Cambridge A Level Economics 9708 — 2025 May/June Paper 2 · Variant 4

1 Economic challenges in Malaysia Annual growth in real GDP in Malaysia averaged 5.2% during the past ten years. There was a great deal of instability in GDP between July 2020 and July 2021, largely due to the COVID-19 pandemic. Economic growth was projected to grow by between 5.5% and 6.5% in 2022. The percentage change in real GDP per annum in Malaysia between January 2019 and January 2022 is shown in Fig. 1.1. Content removed due to copyright restrictions. Source: Adapted from Press Release from the Malaysia Ministry of Finance, 11 February 2022 (a) Using the data in Fig. 1.1, describe the trend shown in the annual rate of economic growth in Malaysia over the period January 2019 to January 2022. [2] (b) Explain what is meant by ‘real GDP’. [2] (c) Consider the extent to which the potential advantages of subsidies given to firms by the Malaysian government outweigh their potential disadvantages. [4] (d) Assess how far external factors were responsible for economic growth in Malaysia over the period January 2019 to January 2022. [6] (e) Assess the possible consequences of a falling rate of unemployment for Malaysia. [6]

Mark scheme: Question Answer Marks Follow the point-based marking guidance at the top of this mark scheme. 1(a) Using the data in Fig. 1.1, describe the trend shown in the annual rate of 2 economic growth in Malaysia over the period January 2019 to January 2022. • Overall, the rate of economic growth has fallen (1) • Overall, a fluctuating trend (1) • Up to January 2021 the growth rate fell and then became negative (1) • Whereas from July 2021 to January 2022 it became positive (1) Guidance: The trend in the period needs to be described, not every change. 1(b) Explain what is meant by ‘real GDP’. 2 • GDP refers to the total value of goods and services produced in an economy. (1) • Real GDP is GDP corrected for / taking into account the effects of inflation / price changes. (1) • Real GDP is Nominal GDP – rate of inflation. (2) Max 2 marks 1(c) Consider the extent to which the potential advantages of subsidies 4 given to firms by the Malaysian government outweigh their potential disadvantages. • Advantages include the reduction in firms’ costs of production, which may increase their competitiveness, leading to an increase in sales and AD, reducing unemployment as AS and AD both increase. It may also reduce prices for consumers, increasing consumer surplus. (MAX 2 marks) • Disadvantages include payments to firms may be used to boost profits and not reduce costs; payments will be expensive for the government and could contribute to a budget deficit, may lead to inefficiency, may lead to overseas retaliation. (MAX 2 marks) Max 3 marks overall Up to 1 mark for valid evaluation: • Relevant evaluation which considers the extent to which the potential advantages exceed the potential disadvantages of subsidies, in the context of Malaysia, for example, overall, the potential disadvantages are greater as subsidies are a significant expense for the Malaysian government. 1(d) Assess how far external factors were responsible for economic growth 6 in Malaysia over the period January 2019 to January 2022. Up to 3 marks for explanation / analysis of the extent that external factors were responsible For example, the increase in exports, reaching an all-time high in the last quarter of 2021 may lead to economic growth (1), Malaysia will benefit from an increase in the price of oil and gas leading to economic growth (1), it will also benefit from an overall growth in demand from its major trading partners / overall global economic activity (1) Up to 3 marks for explanation / analysis of the extent that internal factors were responsible. For example, the use of domestic subsidies may be causing the increase in exports (1), the policies to make markets more flexible may be the cause (1), the high level of FDI and domestic investment due to government policy may be the cause (1) Max of 4 marks overall for analysis (max 3 if factors are not clearly differentiated between internal/external) Up to 2 marks for evaluation of how far external policies were responsible for economic growth in Malaysia during the period, compared to internal factors. Reserve 1 mark for a justified conclusion. 1(e) Assess the possible consequences of a falling rate of unemployment for 6 Malaysia. Up to 3 marks for explanation / analysis of the possible positive consequences of a falling rate of unemployment for Malaysia. For example, these may include an increase in overall income levels (1) which may also improve the overall standard of living for the Malaysian population (1). This may also increase government tax revenues / reduce spending on welfare benefits (1) which may in turn be spent on improving infrastructure and spending on merit goods such as education and healthcare (1) Falling unemployment may also lead to an increase in overall output (1) which may lead to an increase in export opportunities (1) and increased investment by firms (1) Up to 3 marks for explanation / analysis of the possible negative consequences of a falling rate of unemployment for Malaysia. For example, due to rising aggregate demand (1) this may lead to demand pull inflation if aggregate supply cannot keep up (1). As wages rise and resources become scarce (1) this may lead to cost push inflation (1). It may also lead to a decline in labour productivity (1) Rising incomes may also lead to rising demand for imports (1), which may lead to a current account deficit (1). Max of 4 marks overall for analysis (Note: accept any reasonable generic suggestions as detailed knowledge of the Malaysian economy is not required) Up to 2 marks for evaluation of the possible positive and negative consequences of a falling rate of unemployment on Malaysia based on the preceding analysis. Reserve 1 mark for a justified conclusion.

