The macroeconomic aims of government — Paper 2 — IGCSE Economics 0455 topical questions

Question 1

Firms use different quantities of land, labour, capital and enterprise in producing their products. The ways in which a country’s resources…

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3(a) What is the difference between capital and land? Capital is human-made goods used to produce other products (1) whereas land is a natural resource (1). Capital receives interest as a payment (1) while land receives rent (1). 2 3(b) Explain two reasons why a firm may decide to use more labour and less capital in producing its products. 1 mark each for each of two reasons identified: • may be cheaper • may be more available • may want to make hand-made products • may be subsidised to do so by the government • may be more mobile/less specific • may be less initial cost 1 mark each for each of two explanations given: • costs of production may be lower using labour/labour may be more productive • there may be a shortage of capital goods/it may take time for capital goods to be produced • each product produced may be tailored to customer’s requirements/not standardised • the government may subsidise firms to take on workers in order to reduce unemployment. • capital may not be able to switch to producing other products • example of labour-intensive industry • high cost of purchasing the capital equipment. 4 Question Answer Marks Guidance 3(c) Using a production possibility curve diagram, analyse the effect on an economy’s output when there is a change from full employment to unemployment. Up to 4 marks for diagram: Axes correctly labelled (1) Curve/straight downward sloping line drawn to the axes (1) A production point on the one curve (1) A production point inside the one curve (1). Up to 2 marks for written explanation: Full employment would mean an economy making maximum use of resources (1) making as much output as possible/efficient use of resources (1) unemployment means output is below potential (1) inefficient use of resources/resources lying idle (1) output will fall (1). 6 O e.g. consumer goods e.g. capital goods Question Answer Marks Guidance 3(d) Discuss whether it is always possible for a country to have low unemployment and low inflation at the same time. Up to 5 marks for why it might: If total supply is increasing (1) as total demand increases (1) output will be high (1) causing low unemployment without inflation (1). Advances in technology/improvements in education (1) raises productivity (1) can lower costs of production (1) reducing cost-push inflation (1) and increasing demand for labour (1). Low inflation may stimulate firms to raise output (1) take on more workers (1). Up to 5 marks for why it might not: Low unemployment may mean incomes are high (1) total demand may be high (1) causing demand-pull inflation (1). Low unemployment may result in increased competition for labour (1) this may raise wages (1) increasing firms’ costs of production (1) causing cost-push inflation (1). Inflation may create a price/wage spiral (1) demand-pull inflation leading to cost-push inflation (1). 8

Question 2

The New Suez Canal In August 2015 the Egyptian Government opened a second Suez Canal, alongside the original canal, to enable more and larg…

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1(a) Define ‘private cost’ and give an example from the extract. A cost borne by those directly producing or consuming a product (1) cost of land/capital/equipment/wages/$US8 billion to build second Suez canal) (1). 2 1(b) Explain opportunity cost and give an example from the extract. Opportunity cost is the (next) best alternative (1) forgone (1). Government spending on the canal (1) could have been used on e.g. healthcare/education (1). Land used for the canal (1) could have been used for e.g. farming (1). 4 1(c)(i) Calculate, using information from the extract, the number of people unemployed in Egypt in 2015. 3.5 million (2). Correct method i.e. 12.5% of 28 million (1). 2 1(c)(ii) Calculate, using information from the extract, the amount the Egyptian government spent on healthcare in 2015. $11.2 billion. (2). 11.2 billion or $11.2 or 11.2 (1). Correct working i.e. 4% of $280 billion (1). 2 1(d) Analyse how a global recession could affect demand for sea transport. A global recession means that global output/supply will fall / two or more quarters of negative growth (1). Fewer goods will be transported/moved (1) less trade/lower imports and exports (1) demand for freight/sea transport will fall (1). Incomes will fall (1) spending will fall (1) demand for leisure travel by sea will decrease (1) demand for passenger transport will fall (1). 5 Maximum of 1 mark for demand for sea transport falls, however many times it is mentioned. Maximum of 2 marks for a list-like approach. Question Answer Marks Guidance 1(e) Discuss whether a fall in a country’s death rate will always result in an increase in its population size. Up to 3 marks for why it might: A fall in the death rate may mean people live longer (1) maybe due to improvements in health (1) the birth rate may now exceed the death rate (1) resulting in an increase in population (1). A lower death rate may attract more people to migrate to the country (1) resulting in net immigration (1). Up to 3 marks for why it might not: The death rate may still exceed the birth rate (1) so a fall in the death rate may just reduce the decline in population size (1). The death rate may equal the birth rate (1) and so population size may not change (1). The death rate may be less than the birth rate (1) but this may be exceeded by net emigration (1). Birth rate may also fall (1) if related to higher standard of living / improved healthcare (1) 5 A response may develop a mixture of relevant points to achieve up to 3 marks on either side. Maximum of 2 marks for a list-like approach. 1(f) Explain, using information from the extract and Figure 1, what happened to the market for sea transport as a result of the fall in the price of air transport. The diagram shows demand decreasing (1) price falling (1) supply contracting/falls (1) air transport is a substitute for sea transport (1). Supply is inelastic (1). Demand is inelastic (1). 4 Maximum of 2 marks for a list-like approach. Question Answer Marks Guidance 1(g) Discuss whether a government should protect infant industries. Up to 4 marks for why it should: Infant industries may struggle to compete against foreign competitors (1) because they are not large enough to take advantage of economies of scale (1) example/s of economies of scale (1) average cost higher (1). To offset predatory pricing from overseas (1) or to develop a strategic or innovative new industry (1) to reduce reliance on other countries (1). Imposition of tariffs (1) would benefit the government through higher tax revenue (1). Infant industries may grow (1) increasing output/GDP/economic growth (1) increasing employment/reduce unemployment (1). Up to 4 marks for why it should not: Infant industries may become reliant on protection (1) not become efficient/not reduce average costs (1) may not work (1). It is difficult to determine which industries have the potential to grow (1). Protection of infant industries may provoke retaliation (1) reducing exports of other industries (1). There is an opportunity cost (1) example (1). 6 A response may develop a mixture of relevant points to achieve up to 4 marks on either side. Maximum of 3 marks for a list-like approach.

Question 3

Mining diamonds in Botswana Botswana is the world’s largest producer of diamonds. Indeed, in 2015 diamonds accounted for a third of the cou…

