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NSWEconomics2025

HSC Economics 2025

Walkthrough of the 2025 HSC Economics exam: what each section assessed, timing, original exam-style worked questions on the multiplier, real growth, terms of trade, the Balance of Payments, labour market rates and exchange rates, an essay plan, and common errors drawn from the NESA marking guidelines.

Marks
100
Time
180 min
Authority
NESA
Updated
Open the official PDF Official marking notes

What this paper assessed

The 2025 HSC Economics paper sampled all four topics of the Year 12 course, with a strong lean towards calculation and data interpretation in the multiple-choice section.

  • Topic 1, The Global Economy: forms of economic integration (such as a shared currency), forces that speed up globalisation, how development indicators differ between developing, emerging and advanced economies, regional business cycles, the effects of import quotas and tariffs shown on a market diagram, the role of the OECD, the shortcomings of income as a gauge of wellbeing, and how world development affects environmental sustainability.
  • Topic 2, Australia's Place in the Global Economy: classifying and calculating Balance of Payments items, terms of trade index arithmetic, what shifts demand for the Australian dollar, how the Reserve Bank can intervene directly in the foreign exchange market, and how a depreciation affects local firms.
  • Topic 3, Economic Issues: the multiplier, injections and leakages, real versus nominal growth, headline versus underlying inflation, net foreign liabilities, public versus private goods, negative externalities, which groups face above-average unemployment, the participation rate, and the difference between cyclical unemployment and the NAIRU.
  • Topic 4, Economic Policies and Management: the purpose of macroeconomic policy, cyclical versus structural budget components, market-based environmental policy, the purpose of monetary policy, how the RBA keeps the cash rate near its target, the effects of a lower cash rate, and conflicts between economic objectives.

The extended responses offered a choice in each section. Section III gave a stimulus-based question on why the size and make-up of Australia's Balance of Payments have shifted from 2016 onward (with a current account chart) or on how income inequality affects the Australian economy (with an earnings table by age and gender). Section IV asked candidates to analyse either the conflicts between three of Australia's economic objectives or how different forms of protection affect firms and government.

Structure and timing

The paper cover sets 5 minutes reading time and 3 hours working time for 100 marks, which is 180÷100=1.8180 \div 100 = 1.8 minutes per mark. NESA's suggested allowances on the paper add up exactly to the working time:

Section Questions Marks Suggested time
I 1 to 20, multiple choice 20 about 35 minutes
II 21 to 24, short answer (each worth 10) 40 about 1 hour 15 minutes
III either 25 or 26, stimulus-based extended response 20 about 35 minutes
IV either 27 or 28, extended response 20 about 35 minutes

Check: 35+75+35+35=18035 + 75 + 35 + 35 = 180 minutes.

A practical split:

  • Section I (35 min): about 1.5 minutes per question. The calculation questions (multiplier, Balance of Payments, real growth, net foreign liabilities, terms of trade, tariff revenue) take longer, so move quickly through the definition questions and bank time for those.
  • Section II (75 min): roughly 18 to 19 minutes per 10-mark question. Each question ended with a 5-mark "discuss" or "explain" part (4 marks in Question 23), which deserves about half the time for that question.
  • Sections III and IV (35 min each): spend 5 minutes planning (thesis, three or four body paragraphs, which stimulus data you will use), about 28 minutes writing and 2 minutes checking the conclusion answers the verb.
  • Reading time: choose between Questions 25 and 26 and between 27 and 28 before you start writing.

Worked practice questions (exam-style)

These are original questions written in the style of the 2025 paper. All data are hypothetical.

Worked example

Question 1 (3 marks): In a hypothetical open economy, the marginal propensity to save is 0.15, the marginal propensity to pay tax is 0.20 and the marginal propensity to import is 0.15. The government announces a $6 billion increase in infrastructure spending. Calculate the value of the multiplier and the eventual change in national income, and outline ONE reason the actual effect may be smaller.

Step 1: Add up the leakages

In an open economy with a government sector, every extra dollar of income leaks out through saving, tax and imports:

MPS+MPT+MPM=0.15+0.20+0.15=0.50\text{MPS} + \text{MPT} + \text{MPM} = 0.15 + 0.20 + 0.15 = 0.50

Step 2: Calculate the multiplier

k=1MPS+MPT+MPM=10.50=2k = \frac{1}{\text{MPS} + \text{MPT} + \text{MPM}} = \frac{1}{0.50} = 2

Step 3: Apply it to the injection

ΔY=k×ΔG=2×$6 billion=$12 billion\Delta Y = k \times \Delta G = 2 \times \$6\text{ billion} = \$12\text{ billion}

Step 4: Why the real effect may be smaller

The multiplier assumes spare capacity. If the economy is already near full employment, the extra demand bids up wages and prices rather than output, so real national income rises by less. Crowding out is a second reason: if the spending is debt financed and interest rates rise, some private investment is displaced.

