Macro-economic influences on the New Zealand economy

Practice

Recall it first, then use it — testing yourself builds the memory, where rereading the notes above only feels easier.

Recall and application shuffled together — you have to work out what each item wants before you can answer it, which is the part the exam actually tests. Both kinds feed the same spacing schedule, so anything you miss comes back sooner.

Say the answer out loud before flipping — that attempt is where the learning happens, even when you get it wrong.

Exam-style only. Instant feedback, shuffled each attempt, best score saved on this device.

What actually comes up

Three years of real questions, part by part, with the setup and the grade band each part sat at according to that year’s marking schedule. Start with the pattern table — it names what to revise. Every part below asks for an explanation grounded in a named model or graph; that reference is what the schedules use to separate Achievement from Merit and Excellence, not extra economics.

Across 4 years

The pattern — what to prepare

The 2025 paper ↗ Marking schedule ↗

Question 1 — External influences on trade and employment

Model One is a circular flow model linking NZ producers, households and the overseas sector through exports, imports and income flows. China and Australia, New Zealand’s largest trading partners, are both heading into recession.

• a (i) Using Model One, explain how a recession in China and Australia could negatively affect New Zealand’s economy. Achieved
• a (ii) Explain how a recession in both China and Australia could negatively affect the Government’s macro-economic goal of a balanced current account. Refer to the components of the current account, and relevant flows from Model One. Merit
• b (i) Graph One shows AD, AS, Y (real GDP), PL (price level) and Yf (full-employment output). Show the effect on the New Zealand economy of China and Australia being in recession. Label all changes, including to the recessionary gap. Achieved
• b (ii) Using your changes to Graph One, explain how China and Australia entering a recession could affect the Government’s goal of full employment. Merit
• c Explain why a recession in China and Australia might have only a temporary effect on New Zealand’s current account. Excellence

Question 2 — Fiscal policy decisions and economic growth

The Government increases spending on health and education by $9.97b.

• MPS = 0.15
• ΔG = $9.97b

• a Referring to the multiplier formula and the resource material, calculate and explain the final effect of a $9.97b increase in health and education spending on real GDP and economic growth. Merit
• b A predicted fall in visitor spending is assumed to decrease export receipts by the same amount, $273m. Use the MPS of 0.15 to calculate the final change in real GDP from the fall in export receipts, and explain the final effect on real GDP and economic growth.
  • ΔX = −$273m
  • MPS = 0.15
  Merit
• c Explain the potential long-term positive effects on economic growth of both the increased spending on health and education and the increase in the International Visitor Conservation and Tourism Levy (IVL). Excellence

Question 3 — Expansionary monetary policy under different recessionary gaps

The Reserve Bank considers expansionary monetary policy (lowering the OCR).

• a Explain how expansionary monetary policy affects interest rates in New Zealand. Achieved
• b (i) Graph Two shows the economy with a LARGE recessionary gap. Referring to Graph Two, explain how expansionary monetary policy will affect households, businesses, and inflation. Merit
• b (ii) Referring to Graph Two, explain how a depreciation of the exchange rate will affect inflation. Merit
• b (iii) Referring to Graph Two and the resource material, explain why the expansionary monetary policy will be effective in achieving price stability. Excellence
• c Graph Three shows the economy with a SMALL recessionary gap. Explain the effectiveness of expansionary monetary policy on lowering unemployment when New Zealand has different recessionary gaps. Refer to Graph Two and Graph Three. Excellence

The 2024 paper ↗ Marking schedule ↗

Question 1 — Migration and monetary policy

New Zealand experiences a surge in net migration, threatening a smooth path to lower interest rates.

• a (i) Graph One shows AD, AS, Y, PL and Yf. Show the effect of higher net migration by shifting BOTH curves on Graph One. Fully label all changes. Achieved
• a (ii) Referring to the changes to Graph One and the resource material, explain the impacts higher net migration may have on economic growth. Merit
• b Referring to the changes to Graph One and the resource material, explain how the higher net migration could affect price stability. State the current Policy Targets Agreement and explain how this may impact the Reserve Bank’s monetary policy decisions. Excellence

Question 2 — Fiscal policy and economic growth

Changing tax brackets could lead to a

• MPC = 0.83
• Δ tax cut =
  7.5b

• a Use Model One and the multiplier formula [1/(1 − MPC)] to calculate and explain the final effect on real GDP and economic growth of the
  7.5b tax cut. Merit
• b Instead of a tax cut, the
  7.5b could be spent on infrastructure — transport, education and healthcare facilities. Explain how infrastructure spending of
  7.5b will result in a LARGER increase in real GDP and economic growth than the tax cut, and why it could create a more sustainable increase in the long run. Refer to Model One. Excellence
• c New Zealand has signed a free trade agreement (FTA) with the European Union, which could also increase spending on imports. Explain how increased imports could reduce the impact of the multiplier and, as a result, the final impact either the tax cuts or the infrastructure spending could have on real GDP and economic growth. Excellence

Question 3 — Internal influences on inflation and employment

Economic activity declined in New Zealand for three of the four quarters from December 2022 to September 2023.

• a Model Two is the business cycle diagram: real GDP % change against time. Identify and mark the likely position of the New Zealand economy in September 2023 on Model Two, and explain your choice. Achieved
• b Graph Two shows the economy affected by falling house prices. Show the effect of falling house prices on Graph Two by shifting one curve, labelling all changes including the recessionary gap, then explain the effect on inflation and employment. Merit
• c Graph Three shows the economy affected by rising fuel prices, after a fuel tax discount ended. Show the effect of rising fuel prices on Graph Three by shifting one curve, labelling all changes including the recessionary gap, then explain the effect on inflation and employment. Merit
• d Explain which of falling house prices or higher fuel prices will have a greater impact on inflation and employment, referring to your changes on Graph Two and Graph Three. Excellence

The 2022 paper ↗ Marking schedule ↗

Question One — Supply-side policies and price stability

COVID-19 is still affecting the New Zealand economy, causing rising inflation.