More questions on Aggregate Demand and Aggregate Supply analysis

2 (a) With the help of a formula, explain the meaning of price elasticity of demand and consider the significance to a firm of having price elastic or price inelastic demand for its product. [8] (b) Assess whether governments should always support the provision of merit goods in markets such as those for education or health care. [12] OR

Mark scheme: 2(a) With the help of a formula, explain the meaning of price elasticity of 8 demand and consider the significance to a firm of having price elastic or price inelastic demand for its product. Follow the point-based marking guidance at the top of this mark scheme and award: up to 3 marks for AO1 Knowledge and understanding up to 3 marks for AO2 Analysis up to 2 marks for AO3 Evaluation. AO1 Knowledge and understanding (max 3 marks) • It measures the responsiveness of changes in demand to changes in price (1) • Correct formula (1) • Meaning of price elastic and price inelastic in terms of the percentage / proportionate response of changes in demand to changes in price (1) AO2 Analysis (max 3 marks) • Analysis of the impact of rising OR falling prices on the demand for a firm’s products when PED is inelastic (1) • Analysis of the impact of rising OR falling prices on the demand for a firm’s products when PED is elastic (1) • Analysis of the effect of both rising and falling prices on the demand for a firm’s products when PED is both elastic and inelastic (3). AO3 Evaluation (max 2 marks) That offers a valid judgement on the importance of the distinction between price elastic and price inelastic demand for determining the impact of price changes on the sales of a firm’s products. 1 mark for assessing what a firm should do to influence demand/spending when demand is elastic. 1 mark for assessing what a firm should do to influence demand/spending when demand is inelastic. AO1 Knowledge and understanding 3 AO2 Analysis 3 AO3 Evaluation 2 2(b) Assess whether governments should always support the provision of 12 merit goods in markets such as those for education or health care. Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question. AO1 and AO2 out of 8 marks. AO3 out of 4 marks. Indicative content Responses may include: AO1 Knowledge and understanding and AO2 Analysis • An understanding of what is meant by merit goods • An understanding of the reasons why governments should support the provision of merit goods, including: • The perceived benefits of merit goods and their underconsumption due to information failure / price etc., meaning that governments should support their provision e.g., through direct provision, subsidies, the provision of information etc. • HOWEVER, the reasons why governments should not always support the provision of merit goods include: • Government inefficiency, the opportunity cost of not spending money on alternative projects, the lack of government funding to finance this provision leading to a possible budget deficit. • Information failure may still exist. • Private provision may be possible and more efficient. Level 1 responses will be assertive and lacking in explanations / mainly descriptive and / or or mainly lacking in relevance to the question. Level 2 responses may contain some inaccuracies and may be one sided. Analysis will be explained at least in part and will be largely relevant to the question. Level 3 responses will consider benefits/drawbacks etc. and will be balanced. Explanations of points raised will be offered and will be accurate and relevant to the question. 2(b) AO3 Evaluation That clearly assesses whether governments should always support the provision of merit goods such as education and health care by considering the advantages and disadvantages of doing so and reaches a valid conclusion. one-sided response cannot gain any marks for evaluation. Accept all valid responses. AO1 Knowledge and understanding and AO2 Analysis 8 AO3 Evaluation 4

More questions on Government policies to achieve efficient resource allocation and correct market failure

3 (a) With the help of a diagram, explain the impact of introducing an effective minimum price for a product and consider the effect on the consumer surplus for that product. [8] (b) Assess whether a minimum wage policy is the best way to redistribute income in an economy. [12] Section C Answer one question. EITHER

