How to Ace VCE Economics: Insights from the 2025 Examiner's Report

VCE Economics rewards students who can do more than recall definitions. The highest marks go to responses that use precise economic terms, link a cause to an effect step by step and answer the exact question asked. The VCAA's examiner's report shows where students did this well in 2025, and where marks slipped away.

This guide breaks down the 2025 VCE Economics examiner's report question by question. It covers the multiple-choice results, how students performed on every written question, the misconceptions the examiners highlighted and what high-scoring responses had in common.

Key Takeaways

• Students averaged 73% correct on the multiple-choice section. The hardest question was Question 14 (43% correct), a terms of trade calculation that many students set up upside down.
• The toughest written question was Question 6c (average 2.3 out of 6). Most students didn't link the strengths and weaknesses of monetary and budgetary policy to global economic uncertainty, and 29% scored zero.
• The terms of trade caused problems across Questions 4b and 4c. The examiners recommend not using the exchange rate to explain the terms of trade unless the question asks for it.
• 46% of students scored zero on Question 6a, often because they didn't understand that differences between the estimated and actual budget outcome come from automatic stabilisers.
• Many marks were lost by explaining how a policy works instead of what the question asked, such as its strengths and weaknesses, its transmission mechanism or its effect on a specific goal.

VCE Economics Examination Structure

The exam runs for 2 hours plus 15 minutes of reading time, is worth 80 marks and contributes 50% of the study score. School-assessed coursework in Units 3 and 4 makes up the other 50%.

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Easiest and Hardest Questions in the 2025 Exam

Easiest questions

• Section A, Question 13 (93% correct) and Question 1 (92% correct) were answered correctly by almost everyone.
• Section B, Question 3a (75% of available marks): Stating what is meant by strong and sustainable economic growth. 58% of students scored full marks.
• Section B, Question 3c (73% of available marks): Explaining how severe climate events affect low and stable inflation through cost inflation. 46% scored full marks.

Hardest questions

• Section A, Question 14 (43% correct): A terms of trade calculation. 32% chose B, often after dividing the import price index by the export price index.
• Section A, Question 10 (52% correct): Students missed that an economy "close to capacity" still has some slack to absorb higher aggregate demand.
• Section B, Question 6c (38% of available marks): Strengths and weaknesses of aggregate demand policies during global economic uncertainty. Only 6% scored full marks.
• Section B, Question 6a (46% scored zero): Explaining a factor that could make the actual budget deficit smaller than estimated.
• Section B, Question 4b (42% scored zero): Explaining a factor behind a rise in the terms of trade.

Section A: Multiple-Choice Question Breakdown

The table shows the correct answer for each Section A question, the percentage of students who chose each option and the most common wrong answer, as published in the 2025 examiner's report.

Source: VCAA, 2025 VCE Economics external assessment report.

What the Examiners Said About Section A

• Question 10 – Read every word (52% correct): The question described an economy operating "close to capacity", not at full capacity. That means there was still some slack, so a rise in aggregate demand could still increase output and employment as well as prices. The examiners reminded students to pay careful attention to every word in the question.
• Question 14 – The terms of trade formula (43% correct): The terms of trade index is the export price index divided by the import price index, multiplied by 100. Some students divided the wrong way around, and others forgot to multiply by 100.
• Questions 4 and 6 had strong distractors: In Question 4, 29% chose D, and in Question 6, 26% chose A. If an option looks almost right, check it against the exact wording of the question.

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Section B: Written Response Breakdown

The table shows each Section B question, the skill tested, the marks available, the average mark and the percentage of students who scored zero and full marks.

Source: VCAA, 2025 VCE Economics external assessment report. Skill labels are our own.

Adding up the question averages, students scored roughly 36 out of 65 (about 56%) in Section B.

Question 1: Public Goods and Direct Provision

Question 1a – Characteristics of public goods (average 1.4 out of 2)

High-scoring responses clearly explained the two characteristics:

• Non-rivalry: One person's consumption doesn't reduce the amount available to others.
• Non-excludability: It is difficult, or impossible, for suppliers to stop people who don't pay from consuming the good.

Common misconceptions:

• Describing consequences instead of characteristics: The free-rider problem, underproduction and an inefficient outcome are consequences of public goods, not characteristics.
• Saying non-excludable means "everyone can access it": The concept is about the difficulty of excluding non-payers, not universal access.
• Unclear structure: Signpost each characteristic, for example "One characteristic is non-rivalry, which means… Another characteristic is…"
• Wrong examples: Public education, public hospitals and public transport are not public goods. Streetlights and fireworks displays are.

Question 1b – Direct provision and market failure (average 1.4 out of 3)

A third of students scored zero, mainly because they didn't understand direct provision: the government producing a good or service itself, funded by taxpayers.

