QUESTION 62 (6 marks)
Assume a higher cash rate raises all relevant mortgage rates when contracts first reprice. Use the data to explain the direct mortgage cash-flow effect immediately and after 12 months. Evaluate the claim that unchanged consumption in the first month proves monetary policy has failed.
Practice marking scheme
Answer
40% initially exposed and 75% after 12 months; early consumption alone is inconclusive.
Working
Variable borrowers face higher debt servicing first. Once group A resets, 40 + 35 = 75% has been exposed to repricing; the final group resets later. Consumption responses may also be delayed or cushioned by savings. Employment, exchange rates and expectations are other channels. A one-month observation cannot capture the full lagged effect.
Marking criteria
- Uses both borrower shares accurately. [2 marks]
- Explains contract repricing and consumption lags. [2 marks]
- Evaluates the early-failure claim with another relevant channel. [2 marks]
Practice question aligned to the current QCAA syllabus; review the worked solution and marking criteria.
View the QCAA syllabusCompare your working with the guide above.