QUESTION 88 (6 marks)
A cyclone damages productive facilities. Government reconstruction spending then rises. Explain the potentially opposing AD/AS effects and why an increase in construction activity is not sufficient evidence that the economy has fully recovered.
Practice marking scheme
Answer
Damage reduces supply; reconstruction raises demand and may restore capacity later.
Working
Lost facilities shift supply left, reducing output and raising costs. Reconstruction spending increases AD immediately, but constrained resources may raise prices or displace other production. Completed repairs later restore supply. Construction GDP can rise while lost services, disrupted jobs and wellbeing remain below their earlier levels; compare total capacity and real outcomes rather than one sector alone.
Marking criteria
- Explains the negative supply effect. [2 marks]
- Explains demand and later rebuilding effects. [2 marks]
- Evaluates construction growth as evidence of recovery. [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.