key economic terms in their written responses. Though it’s not easy. 

I mean, many students get a handle on expansionary/contractionary okay. How about fiscal or monetary easing? What about inflation targeting (or an inflation targeting regime)? And, even worse, what about jawboning?

As a teacher, I wanted my students to feel more confident with this language to ensure they used it in their responses. To this end I recorded a video — split in two parts — that goes through some key (and confusing) vocab.

This is how I’d suggest using this in class.

• Give students this list of terms covered in the video. I cut them up and laminated them for future use.

• Ask students to try and work out the meaning of the terms. Try and avoid them Googling — this defeats the purpose of the task. Put them in teams, resort to pen and paper only. 

• After they’re done, get students to check their understanding through the videos — part one and two.

• Ask the students to evaluate how they performed. Where were the gaps in their understanding?

I don’t make sure students know all the terms before I start. Just throw them in, make them struggle! You might need to leave out some terms. For instance, when I did this activity recently, I left out the term ‘crowding out’. If you try this activity, let me know how you go.

How should you allocate your time in the HSC?

According to the blurb on the front of the HSC Economics exam paper, this is how NESA thinks you should spend your time:

Don’t allocate your time this way. Source: NESA.

• Multiple choice: 35 minutes for 20 questions

• Short answer: 1 hour and 15 minutes for four questions

• Essays: 35 minutes for each essay.

I always wondered why they allocated the time this way. A smart teacher told me it was just NESA equally distributing the time (3 hours) across 100 marks. 

(180 minutes divided by 100 marks gives you 1.8 minutes per mark)

But these sections are NOT of equal difficulty. I think it is very hard to get an A-range response on the essays in only 35 minutes. You need more time here, and definitely less time on the multis.

Here’s how I suggest you allocate your time:

Multiple choice (do this first)

Maximum of 20 minutes here. Maybe less? Perhaps 15 would be ideal, but 20 minutes works okay.

Short answers (do this second)

Allocate 15 minutes per 10 mark question. All up, one hour for this section.

Essays (do this last)

Give yourself 50 minutes per essay. This is a much better allocation of time to try and access higher marks.

You have to be RUTHLESS about sticking to this timeline.

When you’re doing practice papers, use this timing and resist the temptation to go over. You’re just robbing time from another section!

Test students on the Balance of Payments categories

Here’s a useful question from the 2017 NSW Economics HSC exam about the Balance of Payments.

I think this is a great revision exercise after you’ve looked at the BoP categories in a bit of detail. Click through for the whole exam paper. I don’t love the suggested answers, so I reckon you’re best served by developing some ideas yourself.

I’ve also done a walkthrough on this question (see below). This could help students see some useful ways to approach this question.

Annotate exam questions properly

Want to do better in exams? Here’s the easiest way to improve: do a thorough job of annotating the question.

Exams can be stressful situations. You need to maximise your chances of success in a tough environment.

So, spend some time and break each question down.

What do I mean?

Here’s an example of how I annotated a subsidy question from the 2016 NSW Economics HSC Examination (Q21, part a). Link to exam and marking guide.

On first look, I was confused. Every time I bring it up in class, the students are confused. So, after many instances of confusion, I decided to record a video on HOW I would annotate it properly — see below.

When you annotate, use the following principles:

• What the key terms in the question?

• What do I know about the question?

• What do I know about the question that is relevant?

• What are some traps or pitfalls in the question?

You can (and SHOULD) annotate every type of question.