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1(a) Identify, using information from the extract, two reasons why a foreign diamond company may set up in Botswana. 1 mark each for each of two reasons identified: • supply of diamonds / largest producer of diamonds • cheap diamonds • educated labour force / developed education system • free healthcare • good infrastructure e.g. transport system • government encouragement • supporting (ancillary) industries e.g. diamond cutting 2 Do not accept subsidies. Question Answer Marks Guidance 1(b) Explain two benefits that a country may gain from the presence of a foreign multinational company. 1 mark each for each of two benefits identified: • higher output / economic growth • higher employment • contribution to current account position • higher tax revenue • new technology introduced • encourage other MNCs to invest • increase competition • increase variety of products produced • train workers in new skills 1 mark each for each of two explanations given: • MNCs’ output will count in the country’s GDP / raise living standards • MNCs may employ workers from the country • MNCs may export products from the country • MNCs profits will be taxed / tax revenue can be spent on e.g. education • MNCs may use more advanced capital equipment • more MNCs can increase employment • increased competition may make domestic firms more efficient/more productive / lower prices • a greater variety of products will increase consumer satisfaction • more skilled workers will be more productive 4 Maximum of 2 marks for a list of benefits. 1(c)(i) Calculate, using information from the extract, the value of diamonds produced in Botswana in 2015. $6 billion (2). Correct method i.e. 33% of US$18 billion (1). 2 Correct answer and $ sign and billion/bn/b required for 2 marks. 6 + >000s = 1 mark Question Answer Marks Guidance 1(c)(ii) Calculate, using information from the extract, the average price of a 1.5 carat diamond in 2015. $10 000 (2). Correct method: $8000 + 25% (1). OR $10 875 (2). Correct method: $8 700 + 25% (1). OR $10 667 ($10 666.66) (2) Correct method: $8000 × 100 / 75. 2 1(d) Analyse why a country could have lower production costs for a particular good than another country. • It may have a more educated/skilled labour force (1) higher productivity/greater efficiency (1) lower wastage (1). • It may have more capital goods (1) may use more advanced technology (1) lower capital costs (1). • Its firms may be producing on a larger scale (1) taking greater advantages of economies of scale (1) example (1). • The government may subsidise the product (1) or tax the product less (1). • It may specialise in the product (1). • It may have easier access to raw materials / natural resources (1) and so raw materials/natural resources may be cheaper (1). • It may have a large supply of labour (1) with low wage rates (1). • It may have low transport costs (1) due to good infrastructure (1). • It may have a more favourable climate (1). • It may have a lower inflation rate than other countries (1). • It may have lower minimum wage (1) lowering wages cost (1). • It may have weaker trade unions (1) reducing bargaining power (1). • It may have a stronger currency (1) causing lower cost of importing raw materials (1). 5 Accept but do not expect reference to comparative/absolute advantage. Maximum of 3 marks for a list- like approach. Question Answer Marks Guidance 1(e) Discuss whether Botswana should mine all its diamonds and sell them as quickly as possible. Up to 3 marks for why it should: • Increase income (1) and employment (1) and living standards now (1). • Increase government tax revenue (1) enabling government to spend more on e.g. infrastructure (1). • Increase export revenue (1) improving the current account position (1). • Demand may be high now (1) causing price to be high (1) causing greater incentive to supply now (1). • Demand may fall in the future (1) lowering prices (1) so income earned in the future may be lower in the future (1). • Higher output now may result in improved economies of scale (1) lowering costs (1). • Higher output may enable greater advantage to be taken of economies of scale (1) lowering average cost (1). Up to 3 marks for why it should not: • Will deplete stocks of diamonds (1) preventing diamond production in the future (1) there is a finite supply of diamonds (1). • Global demand may be low now (1) demand may be higher in the future (1). • Increase in supply may lower prices (1) which may reduce revenue (1). • Risk of relying on one product / one export / being too dependent on diamonds (1). • Advances in technology (1) may reduce costs of mining in the future (1). • May increase the risk of pollution (1) causing environmental damage (1). • In the long run employment (1) and GDP may be higher (1). 5 Reverse arguments may be awarded if justified by reference to short and long run. A response may develop a mixture of relevant points to achieve up to 3 marks on either side. Maximum of 2 marks for a list- like approach. 1(f) Explain, using information from the extract and Fig. 1, what happened to the market for diamond rings in 2015. The diagram shows: • Demand increasing (1) price rising (1) • Supply extending/rising/higher quantity/more diamond rings (1) due to higher income or other valid reasons (1) • Demand is inelastic (1) • Supply is inelastic (1) 4 No marks for just stating the demand curve has shifted to the right or supply is unchanged. Question Answer Marks Guidance 1(g) Discuss the economic arguments for and against providing free hospital treatment to patients. Up to 4 marks for why it should: • It may increase health (1) increase life expectancy/reduce death rate (1) improve living standards/economic development (1) • It would provide access to the poor (1) reduce poverty/provide a necessity (1) • The social benefit of hospital treatment is greater than the private benefit (1) provides external benefits (1) e.g. better quality/higher output/economic growth (1) higher labour productivity (1) may be under-consumed/under-produced (1) if left to market forces (1) people may not appreciate private benefits/benefits to themselves of hospital treatment (1) • People will have more money to spend on other items (1) Up to 4 marks for why it should not: • May increase government spending (1) opportunity cost (1) government spending on e.g. education could be higher (1) taxes may be higher (1) leading to demand-pull inflation (1) • Some of those treated could afford to pay (1) in this case not a good use of government funds (1) • May result in over-consumption (1) people seeking treatment who do not need it (1). • May reduce the work incentive of potential consumers (1) as people will need less income to pay for healthcare (1) • The quality of healthcare may fall (1) loss of profit motive (1) may reduce e.g. innovation (1) • May encourage people to take greater risks (1) e.g. eat less healthily (1). • Government could charge for healthcare/allow private sector to charge for healthcare to get more tax revenue (1) to spend on e.g. education (1) taxes could be lower (1) 6 A response may develop a mixture of relevant points to achieve up to 4 marks on either side. Maximum of 3 marks for a list- like approach.

Question 4

In 2015 some German commercial banks reduced their already very low interest rates on deposit accounts. The German Government was hoping th…

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3(a) Identify two ways a commercial bank differs from a central bank. Features of a central bank include: • owned by the government • objective is to create price stability • only one in a country • issues note and coins • operates monetary policy/sets the rate of interest (base rate) • intervenes in foreign exchange markets to influence the exchange rate • lender of last resort to governments • owned by the government • supervises and regulates the financial system Features of a commercial bank include: • owned by shareholders/privately owned • objective is to make a profit • there are usually many commercial banks in a country • exchanges foreign currency • accepts deposits from households and firms • lends to households and firms • provides insurance services to households and firms 2 Up to 2 marks for two features of a central bank, or of a commercial bank, or a combination of both. 3(b) Explain the connection between opportunity cost and the purchase of shares. The (next) best alternative (1) forgone/sacrificed (1). Instead of buying shares people may buy something else (1) example of what the money may be used for instead e.g. putting money in a bank/buying other goods and services (1). 4 Question Answer Marks Guidance 3(c) Analyse how a fall in the rate of interest may affect a country’s exchange rate. A fall in the rate of interest may increase demand/spending (1) increasing the demand for imports (1) the higher demand may result in products being diverted from the export market to the domestic market (1) increased spending on imports will increase the supply of the domestic currency (1) lower revenue from exports will reduce the demand for the domestic currency (1) price of currency will fall (1). A fall in the rate of interest may discourage foreigners from putting money into the country’s banks (1) this will reduce demand for currency (1) some domestic residents may decide to move funds abroad (1) this will increase the supply of the currency (1) the price of the currency will fall (1). A fall in the rate of interest may encourage firms to invest/attract foreign firms to invest in the country (1) spend more on capital goods (1) increase efficiency (1) increase exports (1) increase demand for the currency (1) raise exchange rate (1). 6 The focus is on how the exchange rate is affected, not the effects of a change in the exchange rate. Question Answer Marks Guidance 3(d) Discuss whether an increase in spending on capital goods will help to achieve the aims of government policies. Up to 5 marks for why it might: Higher spending on capital goods/investment: • may increase total demand (1) raise productivity (1) and increase total supply/productive potential/output (1) resulting in economic growth (1) • may reduce costs of production (1) introduce new technology (1) may improve the quality of products (1) may make products more internationally competitive (1) increasing exports (1) improving the current account position (1) • may mean firms will need more workers e.g. to operate machinery (1) reducing unemployment (1) • may raise productivity (1) reducing unit costs of production (1) which may lead to a reduction in the average price level (1) leading to lower inflation (1) • may increase tax revenue (1) which could enable the government to re-distribute income from the rich to the poor (1) Up to 5 marks for why it might not: • Capital goods may not be used (1) leaving output unchanged (1) • Capital goods may replace workers (1) causing unemployment (1) • Other countries may spend more on capital goods (1) making the country less internationally competitive (1) increasing a current account deficit (1) • In the short run, higher spending on capital goods may increase total demand (1) causing inflation (1) • In the short run, producing more capital goods may be achieved with an opportunity cost (1) of fewer consumer goods (1) 8 A response may develop a mixture of relevant points to achieve up to 5 marks on either side. Maximum of 2 marks on each side of the discussion for a list- like approach.

Question 5

Argentina once had one of the highest levels of Gross Domestic Product (GDP) per head in the world and one of the highest economic growth r…