Final answer: The multiplier is k=2k = 2, so national income eventually rises by $12 billion; the effect may be smaller if the economy has little spare capacity (inflation absorbs part of the stimulus) or if private investment is crowded out.

Worked example

Question 2 (4 marks): The table shows data for a hypothetical economy. (a) Calculate the rate of real economic growth between Year 1 and Year 2. (b) Calculate the terms of trade index in each year and the percentage change between the years.

Nominal GDP ($ billion) Price deflator Export price index Import price index
Year 1 2400 100 120 100
Year 2 2520 103 132 105

Step 1 (a): Convert Year 2 GDP to Year 1 prices

Year 1 is the base (deflator 100), so its nominal and real GDP are equal.

Real GDP2=2520103×100≈$2446.6 billion\text{Real GDP}_{2} = \frac{2520}{103} \times 100 \approx \$2446.6\text{ billion}

Step 2 (a): Calculate real growth

Real growth=2446.6−24002400×100≈1.94%\text{Real growth} = \frac{2446.6 - 2400}{2400} \times 100 \approx 1.94\%

Compare this with nominal growth of 2520−24002400×100=5%\frac{2520 - 2400}{2400} \times 100 = 5\%. About 3 percentage points of the nominal increase was price rises, not extra output.

Step 3 (b): Calculate the terms of trade index

ToT=Export price indexImport price index×100\text{ToT} = \frac{\text{Export price index}}{\text{Import price index}} \times 100

ToT1=120100×100=120,ToT2=132105×100≈125.7\text{ToT}_1 = \frac{120}{100} \times 100 = 120, \qquad \text{ToT}_2 = \frac{132}{105} \times 100 \approx 125.7

Step 4 (b): Percentage change

125.7−120120×100≈4.8%\frac{125.7 - 120}{120} \times 100 \approx 4.8\%

Export prices rose 10% while import prices rose only 5%, so each unit of exports now buys more imports: the terms of trade improved.

Final answer: (a) Real growth is about 1.9% (nominal growth was 5%). (b) The terms of trade index rose from 120 to about 125.7, an improvement of about 4.8%.

Worked example

Question 3 (4 marks): Use the hypothetical Balance of Payments data (in billions of dollars) to calculate the balance on the current account and express it as a percentage of GDP, given GDP of $2000 billion. Then calculate the balance on the financial account, assuming net errors and omissions are zero.

Item Credits Debits
Goods 420 395
Services 95 110
Primary income 60 115
Secondary income (net) 3
Capital account (net) 1

Step 1: Net each current account component

Goods=420−395=+25Services=95−110=−15\text{Goods} = 420 - 395 = +25 \qquad \text{Services} = 95 - 110 = -15

Primary income=60−115=−55Secondary income=−3\text{Primary income} = 60 - 115 = -55 \qquad \text{Secondary income} = -3

Step 2: Current account balance

CA=25−15−55−3=−48\text{CA} = 25 - 15 - 55 - 3 = -48

So there is a current account deficit of $48 billion, even though the goods balance is in surplus. The primary income deficit (interest and dividends paid to foreign owners of capital) is the main driver, which is a familiar pattern for a capital-importing economy.

Step 3: As a share of GDP

−482000×100=−2.4% of GDP\frac{-48}{2000} \times 100 = -2.4\%\text{ of GDP}

Step 4: Financial account

Because every transaction is recorded twice (double-entry), the Balance of Payments sums to zero, and net errors and omissions are zero here:

CA+KA+FA=0  ⇒  −48+(−1)+FA=0  ⇒  FA=+49\text{CA} + \text{KA} + \text{FA} = 0 \;\Rightarrow\; -48 + (-1) + \text{FA} = 0 \;\Rightarrow\; \text{FA} = +49

A surplus of $49 billion on the financial account means net capital inflow (foreign borrowing and investment) funds the current account and capital account deficits.

Final answer: Current account deficit of $48 billion, or 2.4% of GDP; the financial account records a surplus (net inflow) of $49 billion.

Worked example

Question 4 (4 marks): A hypothetical economy has a working-age population of 20 million. In Year 1, 12.35 million people are employed and 0.65 million are unemployed. In Year 2 employment is unchanged, but 0.2 million of the unemployed stop looking for work. (a) Calculate the participation rate and unemployment rate in each year. (b) The NAIRU is estimated at 4.5%. Explain what the Year 2 data suggest about the labour market.