Mark scheme: 3(a) With the help of a diagram, explain the impact of introducing an effective 8 minimum price of a product and consider the effect on the consumer surplus for that product. Follow the point-based marking guidance at the top of this mark scheme and award: up to 3 marks for AO1 Knowledge and understanding up to 3 marks for AO2 Analysis up to 2 marks for AO3 Evaluation. AO1 Knowledge and understanding (max 3 marks) • For an accurately drawn supply and demand diagram (1) • Showing a minimum price above the equilibrium and the resultant increase in supply and fall in demand (1) • An explanation that this will lead to supply exceeding demand leading to a surplus in the market (1) Max 3 marks AO2 Analysis (max 3 marks) • An explanation of what is meant by consumer surplus (1) • Use of the diagram to clearly show the fall in consumer surplus (1) • An explanation to clearly explain why consumer surplus will fall (1) Max 3 marks AO3 Evaluation (max 2 marks) That clearly considers the overall effect on consumer surplus of introducing a minimum price (it will fall) but the extent of the fall will be affected e.g., by PED. Reserve 1 mark for a justified conclusion. AO1 Knowledge and understanding 3 AO2 Analysis 3 AO3 Evaluation 2 3(b) Assess whether a minimum wage policy is the best way to redistribute 12 income in an economy. Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question. AO1 and AO2 out of 8 marks. AO3 out of 4 marks. Indicative content Responses may include: AO1 Knowledge and understanding and AO2 Analysis • An understanding of what is meant by a minimum wage policy • An explanation of the benefits of using a minimum wage policy to redistribute income. These may include: • It may raise the relative wages of the lower paid, provides an incentive to enter the labour market, and may redistribute profits from employers to workers. • An explanation of the possible disadvantages of using a minimum wage policy to redistribute income. These may include: • It may lead to inflation so low-income earners may not benefit, it may cause unemployment, higher paid workers may be able to maintain differentials so income is not redistributed, it may not be enforced. • The policy MUST be compared to at least one other policy to redistribute income, for example the use of transfer payments, progressive income, inheritance and capital taxes and / or state provision of essential goods and services. The advantages and disadvantages of the chosen alternative/s must be analysed. Level 1 responses will be assertive and lacking in explanations / mainly descriptive and / or or mainly lacking in relevance to the question. Level 2 responses may contain some inaccuracies and may be one sided. Analysis will be explained at least in part and will be largely relevant to the question. Level 3 responses will consider alternative policies / concepts etc. and will be balanced. Explanations of points raised will be offered and will be accurate and relevant to the question. 3(b) AO3 Evaluation 12 That clearly assesses the advantages and disadvantages of using a minimum wage policy to redistribute income in an economy and compares this to the advantages and disadvantages of using at least one other government policy and reaches a valid conclusion as to whether minimum wage policy is the best way to redistribute income in an economy. A one-sided response cannot gain any marks for evaluation. Accept all valid responses. AO1 Knowledge and understanding and AO2 Analysis 8 AO3 Evaluation 4

More questions on Labour market forces and government intervention

4 (a) Explain why expenditure on education and training is a supply-side policy and consider why its impact on the general price level may differ between the short run and the long run. [8] (b) Assess whether the consequences of inflation in an economy are always negative. [12] OR

Mark scheme: 4(a) Explain why expenditure on education and training is a supply-side 8 policy and consider why its impact on the general price level may differ between the short run and the long run. Follow the point-based marking guidance at the top of this mark scheme and award: up to 3 marks for AO1 Knowledge and understanding up to 3 marks for AO2 Analysis up to 2 marks for AO3 Evaluation. AO1 Knowledge and understanding (max 3 marks) • Supply side policy consists of government policy tools designed to increase aggregate supply (1) • The effect is to shift the aggregate supply curve to the right (1) • Government spending on education and training should increase worker skills and productivity and therefore increase a country’s productive capacity and therefore increase AS / shift the LRAS curve to the right (1) AO2 Analysis (max 3 marks) • In the short run, increased government expenditure will increase the level of AD which may lead to an increase in inflation and the general price level. (up to 2 marks) • In the long run, increased expenditure on education and training should increase productivity and productive capacity and the shift in LRAS should lower the general price level. (up to 2 marks) AO3 Evaluation (max 2 marks) • That offers an overall assessment as to whether expenditure on education and training will have a different impact on the price level in the long run compared to the short run. • For example, if the expenditure is ineffective and does not have the intended impact on productive capacity and productivity, this may simply increase the general price level. • For example, time-lags mean short-run impact is minimal as the policy will only take effect in the long-run. Reserve 1 mark for a justified conclusion. AO1 Knowledge and understanding 3 AO2 Analysis 3 AO3 Evaluation 2 4(b) Assess whether the consequences of inflation in an economy are 12 always negative. Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question. AO1 and AO2 out of 8 marks. AO3 out of 4 marks. Indicative content Responses may include: AO1 Knowledge and understanding and AO2 Analysis • An understanding of inflation • Explanation of possible negative consequences of inflation in an economy, for example, the uncompetitiveness of exports leading to a worsening of the current account of the balance of payments, shoe leather costs arising from searching for better returns, menu costs arising from continually changing prices, planning difficulties arising from the uncertainty caused by inflation and a redistribution of income, e.g. those on fixed incomes will lose out. • Explanation of possible positive consequences of inflation in an economy, such as an increase in borrowing arising from debt being less in real terms, an increase in the profits of firms, possibly leading to more workers being employed, and an increase in the value of assets, such as property Level 1 responses will be assertive and lacking in explanations / mainly descriptive and / or or mainly lacking in relevance to the question. Level 2 responses may contain some inaccuracies and may be one sided. Analysis will be explained at least in part and will be largely relevant to the question. Level 3 responses will consider alternative policies / concepts etc. and will be balanced. Explanations of points raised will be offered and will be accurate and relevant to the question. AO3 Evaluation That clearly assesses whether the consequences of inflation are always negative by considering both the negative and positive consequences and reaches a valid conclusion as to whether the consequences are always negative. A one-sided response cannot gain any marks for evaluation. AO1 Knowledge and understanding and AO2 Analysis 8 AO3 Evaluation 4