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7(a) Define ‘free trade’. Trade without restrictions/having no barriers (1) example of a trade restriction (1) without intervention of governments (1). 2 7(b) Explain two reasons why governments aim for economic growth. 1 mark each for each of two reasons identified: • Higher living standards/higher incomes (1) • higher employment (1) • less government spending on benefits (1) • more tax revenue (1) allowing more spending on e.g. health (1) • more exports (1) • reduced poverty (1) • To attract investment from abroad/MNCs (1) 1 mark each for each of two explanations given: • higher living standards as people can enjoy more goods and services (1) • more workers will be needed to produce the higher output (1) • government may be able to spend more on e.g. education and healthcare (1) • fewer unemployed workers will reduce the burden on government expenditure (1) • current account position will improve if there is the demand for exports (1) • incomes will rise which may allow more people to enjoy basic necessities (1) • growth means foreign firms have the potential to earn high revenues/make high profits (1) 4 7(c) Analyse why the social benefits of education are greater than the private benefits. • Social benefits are private benefits plus external benefits (1) • Private benefits include self-fulfilment (1) increased job opportunities (1) higher income/standard of living (1) better health (1) • Education also provides external benefits (1) higher output/GDP/economic growth (1) better quality output (1) improved literacy (1) more skilled workers (1) • improved productivity (1) more tax revenue (1) 6 Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 7(d) Discuss whether multinational companies (MNCs) will always locate in countries with a high GDP per head. Up to 5 marks for why some will: • The countries will have high average incomes (1) there may be a high demand for the firms’ products (1) can sell at high prices (1) increase revenue (1) raise profits (1) • The countries may have a skilled labour force (1) high labour productivity (1) low costs of production (1) • The countries may have better infrastructures, e.g. motorways (1) reducing transport costs (1) making transport more reliable (1) Up to 5 marks for why some will not: • Countries with a high GDP per head may not have supplies of specific raw materials/they may be expensive (1) which the companies can use for their production (1) • Countries with a high GDP per head may have few unemployed workers (1) that the firms can recruit (1) at low wages (1) • Countries with a high GDP per head may have more expensive labour (1) land (1) making production costs high (1) • The government of the country may provide subsidies for the firms to set up there (1) this would, in effect, reduce average costs (1) • There may already be (similar) MNCs in the country (1) increasing competition (1) increasing PED for the firm’s products (1) reducing ability to charge high prices (1) 8 Accept arguments from the perspective of countries with a low income per head, but don’t count them twice. A response may develop a mixture of relevant points to achieve up to 5 marks on either side. Maximum of 2 marks on each side of the discussion for a list- like approach.

Question 6

Cigarette smoking in China China has recently experienced rapid economic growth and an improving Human Development Index (HDI) ranking. It …

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Question Answer Mark 1(a) Identify, from the extract, two factors of production employed in 2 producing cigarettes. Workers/labour (1) capital (1). 1(b) Explain two reasons why firms merge. 4 1 mark each for each of two reasons identified: • to take advantage of economies of scale / reduce costs of production • to gain greater market share / market power / reduce competition • to gain access to market outlets • to gain access to raw materials / resources / better methods of production • to diversify • to prevent one firm going out of business • to increase profit • to grow / expand / become larger 1 mark each for each of two explanations: • a merged firm will be larger and due to economies of scale, average costs may be lower, example • a merged firm eliminates a competitor • a vertical merger forwards gives the firm control of the sale of its product • a vertical merger backwards may ensure an adequate supply of a raw material • a conglomerate merger will increase the range of products produced • a combined, larger firm will be able to survive • the combined profit of two merged firms might be greater than the profit of two individual firms • one of the key business goals is growth 1(c)(i) Calculate, using information from the extract, the percentage decrease 2 in the number of cigarette firms in China from 2009 to 2014 80% (2). Correct working e.g. 160/200 × 100 (1). 1(c)(ii) Calculate, using information from the extract, the total tax revenue that 2 the Chinese government received in 2014. 16 000 billion yuan (2). 16 000 billion OR yuan (1). Correct working i.e. 800 billion × 100/5 (1). Note: 16 000 billion = 16 000 000 000 000 or 1.6 × 1013 1(d) Analyse, using a production possibility curve diagram, the effect of 5 moving factors of production from producing cigarettes to producing other products. Up to 3 marks for the diagram: Axes correctly labelled (1). Curve / downward-sloping straight line drawn to the axes (1). Movement along curve from cigarettes to other products (1) shown by an arrow on the curve or by change in combinations. cigarettes A1 A2 O B1 B2 other products Up to 2 marks for explanation: Opportunity cost of producing more other products / devoting more resources to other products (1) means producing fewer cigarettes (1). 1(e) Discuss whether people in countries with a high HDI always enjoy a 5 high standard of living. Up to 3 marks for why they might: Indicates high income per head / high purchasing power / high ability to buy goods (1) high life expectancy / low death rate / good healthcare (1) good education / high literacy (1). 1 mark for a general idea of what the HDI includes. Up to 3 marks for why they might not: May be uneven distribution of income / GDP figure is an average (1) so that not everyone enjoys a high standard of living / there may still be many poor people (1) unemployment may still be high (1) healthcare may still be poor for some (1) literacy levels may be high but there may be no suitable jobs (1). There are other influences on living standards (1) working hours may be long (1) working conditions may be poor (1) there may be high levels of pollution (1). 1(f) Explain, using information from the extract and Fig. 1, what happened 4 to the market for fruit in the UK in 2015. The diagram shows demand increasing (1) price rising (1) revenue increasing (1) supply extending / quantity of fruit consumed increasing (1). This is due to the information campaign / people being better informed about the benefits of fruit (1). Inelastic demand (1) inelastic supply (1). 1(g) Discuss the arguments for and against the Chinese Government 6 increasing the tax on cigarettes. Up to 4 marks for why it should: Demand for cigarettes is price-inelastic (1) so may increase tax revenues (1) which government could spend on public services, e.g. health and education (1). Smoking is harmful (demerit good) (1) tax will raise the price (1) may discourage cigarette smoking / reduce consumption (1) improve smokers’ health (1) prevent early deaths from smoking related diseases (1) reduce external costs (1) e.g. air pollution, passive smoking (1) reduces health costs (1) increases productivity of workers (1). Up to 4 marks for why it should not: May not be very effective in reducing consumption (1) smoking is addictive / demand is price-inelastic (1) and tax will therefore not reduce smoking significantly (1). May reduce output of cigarettes in the country / tobacco firms may close (1) may increase unemployment (1). May lead to an illegal market in cigarettes / cheap alternatives (1) people not paying the tax (1).

Question 7

From inflation to deflation For some time, many central banks have tried to achieve a target inflation rate of about 2%. A small and steady…

Accepted Answer

1(a) Identify, from the extract, two aims of government policies. Price stability / low inflation / stopping inflation rate rising above target (1) full employment / low unemployment (1). 2 Question Answer Marks Guidance 1(b) Explain two problems caused by inflation. 1 mark each for each of two problems identified: • worsen current account position • redistribution of income • uncertainty • menu costs • shoe leather costs • inflationary noise • fiscal drag • higher unemployment • money may cease to carry out its functions • lower demand / lower output / lower economic growth • lower purchasing power / fall in the value of money • lower standards of living / higher cost of living. 1 mark each for each of two explanations: • export prices will rise – reduce international competitiveness • lenders / those on fixed incomes may lose and borrowers may gain • lack of certainty may discourage investment • cost of changing e.g. price labels • cost of moving money around in search of highest interest rate • confusion caused by not being able to work out change in relative prices • people’s income being dragged into higher tax brackets • costs of production may increase, causing firms to reduce the number of workers they employ • during periods of hyperinflation, money may cease to be generally acceptable • cost-push inflation will reduce total demand • purchasing power will fall if incomes rise by less than prices 4 Fall in the value of the currency on its own is too vague – must make clear reference to internal value. Question Answer Marks Guidance 1(c)(i) Calculate, using information from the extract, the percentage fall in the global price of a barrel of oil in 2015 45% (2) Correct working i.e. $54 / $120 × 100 (1) 2 1(c)(ii) Calculate, using information from the extract, the consumer prices index in China at the end of 2015. 102.51 (2) Correct working i.e. 100.5 × 2 / 100 + 100.5 or 2.01 (1) 2 Accept 102.5 Question Answer Marks Guidance 1(d) Analyse why an increase in unemployment might cause an increase in government spending. It may increase government spending on unemployment benefits (1) the unemployed may suffer worse health (1) this may increase government spending on healthcare (1) if crime rises, the government may spend more on law and order (1). To reduce unemployment, the government may adopt expansionary fiscal policy / policy to stimulate the economy / policy to increase economic growth (1) to increase total demand (1) to create more jobs (1). Government may provide subsidies to firms (1) to encourage them to increase output and employment (1). Government may spend more on education (1) to increase skills of workers (1) reduce structural unemployment (1). Unemployment may increase poverty (1) leading to more spending on other benefits (1). Government may employ more workers in the public sector (1) to reduce unemployment / will increase wage bill (1). Government may spend on infrastructure (1) to raise labour mobility (1). 5 Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 1(e) Discuss whether the supply of workers for unskilled jobs will be high in a country. Up to 3 marks for why it might: Levels of education and training may be low (1) in some developing countries there is a relatively high illiteracy rate (1) workers may lack skills/qualifications (1). Unskilled jobs may provide good non-wage benefits (1) example e.g. short working hours (1). The supply may be high due to immigration of unskilled workers / high population (1) attracted by wages that are higher than the countries they come from (1). Most workers may be employed in the primary sector (1) which may offer largely unskilled jobs (1). May be high unemployment (1) so some skilled workers may have to apply for unskilled jobs (1). May be high unemployment benefit (1) discourages incentive to work (1). Up to 3 marks for why it might not: Unskilled jobs are likely to be relatively poorly paid (1) wage rate is a key influence on jobs workers select (1). Unskilled jobs may offer poor working conditions (1) example e.g. hard manual work (1). Unskilled workers may emigrate to other countries (1) if wages/working conditions are better in other countries (1). Work may be capital-intensive (1) requiring high skills (1). 5 Question Answer Marks Guidance 1(f) Explain, using information from the extract and Fig. 1, what happened to the market for food in 2015. The diagram shows supply increasing (1) price falling (1) demand extending / more food / higher quantity (1) costs of production falling due to lower transport costs (1) inelastic supply (1) inelastic demand (1). 4 1(g) Discuss whether a decrease in income tax would reduce deflation. Up to 4 marks for why it might: A reduction in income tax will increase disposable income (1) may raise consumer expenditure (1) may raise investment (1) increase total demand (1) higher demand may encourage firms to raise prices / demand-pull inflation (1). Up to 4 marks for why it might not: Consumers may not spend more / may save more (1) if concerned about the future (1) if expect prices to be lower in the future (1). A decrease in income tax may not reduce deflation caused by lower costs of production (1) e.g. advances in technology / investment may continue pushing down the price level (1). A decrease in income tax may reduce government spending (1) higher consumer spending may be offset by lower government spending (1). May act as incentive to work (1) may increase productivity / efficiency (1) lower costs of production / increase total (aggregate) supply (1). Consumers may spend on imports (1). 6