Step 1 (a): Year 1

Labour force=12.35+0.65=13.0 million\text{Labour force} = 12.35 + 0.65 = 13.0\text{ million}

Participation rate=13.020×100=65%,Unemployment rate=0.6513.0×100=5.0%\text{Participation rate} = \frac{13.0}{20} \times 100 = 65\%, \qquad \text{Unemployment rate} = \frac{0.65}{13.0} \times 100 = 5.0\%

Step 2 (a): Year 2

The 0.2 million who give up searching are no longer counted as unemployed, and they leave the labour force altogether.

Labour force=12.35+0.45=12.8 million\text{Labour force} = 12.35 + 0.45 = 12.8\text{ million}

Participation rate=12.820×100=64%,Unemployment rate=0.4512.8×100≈3.5%\text{Participation rate} = \frac{12.8}{20} \times 100 = 64\%, \qquad \text{Unemployment rate} = \frac{0.45}{12.8} \times 100 \approx 3.5\%

Step 3 (b): Interpret

The unemployment rate fell from 5.0% to about 3.5%, which is below the 4.5% NAIRU, yet not one extra job was created. The fall comes entirely from discouraged job seekers leaving the labour force, shown by the one percentage point drop in participation. This is hidden unemployment. The headline rate overstates the health of the labour market, so policy makers should read it alongside the participation rate, the employment-to-population ratio and underemployment before concluding that the economy is at or beyond full employment.

Final answer: (a) Year 1: participation 65%, unemployment 5.0%. Year 2: participation 64%, unemployment about 3.5%. (b) The lower unemployment rate reflects discouraged workers leaving the labour force, not job creation, so the labour market is weaker than the headline rate implies despite it sitting below the NAIRU.

Worked example

Question 5 (3 marks): The Australian dollar depreciates from USD 0.65 to USD 0.625. An Australian wine exporter sells a contract worth USD 1.3 million, and an Australian furniture maker imports timber costing USD 520 000. Calculate the Australian dollar value of each transaction before and after the depreciation, and outline the effect on each business.

Step 1: Convert foreign currency to AUD

When the exchange rate is quoted as USD per AUD, divide the USD amount by the rate.

Exporter: 1 300 0000.65=AUD 2 000 000  →  1 300 0000.625=AUD 2 080 000\text{Exporter: } \frac{1\,300\,000}{0.65} = \text{AUD } 2\,000\,000 \;\to\; \frac{1\,300\,000}{0.625} = \text{AUD } 2\,080\,000

Importer: 520 0000.625=AUD 832 000compared with520 0000.65=AUD 800 000\text{Importer: } \frac{520\,000}{0.625} = \text{AUD } 832\,000 \quad\text{compared with}\quad \frac{520\,000}{0.65} = \text{AUD } 800\,000

Step 2: Effect on the exporter

The same US dollar contract now earns AUD 80 000 more (a 4% rise). Alternatively, the exporter could cut its USD price and still earn the same AUD revenue, making it more price competitive overseas.

Step 3: Effect on the importer

The timber input now costs AUD 32 000 more (also 4%). Unless the business can pass this on, its margins shrink. On the other hand, imported finished furniture also becomes dearer, so a local maker that competes with imports may win back some domestic sales.

Final answer: Exporter revenue rises from AUD 2.0 million to AUD 2.08 million, improving its competitiveness; the importer's input cost rises from AUD 800 000 to AUD 832 000, raising its costs, although import-competing sales may benefit.

Worked example

Question 6 (20 marks): Assess the effectiveness of fiscal and monetary policy in achieving internal balance in the Australian economy.

This is a Section IV style essay. "Assess" asks for a judgement about how well the policies work, supported by reasons for and against.

Plan: define the terms (introduction)

  • Internal balance: price stability plus full employment (and sustainable growth). Define price stability through the RBA's inflation target of 2 to 3 per cent on average, and full employment as unemployment close to the NAIRU.
  • Fiscal policy: the federal government's use of the budget (spending and taxation). Monetary policy: the RBA's setting of the cash rate target to influence interest rates, credit and aggregate demand.
  • State the judgement early (see Final answer).