More questions on Price stability

5 (a) With the help of a formula, explain the causes of an improvement in the terms of trade in an economy and consider whether such an improvement can ever be harmful to an economy. [8] (b) Assess whether the depreciation of an exchange rate is always beneficial to an economy. [12]

Mark scheme: 5(a) With the help of a formula, explain the causes of an improvement in the 8 terms of trade in an economy and consider whether such an improvement can ever be harmful to an economy. Follow the point-based marking guidance at the top of this mark scheme and award: up to 3 marks for AO1 Knowledge and understanding up to 3 marks for AO2 Analysis up to 2 marks for AO3 Evaluation. AO1 Knowledge and understanding (max 3 marks) • For an accurate formula i.e., index of export prices / index of import prices (1) • An improvement is when the value / ratio increases (1) • An improvement is when export prices rise and / or import prices fall (1) AO2 Analysis (max 3 marks) For example: • An improvement in the terms of trade may be seen to be beneficial as more imports can be purchased from the same volume of imports (1) • However, an increase in export prices may lead to fewer exports in the long run (1) • Which may lead to a current account deficit which may be considered harmful (1) AO3 Evaluation (max 2 marks) That offers an overall assessment as to whether an improvement in the terms of trade can ever be harmful to an economy. Reserve 1 mark for a justified conclusion. AO1 Knowledge and understanding 3 AO2 Analysis 3 AO3 Evaluation 2 5(b) Assess whether the depreciation of an exchange rate is always 12 beneficial to an economy. Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question. AO1 and AO2 out of 8 marks. AO3 out of 4 marks. Indicative content Responses may include: AO1 Knowledge and understanding and AO2 Analysis • An understanding of what is meant by a depreciation of the exchange rate • Explanation of the potential advantages of the depreciation of an exchange rate: It can lead to an increase in a country’s exports because the prices of these products are less than they were previously; this can help to reduce a current account deficit on an economy’s balance of payments; an increase in exports can stimulate an increase in aggregate demand (AD). • Explanation of the potential disadvantages of the depreciation of an exchange rate: It will have the effect of making imports more expensive, both of finished products and of raw materials; if raw materials are more expensive, this will increase the cost of production of domestic firms, and this could bring about cost-push inflation. Level 1 responses will be assertive and lacking in explanations / mainly descriptive and / or mainly lacking in relevance to the question. Level 2 responses may contain some inaccuracies and may be one sided. Analysis will be explained at least in part and will be largely relevant to the question. Level 3 responses will consider alternative policies / concepts etc. and will be balanced. Explanations of points raised will be offered and will be accurate and relevant to the question. 5(b) AO3 Evaluation (max 4 marks) 12 That offers an overall assessment as to whether a depreciation in the exchange rate is always beneficial to an economy by assessing both the advantages and disadvantages of the depreciation and also considering the significance of PED values for both exports and imports and reaches a valid conclusion. A one-sided response cannot gain any marks for evaluation. Accept all valid responses AO1 Knowledge and understanding and AO2 Analysis 8 AO3 Evaluation 4

More questions on Exchange rates