Question 8

In 2015, the Tripartite Free Trade Area (TFTA) was established. It covers 26 countries and is the biggest free trade area in Africa. Removi…

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4(a) Define economies of scale. A fall in average costs (1) resulting from an increase in output/scale of production (1). 2 labelled diagram. 4(b) Explain TWO benefits consumers may gain from free trade. Lower prices (1) increases purchasing power (1) due to greater competition or economies of scale (1). Better quality (1) improve living standards (1) due to greater competition (1). Greater availability/variety of products (1) products can be purchased that are not made in the domestic economy (1). Higher exports can lead to economies of scale (1) and therefore lower prices (1). 4 Maximum of 2 marks for each benefit identified and explained. 4(c) Analyse how reducing transport costs could increase a country’s exports and imports. Lower transport costs may reduce costs of production (1) lower costs may reduce export prices (1) making the country’s products more internationally competitive (1) increase demand for exports (1). Could attract more MNCs to set up (1) which tend to export high proportion of output (1). Higher export revenue would enable a country to buy more imports (1). Lower transport costs may enable a country to specialise to a greater extent (1) this would encourage it to export the products it is good at producing (1) and import the products it is not so good at producing (1). Lower transport costs will reduce the cost of getting imports to market (1) lower price of imports (1) increase demand for imports (1). Lower transport costs for consumers can increase purchasing power and increase import spending (1). Could encourage tourism (1) increasing exports and imports of services (1). 6 It is possible to gain full marks with reference to either just exports or just imports. Question Answer Marks Guidance 4(d) Discuss whether or not raising living standards is the most important economic objective for developing countries. Up to 5 marks for why it might be: Giving people access to basic necessities (1) may take them out of poverty (1). Suggests higher incomes per head (1) allowing people to consume more goods and services (1). Improving healthcare (1) reduce death rates/people more fit for work (1) raise productivity (1) raise output/generate economic growth (1). Improving education (1) may increase skills (1) raise productivity (1) raise output/generate economic growth (1). Better quality housing (1) can reduce illness (1) raise productivity (1) raise output/generate economic growth (1). Up to 5 marks for why it might not be: Raising livings standards may cause higher inflation (1) a rising current account deficit (1). Inflation may be more of a problem (1) costs of inflation (max 2). Unemployment might be more of a problem (1) costs of unemployment (max 2). Current account deficit might be more of a problem (1) costs of current account deficit (max 2). Living standards is an average concept (1) and may be associated with rising inequality (1). Some measures that could improve living standards such as taxing polluting firms (1) may reduce economic growth (1) and so may result in lowering living standards (at least in the short run) (1). It may be more important to maintain living standards (1) (because) a rising population (1) may be putting pressure on resources (1). 8 The chain of response raise productivity (1) raise output/generate economic growth (1) can only be credited once. A maximum of 3 marks for a list-like approach.

Question 9

Russia’s struggle for economic recovery Shortly after the 2014 Winter Olympic Games in Sochi, Russia, the value of the Russian currency, th…

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1(a) Calculate, using the information in Table 1, the percentage change in the price of oil between 2010 and 2016. 54.9 (2) − $37 $82 $82 × 100 correct working (1) 2 1(b) Explain, using information from the extract, two reasons for falling oil prices. Saudi Arabia’s output of oil is growing (1) increasing the supply / shown on accurate diagram (1). (Global) demand for oil is weak/decreasing / shown on accurate diagram (1) due to global economic uncertainty / competition from renewable energy / price reduced to attract consumers (1). 4 1(c) Identify, using information from the extract, two ways a central bank could try to stop a fall in the international value of its currency. Increase interest rate (1). Sell its foreign reserves / buy its own currency (1). 2 1(d) Explain, using information from the extract, two reasons for Russia’s declining population. High death rate (1) e.g. low life expectancy / poor health of the population / poor healthcare system (1). Low fertility rate (1) e.g. low birth rate / birth rates below the replacement rate (1). High levels of emigration (1) e.g. better opportunities elsewhere, unemployment, poverty, domestic political, social, and economic instability (1). 4 Question Answer Marks Guidance 1(e) Analyse the extent to which a rise in oil prices will cause inflation. Rise in oil prices will increase costs of production (1) e.g. higher energy costs / transport costs (1) resulting in cost-push inflation (1). Demand for oil is price-inelastic (1) if prices rise most consumers will keep buying it (1) some producers and consumers however may switch to other products (1) The extent will depend upon the proportion of oil costs in the total costs of other products (1) other costs may be falling (1). Because of rising oil prices, workers may demand higher wages (1) causing cost-push inflation (1). Movements in exchange rates will affect the impact on inflation (1) a rise in the exchange rate would reduce the overall effect (1). For oil producing countries export revenue may rise (1) causing higher demand (1) and demand-pull inflation (1). 5 Question Answer Marks Guidance 1(f) Discuss whether or not increasing taxes on Russian oil producers will be harmful to those producers. Up to 3 marks for reasons why it would be harmful: Producers’ costs will rise (1) they will become less profitable (1) and they already struggled to make a profit (1) small producers will find it difficult to absorb the extra costs (1). They may need to cut production / stop production completely (1) or cut costs (1) causing unemployment of the workforce (1). They might pass on the tax (1) by raising prices (1) to maintain profits (1) but this could reduce demand (1) by making them less competitive with other countries e.g. Saudi Arabia (1) less competitive with other energies e.g. renewables (1) Investments in the oil industry may fall (1) due to less funds available (1). Up to 3 marks for reasons why it would not be harmful: Demand for oil is likely to be price inelastic (1) this may enable the producers to pass on the tax in higher price to consumers (1) without losing revenue (1). Most oil producers are large (1) and earn very high profits (1) paying extra tax will not harm them significantly (1). Some of the tax revenue may be used on e.g. education/training (1) which could increase productivity of workers (1) lowering oil producer’s costs (1). 5 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is to be rewarded. 1(g) Identify one way in which monetary policy differs from fiscal policy. Fiscal policy includes taxes / government spending (1) monetary policy includes interest rates / money supply / exchange rate (1). Fiscal policy is conducted by the government of the country (1) while monetary policy is conducted by the central bank of the country (1). 2 Maximum 1 mark for reference to only monetary OR fiscal. Question Answer Marks Guidance 1(h) Discuss whether or not the Russian government should have been concerned about the state of the Russian economy in 2016. Up to 4 marks for why they should have been concerned: Negative economic growth / recession (1) increasing unemployment (1) increasing poverty rates (1) possible policy measures to reduce poverty (1) e.g. costs of healthcare may rise (1) need for greater spending on benefits e.g. unemployment benefits (1) falling tax revenues (1) may have to increase taxes (1) opportunity cost(s) involved / reduced spending on other areas e.g. defence (1). Rising inflation (1) making goods and services less affordable (1). Emigration from Russia is increasing (1) reducing the available workforce (1). Export values are falling (1) so less foreign currency is earned (1) falling value of the rouble (1) causing imported inflation (1) leading to higher interest rates (1) higher cost of borrowing for government (1). Investors lacked confidence in the Russian economy (1) may have reduced productive potential (1). Up to 4 marks for why it is less of a cause for concern: Government spending may not need to rise (1) and tax revenue may increase (1). Domestic consumption is increasing (1) and domestic investment is increasing (1) this may create employment (1) and offset decreases in foreign investments and exports (1) therefore total (aggregate) demand might not decrease significantly (1). Inflation may be a sign of increasing demand (1) showing confidence in the economy (1). Emigration may be mainly of unskilled workers (1) who are less valuable to firms (1). The falling exchange rate may improve the current account (1) with no need for government / central bank action (1). 6 For all ‘Discuss’ questions Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is to be rewarded. Generic example Mark Economic growth will increase 1 because of reason« e.g. demand for services is increasing globally 1 Economic growth will decrease (reverse of 1st argument) 0 because of a different reason / not a reverse argument e.g. a country’s resources may be more suited to producing primary products. 1