Plan: body paragraph 1, monetary policy as the main counter-cyclical tool

  • Mechanism: a lower cash rate reduces lending rates, raises disposable income for borrowers, encourages investment and tends to depreciate the currency, lifting aggregate demand. A higher cash rate does the reverse.
  • Strengths: short implementation lag (the board meets regularly and can adjust quickly), independence from the electoral cycle, flexibility.
  • Limits: long and variable impact lag (often a year or more), blunt instrument across regions and sectors, weaker when rates are already very low, and it cannot fix supply-side inflation without costing jobs.
  • Show the multiplier logic with a hypothetical figure, for example: if a rate cut raises investment by $4 billion and k=2k = 2, output rises by about $8\$8 billion.

Plan: body paragraph 2, fiscal policy and automatic stabilisers

  • Automatic stabilisers (progressive income tax, unemployment benefits) change the cyclical component of the budget without new decisions, cushioning demand in downturns and restraining it in booms.
  • Discretionary measures change the structural component and can be targeted to groups or regions.
  • Limits: long recognition and implementation lags, political constraints, rising public debt, and the risk of working against the RBA if the budget adds to demand while monetary policy is tightening.

Plan: body paragraph 3, conflicts and coordination

  • Short-run trade-off between inflation and unemployment: tightening to reduce inflation typically raises unemployment for a period.
  • Policies work best when they pull in the same direction (for example a large combined stimulus in a severe downturn) and when fiscal restraint lets monetary policy do less.
  • Neither can lower the NAIRU on its own; that needs microeconomic and labour market reform (training, mobility, job matching).

Plan: conclusion

Return to the judgement, weighing monetary policy's speed and flexibility against its lags and bluntness, and fiscal policy's targeting against its lags and debt constraints.

Final answer: Thesis: monetary policy is the more effective tool for day-to-day stabilisation of inflation and unemployment because of its flexibility and short implementation lag, but internal balance is best achieved when it is supported by automatic stabilisers and a disciplined fiscal stance, and both are limited in the long run without supply-side reform that lowers the NAIRU.

Common errors students made

NESA did not publish marking feedback (notes from the marking centre) for the 2025 HSC Economics paper. The points below are drawn only from how the marking guidelines separate the mark bands, not from any report of what candidates actually wrote.

  • Describing rather than explaining (Question 21(b)). Full marks required explaining why income alone is a limited measure of quality of life. A response that only lists or describes limitations sits in the middle band. Link each limitation (for example, unequal distribution or unpaid household work) to why it distorts the picture of wellbeing.
  • One-sided discussion (Questions 21(c) and 22(c)). The top band for these 5-mark parts is a comprehensive discussion, which in practice means weighing effects in more than one direction. For a depreciation, that means covering exporters, firms competing with imports and firms that rely on imported inputs, rather than only saying "exports become cheaper".
  • Not using the data (Question 23(c)). The criteria require the cause of higher unemployment to be identified from the information provided. The key step is comparing the Year 2 unemployment rate with the stated NAIRU; a generic list of unemployment types without that comparison earns only partial credit.
  • Confusing the NAIRU with cyclical unemployment (Question 23(d)). Answers showing only a general understanding of policies to reduce unemployment fall in the lower band. To reach the top band, both policies must target structural or frictional unemployment (training, mobility, job matching), not demand stimulus.
  • Covering only half the question (Questions 25 and 26). In Question 25 the middle band catches responses that address the size OR the composition of the Balance of Payments but not both, and the top two bands require synthesising the stimulus with your own knowledge. Question 26 is structured the same way for dimensions, trends and effects on the economy.
  • Describing objectives or methods instead of analysing (Questions 27 and 28). The 9 to 12 band describes Australia's objectives (Question 27) or the methods of protection (Question 28). Higher bands require analysis of the conflicts between THREE objectives, or of the effects on both firms and government, supported by examples.

How to use this paper

  1. Download the official 2025 paper from the link above and sit Section I under a 35-minute limit. Write out the working for every calculation question, then check your answers against the answer key in the marking guidelines.
  2. For each Section II part, underline the verb (outline, explain, discuss) and the mark value before writing. Compare your answer against the criteria in the marking guidelines, asking which band descriptor it genuinely matches.
  3. Practise the calculations in this walkthrough until the formulas are automatic: multiplier, real growth, terms of trade, current account and financial account, participation and unemployment rates, and exchange rate conversions.
  4. Choose one Section III and one Section IV question and write each in 35 minutes. Use the "answers could include" lists in the marking guidelines as a checklist of content you may have missed, not as a script.
  5. Because no marking feedback was published for 2025, pair this paper with earlier years' notes from the marking centre to see the errors markers repeatedly flag.

Use this paper well

  1. Sit the paper under exam conditions (180 minutes, 100 marks).
  2. Mark yourself against the official NESA marking notes.
  3. Compare against the Economics hub to find the syllabus dot points this paper tested.

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