• Subsidies, regulations and taxes are not direct provision.
• The question wasn't limited to public goods. Students could also explain how the government funds and runs schools and hospitals to correct the under-allocation of resources to merit goods with positive externalities.
• Define market failure properly: It occurs when free and competitive markets produce an inefficient allocation of resources that doesn't maximise society's welfare. Strong responses explained how direct provision moves the allocation of resources towards a more efficient level.

Question 2: The Global Coffee Bean Market

Question 2a – Non-price demand and supply factors (average 2.0 out of 3)

This was answered well. High-scoring responses:

• stated the new equilibrium price and quantity from the graph: equilibrium price rose and equilibrium quantity fell
• explained one non-price supply factor that decreased supply, such as unfavourable climatic conditions in coffee-growing regions
• explained one non-price demand factor that increased demand, such as rising global disposable incomes.

Common misconceptions:

• Writing a disequilibrium analysis: Many students spent time explaining how the market moved from E1 to E2, which the question didn't ask for.
• Confusing quantity supplied with equilibrium quantity: Quantity supplied is a point on the supply curve at a given price. Equilibrium quantity is the market-clearing quantity where demand equals supply.

Question 2b – Price elasticity of supply over time (average 1.3 out of 3)

High-scoring responses:

• defined price elasticity of supply (PES) as the responsiveness of quantity supplied to a change in price, measured in percentage terms
• named a relevant PES factor, such as production time, durability and storability, or spare capacity
• explained the direction of change, for example that new growing methods shorten production time and make supply more elastic over time.

Common misconceptions:

• Answering about price elasticity of demand or about non-price supply factors instead of PES.
• Explaining the law of supply (higher price, higher quantity supplied) without discussing how much quantity supplied responds.
• Naming a factor without explaining how it changes elasticity over time.

Question 3: Domestic Macroeconomic Goals

Question 3a – Strong and sustainable growth (average 1.5 out of 2)

• Strong responses explained both words: strong growth is fast enough to create employment opportunities, while sustainable growth can be maintained over time without excessive inflation, external instability or environmental damage.
• Only stating the 3–3.5% real GDP target didn't answer the question. It is an unofficial benchmark, not a definition.

Question 3b – Why imports are subtracted from aggregate demand (average 1.7 out of 3)

High-scoring responses:

• defined aggregate demand (AD) as total spending on Australian-made goods and services over a period of time
• explained that import spending is already counted in consumption, investment or government spending. For example, a household buying a foreign-made car is first counted in consumption, so imports must be subtracted to avoid overstating AD.

A common misconception was explaining that import spending "leaves the country", unlike saving and taxation. That is true in the circular flow model but doesn't explain why imports are removed from the AD formula.

Question 3c – Climate events and cost inflation (average 2.2 out of 3)

Most students handled this well. Strong responses linked each step of the chain:

• Cyclones and floods damage land and capital, disrupt supply chains and reduce the productivity of the factors of production.
• Costs of production rise across many firms and industries, so firms are less willing and able to supply, and aggregate supply falls.
• Firms pass on higher costs as higher prices, putting upward pressure on the general price level and making low and stable inflation harder to achieve.

The examiners reminded students that cost inflation is a macroeconomic concept. It's about costs rising across the economy, not just in one market.

Question 3d – Has Australia achieved full employment? (average 3.3 out of 6)

Students had to use recent data to evaluate full employment over the past 2 years and explain the effect on living standards. Only 11% scored full marks.

The strongest arguments that the goal was achieved:

• Unemployment rose to 4.5% in September 2025, around the estimated NAIRU (about 4.25%, give or take 0.25%) or the broader 4–4.5% range.
• The labour market absorbed many new entrants, reflected in a strong participation rate.
• Inflation trended back towards the target band, suggesting the economy was operating near the NAIRU.

The strongest arguments that the goal was not achieved:

• Unemployment in the mid to high 3s during 2023 was below the NAIRU and contributed to unacceptably high inflation, which reduces purchasing power and living standards.
• Employment growth wasn't fully inclusive, as described in Treasury's definition of full employment.
• Underemployment and underutilisation show spare capacity that the unemployment rate alone can hide.

Common misconceptions:

• Treating the NAIRU range as a simple pass or fail line. Unemployment below 4% is only a problem to the extent that it causes excessive wages growth, skills shortages and inflation. Explain why unemployment above or below the NAIRU matters.
• Not linking to the consequences of missing the goal (Unit 3, Area of Study 2) to explain the effect on living standards.

Question 4: The Terms of Trade and Tariffs

Question 4a – Defining the terms of trade (average 1.3 out of 2)

• The terms of trade (TOT) is the price of exports relative to the price of imports, expressed as an index: export price index ÷ import price index × 100.
• Common misconceptions were describing the TOT as the value of exports compared with imports (price × quantity), or confusing it with net exports (X – M).