• a Graph One is the New Zealand economy: AD, AS, Y, PL, Yf. Explain how demand and supply changes caused by the COVID-19 pandemic have led to rising inflation. Refer to Graph One. Achieved
• b (i) Graph Two shows resource management reform; Graph Three shows R&D tax credits. On Graph Two, show the impact of resource management reform. On Graph Three, show the impact of research and development tax credits. Achieved
• b (iii) Explain how each of resource management reform and research and development tax credits would impact New Zealand's aggregate demand and aggregate supply. Refer to the resource material, Graph Two, and Graph Three. Merit
• b (iv) Compare and contrast the effectiveness of the resource management reform and the research and development tax credits in achieving price stability in the short term and the long term. Refer to the resource material, Graph Two, and Graph Three. Excellence

Question Two — International trade and economic growth

In October 2021, New Zealand and the United Kingdom agreed in principle to a free trade agreement, positive for economic growth and the trade balance, during the third year of the pandemic.

• a (i) Graph Four is the New Zealand economy: AD, AS, Y, PL. On Graph Four, show how a free trade agreement with the United Kingdom could boost New Zealand's GDP. Achieved
• a (ii) Explain how the free trade agreement will affect economic growth. Refer to Graph Four and the resource material. Merit
• b (i) Explain why the current account deficit has increased because of the global pandemic. Refer to the resource material. Achieved
• b (ii) Explain whether a free trade agreement with the United Kingdom is likely to be less effective in achieving a balanced current account than it is in increasing economic growth. Refer to the resource material. Excellence

Question Three — Macro-economic influences and employment

The loss of international tourism has multiplied effects through the economy, shown on Model One (the circular flow model).

• a (i) Explain how a decline in tourism can lead to an overall decline in real GDP. Refer to Model One and the concept of the multiplier, and include a definition of the marginal propensity to consume and the marginal propensity to save. Merit
• a (ii) Explain how a rise in domestic spending will affect the marginal propensity to save and therefore the effect of the multiplier. Refer to Model One. Excellence
• b (i) Explain how a fall in international tourism could affect employment. Refer to Model One. Achieved
• b (ii) Explain why the continued slide in business confidence is likely to have a greater impact on employment than the decline in international tourism. Refer to Model One. Excellence

The 2023 paper ↗ Marking schedule ↗

Question 1 — Price stability and trade

The Reserve Bank raises the OCR.

• a Graph One is the market for the New Zealand dollar: D$NZ, S$NZ, and the exchange rate R. Show the impact of the Reserve Bank increasing the OCR on Graph One, fully labelling the changes including the new exchange rate R₁, then explain how the increase in the OCR could affect the market for the New Zealand dollar and how this may negatively affect the trade balance. Achieved
• b Graph Two shows the New Zealand economy: AD, AS, Y, PL, Yf. Show the impact on the economy of the increasing OCR on Graph Two, fully labelling the changes, then explain how the increase in the OCR will affect the New Zealand economy and price stability. Merit
• c Explain why the increase in the OCR will be effective in achieving both price stability and a favourable trade balance in the long run, despite the effect on the exchange rate in the short term. Refer to Graph One and Graph Two, and the definition of price stability. Excellence

Question 2 — Risk of stagflation and a recession

Stagflation is a situation where inflation is high, economic growth slows, and unemployment remains steadily high. Sharp rises in fuel and commodity prices, plus rising wage pressure, create significant cost pressures for businesses.

• a Graph Three shows the economy facing significant cost pressures (AS₁ → AS₂). Explain how the significant cost pressures will affect economic growth. Refer to Graph Three and the resource material. Merit
• b Graph Four shows the economy affected by falling domestic confidence. Show the impact of falling domestic confidence on Graph Four by labelling the new curve, the new price level (PL₃) and real GDP (Y₃), then explain the effect — including why it may be more helpful for achieving price stability than for economic growth. Merit
• c Explain why the Government would be more concerned by the significant cost pressures than by falling domestic confidence when dealing with a potential recession. Refer to Graphs Three and Four, and the definition of stagflation. Excellence

Question 3 — Influences on employment

New Zealand’s terms of trade have fallen: export prices rose 3.1% while import prices rose 6.3%.

• Δ export prices = +3.1%
• Δ import prices = +6.3%

• a Explain how the terms of trade could have fallen, including a definition of the terms of trade. Achieved
• b Model One is the circular flow model of the New Zealand economy. Using Model One, explain how the falling terms of trade could affect employment. Refer to the resource material and include examples of imports or exports affected. Merit
• c Using Model One, explain whether loosening migration settings would have a positive or negative impact on employment, and explain why the fall in the terms of trade is likely to have a smaller effect on employment than loosening migration settings. Excellence

Read the last column as a to-do list. Every row marked Every year is worth more revision time than a single-year row — and the final Excellence part of every question is always a comparison, so practising "which is bigger/more effective, and why" pays off across all three questions.

Past exams & resources

⏱ Timed opens the paper and starts a countdown matching the exam length. Official NZQA PDFs. If a link 404s, that year’s paper may sit under a slightly different code: browse the NZQA subject page.