Marking an economics stimulus response
A sample data extract makes it possible to check whether a student uses evidence accurately.
The question
In a fictional economy, annual inflation falls from 6% to 3% while average nominal wages rise by 2% in the latest year. Explain what this suggests about the price level and workers’ purchasing power in the latest year. (4 marks)
The marking guide
- Award 1 mark for stating that prices are still rising, and 1 for explaining that the rate of increase is slower than before.
- Award 1 mark for recognising that nominal wage growth is below inflation, using the supplied figures.
- Award 1 mark for concluding that real wages or purchasing power fall for workers receiving the stated wage increase. Exact percentage calculation is not required.
The sample response
Prices have fallen because inflation is now only 3%. Wage growth of 2% is below the latest inflation rate, so workers receiving that increase have lower purchasing power.
Axtant’s mark and feedback
You correctly recognise that wage growth of 2% is below inflation of 3%, and conclude that workers receiving that increase have lower purchasing power. However, prices have not fallen: positive inflation means they are still rising, though more slowly than before.
Why the guide matters here
The wage comparison earns credit, but the first sentence confuses falling inflation with falling prices. An internally inconsistent answer should not earn the price-level marks.
A useful teaching follow-up
Revisit the difference between a level and its rate of change. Keep the correct real-wage reasoning visible when explaining the lost marks.
Try it with your material
This practice question, guide and sample response were written for Axtant. The mark and feedback shown are Axtant’s own for that response.