Question 4b – Why the terms of trade rose (average 1.0 out of 2)

42% of students scored zero. Full-mark responses gave one factor and explained which price index it affected:

• Rising commodity prices raise the export price index relative to the import price index.
• Falling production costs among our trading partners lower the import price index relative to the export price index.

The examiners recommend that students avoid using the exchange rate to explain a change in the TOT. If export and import prices are both in Australian dollars, the exchange rate doesn't affect the TOT. Exchange rates can matter because many commodity exports are priced in US dollars, but the report describes that argument as beyond the scope of the study design.

Question 4c – Terms of trade and inflation (average 1.3 out of 3)

This question was handled poorly. High-scoring responses argued one clear path:

• Higher export prices: Exporters earn more for the same volume, raising national income, investment, consumption and AD, which adds to demand inflation.
• Lower import prices for consumers: Imported goods and services in the CPI become cheaper, lowering inflation.
• Lower import prices for businesses: Imported capital and equipment become cheaper, reducing production costs and cost inflation.

Again, the examiners recommend not referring to the exchange rate unless the question asks for it. A higher TOT can cause the dollar to appreciate, but this question was about inflation, not the dollar.

Question 4d – Tariffs on Australian exports (average 2.4 out of 5)

Students analysed how other countries reintroducing tariffs on Australian exports would affect resource allocation in the short and long term. Only 7% scored full marks.

• Short term: Higher prices for Australian exports overseas reduce net exports and AD. Export-focused firms cut production or close, leaving labour and capital idle.
• Long term: Firms may restructure towards domestic markets or other export markets without tariffs, reallocating resources over time.

Common misconceptions:

• Claiming protectionism leads to an efficient outcome in the long term. Businesses may adapt, but arguing that they'll specialise in their comparative advantage is an argument for trade liberalisation, not protectionism.
• Getting the direction of the tariff wrong: Some students wrote about Australian tariffs on US imports instead of US tariffs on Australian exports.

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Question 5: Monetary Policy

Question 5a – A weakness of monetary policy (average 1.2 out of 2)

High-scoring responses chose a weakness other than monetary policy being a blunt instrument:

• the long impact lag before changes in the cash rate affect AD
• reduced effectiveness when household debt is high or consumer confidence is low
• limited room to move when interest rates are near their lower bound.

Full marks required explaining how the weakness makes it harder for the RBA to stimulate spending and achieve strong and sustainable growth.

Common misconceptions:

• Saying monetary policy can't target specific sectors. That describes it being a blunt instrument, which the question excluded, so no marks were awarded.
• Claiming a long implementation lag. Monetary policy has no implementation lag: cash rate changes take effect straight after the RBA board decision. The lag is in its impact.

Question 5b – The monetary policy stance (average 3.0 out of 5)

High-scoring responses:

• identified the stance correctly. The cash rate was held at 4.35% from November 2023 through 2024, then cut to 4.10% in February 2025, 3.85% in May and 3.60% in August. Monetary policy was loosened, but the stance remained contractionary because the cash rate was still above the estimated neutral rate of about 3–3.5%.
• explained at least one transmission mechanism, such as the savings and investment channel or the cash flow channel, and linked it to AD, production, demand for labour and full employment.
• explained the effect on living standards.

Common misconceptions:

• Judging the stance by comparing today's cash rate with earlier rates. The stance is set by comparing the cash rate with the neutral rate. "Loosening" and "tightening" describe the change in the rate.
• Skipping the transmission mechanism. Interest rates affect AD through transmission mechanisms, and responses without one didn't properly answer the question.
• Writing too much about living standards. Only material or non-material living standards were required.

Question 6: Budgetary Policy and AD Policies

Question 6a – Why the actual deficit could be smaller than estimated (average 0.9 out of 2)

Almost half of students scored zero. The examiners explained that the Budget is handed down in May based on forecasts. Actual economic conditions during the year then change revenue and spending through automatic stabilisers.

High-scoring responses gave a factor such as stronger-than-expected employment. Fewer people receive unemployment benefits, so spending falls, and more people earn taxable income, so revenue rises. Both reduce the deficit.

Common misconceptions:

• Explaining the difference between headline and underlying budget outcomes instead of giving a reason.
• Saying the government changed its policy after the Budget. Students should assume differences between estimated and actual outcomes come from automatic stabilisers, not discretionary changes.
• Confusing the budget outcome with the current account balance, for example by writing about exports, imports or the exchange rate.

Question 6b – A discretionary stabiliser from the 2025–26 Budget (average 2.5 out of 4)

This question was answered well. High-scoring responses:

• named a specific 2025–26 Budget measure, such as an infrastructure project, the income tax cuts due in 2026 or the extension of energy bill relief
• explained its effect on a component of AD (consumption, investment or government spending), then on production, employment and real GDP growth
• in the best answers, linked this to strong and sustainable growth, although that link wasn't required for full marks.