Question 10

Confidence in the government’s reform agenda led to very strong growth of India’s stock exchange index in 2017. Firms liked the supply-side…

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3(a) Define supply-side policy. Policy which is designed to increase the total (aggregate) output / supply / productive capacity of an economy (2). Policy aimed at making markets work more efficiently (1) to encourage economic growth (1). 2 3(b) Explain two functions of the stock exchange. • raising capital for businesses (1) by selling shares to the investing public (1) • mobilising savings for investment (1) through purchase of shares (1) • funds are put into productive activities (1) in the hope of generating high returns (1) • government finance raising (1) for development projects (1) • share prices as a general indicator (1) of the performance of the economy (1) 4 3(c) Analyse two possible conflicts between government aims. Lower unemployment vs. price stability (1) lower unemployment means higher incomes (1) increasing total demand (1) creating demand-pull inflation (1) lower unemployment means less spare capacity (1) wage demands increase (1) wage- price spiral (1). Economic growth vs. price stability (1) production increases (1) faster than the increase in resources (1) increase in total demand leads to higher prices rather than increased output and employment (1). Economic growth vs. environmental protection (1) output increases (1) consumption increases (1) causing a rise in external costs (1) example e.g. pollution, destruction of habitats (1). 6 Maximum of 4 marks if only one conflict analysed. Question Answer Marks Guidance 3(d) Discuss whether or not infrastructure projects will benefit the economy. Up to 5 marks for why they might: Infrastructure projects will employ workers directly (1) May help reduce firms’ production costs (1) example (1) increasing profits (1) increasing output (1) increasing employment (1) encouraging investment (1) increasing total (aggregate) demand (1) Creates external economies of scale (1) reducing costs for firms within an industry e.g. better transport servicing an industry (1) improving efficiency (1) May attract MNCs to the country (1) Up to 5 marks for why they might not: High cost of infrastructure projects (1) may need to raise taxes (1) or borrow large amounts (1) opportunity costs (1) funds could have been spent on e.g. health care (1). External costs (1) e.g. pollution, habitat destruction (1) Risk of inflation (1) due to increased government spending (1) Short run costs may occur e.g. congestion (1) but long run benefits may arise e.g. faster travel times (1) 8

Question 11

(a) Calculate the external cost per kilometre of driving a car in Manila in 2017. [1] (b) Identify two macroeconomic aims of the Philippine…

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1(a) Calculate the external cost per kilometre of driving a car in Manila in 2017. $0.54 (1). 1 $ not necessary for 1 mark. 1(b) Identify two macroeconomic aims of the Philippine government. Economic growth (1) full employment (1). 2 Also accept raised labour productivity and low unemployment. If more than two are given, consider the first two only. 1(c) Explain one reason why traffic congestion can reduce labour productivity. Logical explanation which might include: Reduce health of workers / workers arriving tired / stressed (1) this is likely to lead to more days of absence from work / reduce their output per hour (1). Late arrival to work (1) output per day declines / less working time (1). 2 1(d) Explain how an increase in the mobility of Philippine workers would be likely to affect unemployment in the Philippines. Logical explanation which might include: Greater geographical mobility (1) enables moving from areas of unemployment to areas where there are job vacancies / expanding industries such as computer, retail, and education (1) will affect frictional unemployment (1) take jobs overseas (1). Greater occupational mobility (1) through education/training enables moving into jobs requiring different skills/qualifications (1) will reduce structural unemployment (1). 4 Question Answer Marks Guidance 1(e) Draw a demand and supply diagram to show how a rise in the price of car parking could affect the market for cars in the Philippines. Up to 4 marks for the diagram: Axes correctly labelled – price and quantity or p and q. (1). Demand and supply curves correctly labelled (1). Demand curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2, or by labelling equilibrium points as E1 and E2 (1). 4 Note: if diagram also shows shift in supply curve (e.g. will not get new equilibrium point) it can still get 3 marks. Question Answer Marks Guidance 1(f) Analyse the relationship between the countries’ consumer expenditure and imports. Coherent analysis which might include: Expected relationship: Direct / positive relationship (1) generally countries with higher consumer expenditure import more goods and services (1). As income rises consumption rises for both domestic and imported goods and services (1). Evidence: E.g. Brazil spends the most and imports the most and Panama spends the least and imports the least (1) supportive data (1). Exception: Argentina/Philippines (1) supportive data (1). Analysis: Trade restrictions reduce growth in imports (1) imports include not only consumer goods, but also capital goods bought by firms (1). 5 Responses do not have to be in the format suggested but they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Question Answer Marks Guidance 1(g) Discuss whether or not the supply of enterprise is likely to increase in the Philippines. Up to 4 marks for why it might: • economy is growing / rising incomes / higher consumer spending (1) so likely to earn higher profit (1) • well-educated population (1) ability to employ skilled labour (1) attracts MNCs (1) • greater skills (1) encourage workers to set up own businesses (1) • population is growing (1) so more potential entrepreneurs (1) larger markets (1) • deregulation (1) so there may be more market opportunities / less barriers to entry (1) • the reduction of traffic congestion (i) will increase productivity of workers (1) raising opportunity to make profits (1) Up to 4 marks for why it might not: • some entrepreneurs may emigrate (1) • high taxes (1) which may reduce the reward to entrepreneurs (1) • traffic congestion (1) can increase costs of production (1) MNCs may be discouraged from entering the country / reducing the supply of foreign entrepreneurs (1) • may not want to take the risk/stress of running own business (1) prefer to stay as employee (1) • growth rate is falling (1) less opportunities for investment / new businesses (1) 6 Apply this example to all questions with the command word DISCUSS (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(h) Discuss whether or not building more roads in Manila will benefit the Philippine economy. Up to 4 marks for why it might: • reduce traffic congestion (1) lowering journey times / transport costs (1) helps tourism (1) • productivity may rise (1), reduce costs of production (1) encourages higher output / economic growth (1) • government expenditure on roads (1) leads to higher employment (1) and higher spending / total demand (1) • MNCs may be attracted into the country (1) reducing unemployment (1) • lower average costs (1) may increase international price competitiveness (1) increasing exports (1) improving the current account position (1) Up to 4 marks for why it might not: • shortage of land (1) opportunity cost in terms of how the land is used (1) • opportunity cost (1) could have been used for education / health (1) • government may have to raise taxes to fund the road building (1) and taxes are already high (1) • may increase the number of cars on the roads (1) may not reduce traffic congestion in the long run (1) • during the building process there will be disruption to drivers and production (1) • more roads lead to increase in negative externalities (1) example (1) lowering standard of living (1) • rapid growth in population (1) land more expensive to build roads (1) • additional expenditure if at full employment (1) could lead to demand-pull inflation (1) 6

Question 12

India has experienced a relatively high economic growth rate in recent years. This growth has been driven by increases in government spendi…

