QUESTION 11 (4 marks)
The federal government decides to significantly increase spending on military defence over the long term. Describe the concept of opportunity cost using an example based on the given scenario. How might this decision have an impact on the federal government’s objective of stabilising the economic cycle?
QCAA guide · typeset solution
QCAA sample response and mark allocation
Short response Question 11 (4 marks)
Sample response | The response: |
A fiscal opportunity cost involves the choice between a budget decision chosen and the next best spending alternative, e.g. to increase defence spending instead of additional spending on education. Significant and long-term expenditure restricts the government’s capability to stabilise the economic cycle over time, because it locks in higher recurring spending. In this situation, the government would be less able to respond to peak or trough economic conditions. | Opportunity cost |
[1 mark] • describes opportunity cost as the next best spending alternative | |
[1 mark] • provides a relevant example | |
Spending | |
• explains how military spending restricts the government’s ability to stabilise [1 mark] the economic cycle | |
[1 mark] • uses an accurate detail |
QCAA sample response and marking criteria reproduced from the official guide.
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