Common misconceptions:

• Analysing the measure only through aggregate supply. Discretionary stabilisers are designed to influence AD and stabilise the business cycle in the short to medium term.
• Discussing budget measures in general terms. Students need to memorise specific measures from the latest Budget to access all the marks.

Question 6c – AD policies in a period of global uncertainty (average 2.3 out of 6)

This was the hardest written question in the exam. Students needed a strength and a weakness of both monetary and budgetary policy in achieving low and stable inflation, in the context of global economic uncertainty.

Examples of strong points:

• Monetary policy strengths: It is flexible and can be changed quickly, and the RBA's independence means decisions aren't driven by politics.
• Monetary policy weaknesses: It is less effective when confidence is low or households are highly indebted, the actions of other central banks can disrupt transmission, and it can't directly address cost inflation from global events.
• Budgetary policy strengths: Measures can be targeted to specific groups or sectors, and automatic stabilisers respond straight away if global shocks weaken the economy.
• Budgetary policy weaknesses: Implementation lags and political constraints limit its effectiveness.

Common misconceptions:

• Ignoring the "period of global economic uncertainty". Most students didn't link their points to the context of the question.
• Writing about only one policy. "Aggregate demand policies" means both monetary and budgetary policy.
• Explaining how the policies work instead of their strengths and weaknesses. No marks were awarded for describing how a policy affects inflation without analysing what makes it more or less effective.

Question 7: Aggregate Supply and Environmental Policy

Question 7a – Skilled migration and low and stable inflation (average 2.9 out of 5)

High-scoring responses:

• described the government's skilled migration policy and its role in filling labour shortages
• recognised that, despite the cap on permanent migration, a large number of skilled migrants were still arriving
• explained how skilled migrants increase the quantity and quality of labour, raise productivity, reduce production costs and increase aggregate supply and productive capacity
• explained the effect on inflation. The strongest answers covered both lower cost inflation from improved supply and possible short-term demand pressure from a larger population.

Common misconceptions:

• Saying aggregate supply decreases. Even with lower migration levels, skilled migrants still add to productive capacity compared with having no skilled migration.
• Focusing only on house prices. House prices are not included in the CPI, so the analysis needed to be about inflation more broadly.

Question 7b – A market-based environmental policy (average 2.5 out of 4)

High-scoring responses:

• explained a market-based policy, such as an emissions trading scheme or a carbon tax, that changes relative prices to change the behaviour of firms and consumers
• defined intertemporal efficiency as balancing current consumption and production with keeping resources for the future
• discussed more than one effect, such as a short-term cost to output and employment alongside long-term gains from protecting environmental assets and the economy's productive capacity.

Common misconceptions:

• Not meeting the task word "discuss". Responses that explained only one effect didn't meet the requirements.
• Writing about preserving coal, oil and gas for future generations. Environmental policies aim to move away from carbon-intensive energy towards low-emission sources such as solar, wind and hydro.

Common Threads Across the Exam

• Answer the exact question. Disequilibrium analysis in 2a, the circular flow in 3b, the exchange rate in 4b and 4c, and policy operation in 6c all cost students marks because they weren't what was asked.
• Know your definitions precisely. Public goods, direct provision, PES, AD, the terms of trade and the monetary policy stance were all commonly misunderstood.
• Show every link in the chain. High-scoring responses moved step by step from a cause to AD or AS, then to production, employment or prices, then to the goal.
• Use current data and policies. Questions 3d, 5b, 6b and 7a needed recent unemployment figures, cash rate decisions, Budget measures and migration settings.
• Respond to the context. "Global economic uncertainty", "close to capacity" and "over the past 2 years" each changed what a full-mark answer needed.

How to Prepare for VCE Economics

• Learn the formulas and definitions, including the terms of trade index, the AD equation and the official definitions of each macroeconomic goal.
• Keep a current data sheet of unemployment, inflation, GDP growth, the cash rate and the terms of trade, and practise using these figures to support an evaluation.
• Memorise specific measures from the latest Budget and recent aggregate supply policies, such as skilled migration and environmental policy.
• Practise strengths and weaknesses separately from how a policy operates, and practise applying them to a given context.
• Write timed answers to past exam questions and check each one against the task word, especially "discuss", "evaluate" and "analyse".

For more preparation:

• read how one of our tutors scored a 50 in VCE Economics
• see everything you need to know about VCE Economics
• brush up on task words with our guide to VCE command terms
• studying Business Management too? See our 2025 VCE Business Management examiner's report breakdown
• check how Economics scaled in the 2025 VCE scaling report
• see the VCE exam timetable 2026 for this year's exam date.

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Source: VCAA, 2025 VCE Economics external assessment report.