Accepted Answer

2(a) Define economic growth. An increase in the country’s / economy’s output (2). An increase in real (1) GDP (1) over time (1). An increase in output (1). An increase in a country’s / economy’s productive capacity (2). An increase in productive potential (1). per head. 2(b) Explain the possible opportunity cost to India of exporting more textiles. Logical explanation which might include: Opportunity cost is the (next) best alternative (1) forgone (1). Textiles that have been exported might have been sold on the home market (1) may have increased choice (1) lowered price (1). Resources may have been moved to producing the textile exports / resources used to produce textiles could have been used to produce other products (1) output / exports of other products may have been reduced (1) these products may provide more revenue / lose revenue from not exporting these products (1). 4 Question Answer Marks Guidance 2(c) Analyse how higher government spending could increase economic growth. Coherent analysis which might include: Higher government spending can increase total (aggregate) demand / government spending is a component of GDP (1). Higher government spending on education and training / healthcare / infrastructure (1) can raise productivity / skills / efficiency / quality of labour (1) attract MNCs (1) increase productive potential (1) lower costs of production (1) increase employment / reduce unemployment (1) lower prices (1) increase output (1) increase exports (1). Government spending on benefits (1) will increase purchasing power of the poor (1) raising consumer expenditure (1). Increased government subsidies (1) could reduce costs of production (1) increase investment (1) increase profits (1) provide an incentive for firms to produce more (1). 6 A maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 2(d) Discuss whether or not a government can reduce unemployment without increasing inflation. In assessing each answer, use the table opposite. Why it might: • workers who have been unemployed for some time may accept jobs without a rise in wages • government spending on education and training may increase both total (aggregate) demand and total (aggregate) supply / may reduce costs of production • government subsidies may encourage firms to produce more and take on more workers and lower prices • tax revenue may be raised to finance any increase in government spending • government may reduce trade union power which could encourage employers to take on more workers Why it might not: • may increase total (aggregate) demand causing demand-pull inflation • inflation more likely to occur if economy is initially close to full employment • may increase wages and costs of production, causing cost-push inflation • cuts in taxes may not lead to higher consumer expenditure and investment if there is a lack of confidence • government may instruct central bank to lower foreign exchange rate which could increase price of imports 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Marks Guidance 2(d) Example of L3 Answer Yes, a government can reduce unemployment without increasing inflation. If the government spends money on training and education more people would be skilled enough to do jobs and firms would hire more people due to the return from greater productivity. This would also increase the productive potential of the economy as it would enable firms to produce more goods per worker. Hence unemployment could reduce without inflation as it would be accompanied with an increase in the productive potential of the economy and greater output. Also, if there is spare capacity in the economy due to under-utilisation of resources, the increased income due to lower unemployment would not lead to inflation as there would be room for better, more efficient utilisation of resources. Hence a rise in the price level can be avoided by greater productive potential. However, if the economy is operating close to full capacity, a reduction in unemployment could cause inflation if the rise in income and the money supply rise is greater than the increase in productive potential, Government spending to reduce unemployment might cause a much greater rise in total demand. This could lead to demand-pull inflation. It may also lead to cost-push inflation if the unemployment rate is so low firms have to compete for workers leading to a wage- price spiral. Workers tend to take up a greater proportion of costs of firms. Hence scarcity of workers could cause the costs of firms to greatly increase and so the total supply would reduce leading to cost-push inflation. Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0 Question Answer Marks Guidance 2(d) Example of an L2 answer Yes, the government can reduce unemployment without increasing inflation by using supply-side policy measure. This includes providing education and training to workers. Due to this the efficiency of workers who will be able to produce better quality goods in large amount reducing the average costs to the firm. This will also help in reducing the selling price or keeping it the same which might not cause inflation. Although if using measures like expansionary fiscal or monetary policy will raise the demand for workers, offering them higher wages could add to firms’ average cost hence selling price might increase, causing inflation. Also, by using supply-side policy measure the improved skills and productivity will want them to charge higher wages to hire them. This will increase the average cost and the selling price of the firm, causing inflation. Example of an L1 answer Yes government can reduce unemployment without increasing inflation by attracting more MNCs. By keeping policies such as this, the amount of people you have to employ is increased. By providing subsidy of jobs, providing financial help to firms which are in a loss so that they can reduce the chances of increasing the rate of inflation when employing more workers.

Question 13

Australia experienced a drought in 2018 which caused its agricultural output to fall. Australia’s secondary and tertiary sectors performed …

Accepted Answer

5(a) Identify two industries, other than agriculture, that operate in the primary sector. Two from e.g.: Mining, fishing, forestry, oil extraction 2 5(b) Explain two possible disadvantages to an economy of a fall in its agricultural output. Logical explanation which might include: • Shortage of food / famine (1) may have to import more food (1) export less food (1) worsen the current account position (1). • Price of food may rise (1) may increase poverty / might worsen health (1). • Less food production (1) unemployment may increase (1) if lack of labour mobility / structural unemployment (1). • May result in migration from rural to urban areas (1) putting pressure on resources in urban areas (1). • Economic growth / GDP will fall (1) if lower agricultural output is not offset by rise in output of secondary and tertiary sectors (1). 4 One mark each for each of two disadvantages identified and one mark each for each of two explanations. 5(c) Analyse how a central bank could avoid deflation. • Deflation is a fall in the price level (1). • The central bank could lower the rate of interest (1) reduce return from saving (1) encourage borrowing (1) encourage a rise in consumer expenditure (1) encouraging firms to raise their prices (1). • It could increase the money supply (1) increasing bank lending (1) increasing investment (1). • Expansionary monetary policy (1) increases total (aggregate) demand (1) causing prices to rise (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not a firm should have growth as its main objective. In assessing each answer, use the table opposite. Why it should: • may increase market share • may increase market power • may increase profits / keep shareholders happy • may enable the firm to take greater advantage of economies of scale • may increase pay and job security of managers / directors • may make it more difficult for another firm to take it over as will involve a greater cost Why it might not: • if demand is falling, survival may be a more appropriate main objective • if demand is limited e.g. a niche market, growth may be an unlikely objective • profit maximisation as an objective, if successful, will provide the funds for growth in the longer run • state-owned enterprise may have social welfare as an objective • growth may result in diseconomies of scale • growth may put pressure on workers which could lower productivity / result in higher labour turnover • may make it more attractive for a firm to take it over 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Marks Guidance 5(d) Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 14

(a) Calculate, in $s, the contribution of the fishing industry to Morocco’s GDP in 2017. [1] (b) Identify two macroeconomic aims, other tha…

