QUESTION 80 (5 marks)
Two $1 billion transfer options are proposed. Group A spends 90% of extra income and 10% of that spending is imported. Group B spends 50%, with 40% of spending imported. Calculate each option’s first-round domestic consumption and assess which better supports immediate domestic demand. Do not calculate later multiplier rounds.
Practice marking scheme
Answer
A: $810 million; B: $300 million. A provides the stronger first-round domestic demand effect.
Working
A: 1 billion × 0.90 × 0.90 = $810 million. B: 1 billion × 0.50 × 0.60 = $300 million. The difference is $510 million. Domestic spending depends on both propensity to consume and import share. This does not alone decide overall policy: equity, eligibility, capacity, funding and subsequent responses matter.
Marking criteria
- Calculates both domestic spending amounts. [2 marks]
- Makes the supported immediate-demand comparison. [1 mark]
- Qualifies the broader policy judgement. [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.