Accepted Answer

1(a) Calculate, in $s, the contribution of the fishing industry to Morocco’s GDP in 2017. $2.18 billion / $2 180 000 000 1 Accept 2.2 bn. $ sign not essential. 1(b) Identify two macroeconomic aims, other than balance of payments stability, that the Moroccan government could achieve through the Blue Economy. • Economic growth/sustainable economic growth/development/output • Create employment/ lower unemployment/ full employment • Reduce poverty • Improve livelihoods / improve living standards / improve quality of life 2 1(c) Explain why an increase in the global demand for fish could reduce a deficit in Morocco’s current account of its balance of payment. Logical explanation which might include: Increase in global demand could lead to an increase in demand for Moroccan fish / more sales of Moroccan fish / increase supply of Moroccan fish (1) increasing exports (1) creating an inflow of money / raising export revenue (1) improve trade in goods balance/trade balance (1) balance out imports / exports may now equal imports / reduce gap between exports and imports (1). 2 Question Answer Mark Guidance 1(d) Explain two causes of poverty amongst fishermen. Logical explanation which might include: Low wages (1) cannot afford necessities (1) such as food and proper housing (1) high supply / low demand for fishermen (1). Structural unemployment (1) fishermen might not have the skills to take up other jobs (1) after the decline in the fishing industry in their area (1). Seasonal unemployment (1) may not be possible to catch fish throughout the year (1) instability of income (1). 4 One mark for each cause identified and one mark for each explanation. One mark for unemployment. Question Answer Mark Guidance 1(e) Analyse whether GDP per head always increases when the percentage (%) contribution of the primary sector increases. Coherent analysis which might include: Overview No / not always (1) if % contribution of the primary sector increases, GDP per head is lower (1). Supporting evidence e.g. Pakistan/India/Morocco have a high % contribution and low GDP per head (1), Germany has the lowest % contribution but second highest GDP per head (1) comparison e.g. Germany has a higher GDP per head than India but a smaller contribution from the primary sector (1). Exception There is an exception/on the other hand (1) e.g. Australia – higher % contribution than Germany, but higher GDP per head or e.g. Malaysia – higher % contribution than Bulgaria, but higher GDP (1). Comments High-income countries tend to have more resources concentrated in the secondary and tertiary sectors/tertiary sector (1) incomes tend to be higher in the secondary and tertiary sectors / lower in the primary sector (1). 4 Question Answer Mark Guidance 1(f) Analyse how regulation of fishing could ensure economic growth is sustained for future generations. Coherent analysis which might include: Regulation could prevent people from overfishing (1) regulation is backed up by law / fines may be imposed (1) gives time for fish to breed / recover form overfishing (1) so that future generations will still have access to fish stock / maintain fish stocks (1) this means that future generations will still be able to generate revenue from fishing (1) which could lead to increased or sustained investment/consumption/exports (1) ensuring high total demand (1) Regulation on fishing could also help coastal tourism (1) protect the environment (1) increase revenue from tourism (1) as people visit areas of natural beauty (1). (5) Also allow an approach based on how overfishing may threaten sustainable economic growth. Question Answer Mark Guidance 1(g) Discuss whether or not subsidies to fishermen could help the Moroccan economy. Award up to 4 marks for logical reasons why it could, which might include: • subsidies will decrease cost of production (1) and enable Moroccan fishermen to use better technology / capital / / equipment / enable them to take advantage of economies of scale / engage in research & development (1) • increase their productivity (1) lead to an increase in supply / output (1) price of Moroccan fish would decrease (1) this will increase competitiveness of Moroccan fishermen (1) increase demand (1) create jobs / increase employment / reduce unemployment (1) increase exports / reduce imports (1) improve the current account balance (1). • increase revenues/income of fishermen (1) investments / consumption (1) increase total demand (1) leading to economic growth (1). Up to 4 marks how subsidies to fisherman could not help the Moroccan economy: • opportunity cost for the government (1) may result in a budget deficit (1) less spending on education / healthcare (1) decrease overall productivity of the economy (1) less economic growth (1). • subsidies may lead to complacency (1) may become depended on subsidies (1) fishermen may not use the subsidies efficiently (1) may result in overfishing (1) may increase pollution / external costs (1). • Fishing industry only contributes 2% of GDP (1) even if it expands may not increase the country’s output significantly (1). • Competitiveness may not increase (1) prices might not decrease (1) other governments may subsidise their fishermen (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Mark Tax revenue may decrease 1 because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Mark Guidance 1(h) Discuss whether or not a reduction in trade protection by other African countries would be beneficial for Morocco. Award up to 4 marks for logical reasons why it might be beneficial, which might include: • less protectionism will decrease the price of Moroccan exports (1) increase exports (1) improve current account balance (1) • less protectionism will allow Morocco to specialise more / enable it to concentrate on what it is best at producing (1) • demand for labour is derived demand (1), demand for domestic workers will increase (1) therefore unemployment decreases (1) income increases / poverty decreases (1) consumption of good and services can increase (1) more total demand (1) economic growth (1) • inflation may fall (1) lower cost of imported raw materials/imported capital goods (1). Award up to 4 marks for logical reasons why it might not be beneficial, which might include: • decreased protection might lead to other countries products decreasing in price as well (1), Moroccan goods may decrease in competitiveness (1) decrease the demand for Moroccan goods (1) increase in imports (1) • infant/sunrise industries may go out of business (1) unable to compete as not able to take full advantage of economies of scale (1) • sunset/declining industries may go out of business (1) likely to have high costs of production (1) • decrease the demand for workers (1) as less is produced (1) unemployment increases (1) less income (1) consumption of goods and services decrease (1) decreased total demand (1) less economic growth (1). 6

Question 15

There was a significant increase in the money supply in Angola in 2019. The National Bank of Angola was concerned that this would keep infl…

Accepted Answer

2(a) Identify two forms of money. Two from: coins (1) bank notes / paper money (1) bank deposits / accounts (1) digital money (1). 2 Do not accept credit cards, debit cards or cheques. If more than two forms are given, consider the first three. Accept cash instead of coins and/or bank notes/paper money for 1 mark. Also accept commodity money, fiat money/legal tender and fiduciary money. Reward but do not expect identification of reserves at the central bank. Also accept examples of items that have been used as money e.g., salt, gold. Accept a currency as alternative to either coins or paper money. 2(b) Explain two functions a central bank performs for its government. Logical explanation which might include: The central bank acts as a banker for the government (1) it accepts tax payments to the government / provides facilities for the government to make payments / manages the national debt / lends to the government (1). It operates the government’s monetary policy (1) e.g. changing interest rates / to influence inflation (1). It holds reserves of foreign currency (1) to influence the foreign exchange rate (1). It manages the government’s debt (1) issuing government securities / paying interest on government securities (1). It issues bank notes (1) influencing the money supply (1). It may regulate commercial banks / banking system (1) to ensure they act responsibly (1). It acts as a lender of last resort (1) lending to commercial banks / to prevent banks going out of business / a financial collapse (1). 4 One mark for each of two functions identified and one mark for each explanation. Question Answer Marks Guidance 2(c) Analyse why a government may have lower unemployment as its main aim. Coherent analysis which might include: Unemployment may be at a high level (1) unemployment is an inefficient use of resources / waste of resources (1) not working at full capacity (1). Lower unemployment would increase output / economic growth (1) raise incomes / GDP per head (1) increase living standards (1) reduce poverty / more able to buy basic necessities (1) may reduce the crime rate (1) may increase exports (1). Lower unemployment will increase total demand / increase consumer spending / increase spending (1) increase tax revenue (1) lower government spending on unemployment benefits (1) increase the government’s ability to spend on (e.g. education) / reduce budget deficit / government spending on unemployment benefits involves an opportunity cost (1). Lower unemployment may reduce the chances of workers losing skills (1) being in work keeps workers up to date with e.g. advances in technology (1). 6 Accept an answer from the viewpoint of why unemployment may be harmful e.g., a government may want lower unemployment as unemployment reduces economic growth. Question Answer Marks Guidance 2(d) Discuss whether or not inflation will harm producers. In assessing each answer, use the table opposite. Why it might:  may increase costs of production – cost-push inflation – reducing profit  may reduce international competitiveness  may cause menu costs  may cause shoe leather costs  may make it difficult to plan ahead. Why it might not:  may be demand-pull inflation, increasing firms’ revenue  may be low and stable  may be lower than other countries’ inflation rates, increasing price competitiveness  may enable them to reduce real wages  may increase tax revenue, some of which may be spent on e.g. subsidies  cost of debt may fall / may be cheaper to borrow (in real terms)  some producers may be making products with inelastic demand. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 68 Question Answer Marks Guidance 2(d) 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 35 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 12 0 A mark of zero should be awarded for no creditable content. 0

Question 16

(a) Calculate Europe’s percentage contribution to the global total eSports revenue in 2019. [1] (b) Identify two conditions of demand for e…

Accepted Answer

1(a) Calculate Europe’s percentage contribution to the global total eSports revenue in 2019. 30% 1(b) Identify two conditions of demand for eSports.  Increasing incomes  Decrease in the price of technology needed to participate in this sport 2 1(c) Explain how a change in social attitudes would lead to greater participation by women in the labour force. Logical explanation which might include: Acceptance that women are equal to men / that it is acceptable for women to work (1) and that their role is not only as a home maker (1) childcare is not just female role (1). It is more acceptable for women to be educated / there is more encouragement for women to study (1) which increases their job opportunities (1). Women feel more comfortable / accepted at work (1) more jobs will be open to women (1.) Wages paid to women may rise (1) eSports are no longer seen as a male-only sport (1). 2 Question Answer Marks Guidance 1(d) Explain two differences between private sector investment and public sector investment. Private sector investments are investments made by firms (1) while the public sector investments are investments made by the government (1). Private sector investments are made to maximise profits (1) while public sector investments are made to maximise welfare of society (e.g. provide employment) (1). Private sector investments made based on private costs and benefits (1) while public sector investments are made based on social costs and benefits (1). Profits from private sector investment go to shareholders (1) profits from public sector investment go to public spending e.g. health care (1) The aim of private sector investment is to be more competitive / gain market share (1) the aim of public sector investment is to improve macroeconomic performance (1). Private sector investment may be financed by retained profits/entrepreneurs (1) public sector investment may be financed by tax revenue (1). 4 For the 2nd mark for public sector investment, accept any of the macroeconomic objectives as the reason why public sector investment is made. Question Answer Marks Guidance 1(e) Analyse how the development of eSports in Malta can help the government achieve its macroeconomic aims. Coherent analysis which might include: Economic growth is indicated (1) as eSports is part of the service sector that contributes 90% of Malta's GDP (1) development of eSports in Malta can increase Malta’s GDP (1) Unemployment may be reduced / employment increased (1) because it will be able to attract investments (1) creating more jobs (1) from building infrastructure (1) and more professional e-sports players (1) Current account may also be improved by more inflow of money (1) from increased expenditure on exports (1) of services / tourism (1). Tax revenues may increase (1) enabling the government to increase spending on e.g. education (1). 4 Question Answer Marks Guidance 1(f) Analyse the relationship between GDP per head and the proportion of females in the labour force. Coherent analysis which might include: Overview: Generally, GDP per head is higher when the proportion of females in the labour force is higher / positive relationship between GDP per head and proportion of females in the labour force (1). Supporting Evidence: (up to 2 marks) Yemen has the lowest female labour force participation rate and also the lowest GDP per head (1) Luxembourg has the highest female labour force participation rate and the highest GDP per head (1) Yemen, Saudi Arabia, and Bangladesh have the 3 lowest figures for both female participation rate and GDP per head (1) Luxembourg, France and Malta have the 3 highest figures for both female participation rate and GDP per head (1) Exception: However, exception is Saudi Arabia / Bangladesh (1) Saudi Arabia has a lower female labour force participation rate but higher GDP per head than Bangladesh (1). Comments: This is because higher female labour force participation rate means there are higher quantities of labour which is a factor of production / more labour is available to contribute to the growth of the economy (1) increased availability of education for women will positively affect GDP (1) 5 Give BOD if answer states GDP alone and not GDP per head. Question Answer Marks Guidance 1(g) Discuss whether or not specialisation at a national level is harmful to an economy. Award up to 4 marks for logical reasons why it might be harmful, which might include: Specialisation could lead to overdependence on a specific industry / danger of over-specialisation (1) if this industry fails (1) e.g. if there is a fall in demand / revenue from eSports, the whole Maltese economy could be adversely affected (1). Specialisation makes it difficult for the workers to retrain to other industries (1) danger of structural (1) unemployment (1). Specialisation might lead to diseconomies of scale (1) where long run average costs increase as output increases (1). Resources may become exhausted (1) making industry unsustainable (1) Award up to 4 marks for logical reasons why it might not be harmful, which might include: Specialisation leads to increase in efficiency (1) increased competitiveness (1) as the economy focuses on what they do best (1), they will be able to produce more (1) and at a better quality (1) lower cost (1). Specialisation enables workers to become highly trained / skilled (1) and increase their productivity (1) leading to higher incomes (1) and demand for their labour (1). Specialisation could help the economy achieve economies of scale (1) where long-run average cost falls as output increases (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Reward but do not expect reference to comparative/absolute advantage. Question Answer Marks Guidance 1(g) Specialisation enables countries to trade more with other countries (1) increased export earnings can enable countries to afford more imports as well (1) leading to increased choices (1) higher standards of living (1). As output increases and trade increases, governments receive more tax revenue (1) Question Answer Marks Guidance 1(h) Discuss whether or not government investment in education and training will help the Maltese economy. Award up to 4 marks for logical reasons why it could, which might include: Government investment in education and training will enable more students to gain access to e.g. higher education / create a more educated labour force (1) which will enable them to increase their skills (1) productivity / efficiency (1) and enable them to get jobs in the future (1) reducing unemployment (1) increase incomes (1) which would increase consumption / total demand (1) and output / GDP (1) Organising work placements for Maltese students will enable students to gain work experience (1) further increasing their skills (1) and help firms develop (1) with new ideas / extra help (1) at low cost (1) increasing output (1) and economic growth (1). Tax from incomes of those employed (1) will improve public finances (1) Bringing in professionals from other countries to train Maltese students could introduce more expertise (1) helping to transfer new skills (1). May contribute to the growth of the tertiary sector (1) increase development (1). A more educated labour force may attract MNCs (1) more efficient production (1). Award up to 4 marks for why it could not, which might include: Investment in education and training is expensive (1) using public finances (1) 6 Question Answer Marks Guidance 1(h) opportunity cost for the government (1) less spending on government projects such as Healthcare (1) could decrease overall productivity of the economy (1) less economic growth (1). Education and training might not be successful (1) work placements might not teach students the right skills needed in the future / scholarship schemes misused or not given out fairly / foreign professionals might not be able to transfer knowledge effectively (1). Education and training can take a very long before it impacts the economy (1) scholarship schemes usually at least 3 years for a degree level course (1). In the short run, it could reduce the size of the labour force (1) reduce output / lower productive potential (1). There may be emigration of skilled workers (1) other countries gaining the benefits (1).

Question 17

In 2019, India became the world’s largest producer of sugar. Sugar cane is grown in the country by a large number of mainly low‑income farm…

Accepted Answer

3(a) Define a minimum price. 2 A price set by e.g. government (1) above the equilibrium price (1). A price floor (1) to encourage higher supply (1) will result in a surplus (1). 3(b) Explain two advantages of capital-intensive 4 One mark each for each of two advantages identified and one production. mark each for each of two explanations. Logical explanation which might include: If more than two advantages are given, consider the first three. Lower costs of production (1) can produce on a large scale / may result in lower prices / higher profits (1). Raise productivity / efficiency (1) higher output / can Accepting lower costs of production as overall lower costs. produce faster (1). Nothing for lower labour costs. Quality may increase / consistency of quality may be greater (1) may increase demand (1). Absence of human error (1) less wastage (1). Capital goods can work long hours (1) need few breaks / no need for holidays (1). Capital goods will not take industrial action (1) will not disrupt production (1). Can eliminate boring / repetitive / physically demanding tasks (1) increase workers’ job satisfaction (1). 3(c) Analyse why low-income farmers are likely to have 6 low living standards. Coherent analysis which might include: May be unable to afford basic necessities / may spend a high proportion of income on basic necessities / low purchasing power / low ability to consume goods and services (1). Unable to save much (1) banks reluctant to lend to them (1) examples of items they may need to borrow to buy which could improve their quality of life (1). Unable to afford good quality housing (1) which can result in poor health / overcrowding (1). Unable to afford good health care (1) good nutrition / food (1) more likely to become ill (1) lower life expectancy (1). Unable to afford good education (1) reduce range of interests (1). Unable to buy good capital equipment for farms (1) making work hard (1). May have to reinvest into their farms giving them less to spend (1). May experience poor working conditions / physically demanding work (1) long hours (1) reducing health (1) Live in rural areas (1) which may lack infrastructure (1). 3(d) Discuss whether or not a government subsidy on 8 Level Description Marks the export of sugar will help it achieve its macroeconomic aims. 3 A reasoned discussion which accurately 6–8 examines both sides of the economic In assessing each answer, use the table opposite. argument, making use of economic information and clear and logical analysis Why it might: to evaluate economic issues and • lower price of exports and increase their supply situations. One side of the argument may • increase export revenue and improve the current have more depth than the other, but account balance overall, both sides of the argument are • higher output of sugar can contribute to economic considered and developed. There is growth thoughtful evaluation of economic • more people may be employed in growing sugar concepts, terminology, information and / and processing sugar cane or data appropriate to the question. The discussion may also point out the Why it might not: possible uncertainties of alternative • other countries’ sugar may still be cheaper decisions and outcomes. • may make farmers and mill owners lazy 2 A reasoned discussion which makes use 3–5 • sugar sellers may not lower their prices of economic information and clear • demand for sugar may be price-inelastic analysis to evaluate economic issues • introduction of capital equipment may lower and situations. The answer may lack employment some depth and development may be • other countries may retaliate against the subsidy one-sided. There is relevant use of and so current account position may not be economic concepts, terminology, improved information and data appropriate to the • higher exports may increase total demand question. resulting in inflation • opportunity cost – e.g. spending on education 1 There is a simple attempt at using 1–2 which may be more effective. economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

Question 18

(a) Calculate New Zealand’s GDP per head in 2020. [1] (b) Identify two external costs arising from the milk and car industries. [2] (c) Exp…

Accepted Answer

1(a) Calculate New Zealand’s GDP per head in 2020. $39 000 (1) 1 Accept the correct figure without the $ sign. 1(b) Identify two external costs arising from the milk and car industries. Air pollution (1). Damages the environment (where wild animals live) (1). 2 If more than two costs given, consider the first three. 1(c) Explain the impact on a cow farmer’s profits if they are unable to find a different source of revenue. Profit is revenue minus costs (1) Profits will fall (1) due to reduction in quantity sold / decrease in supply (1). Less revenue (1) less income for farmers (1) farmers may become unemployed (1). 2 1(d) Explain the two plans that the New Zealand government has to reduce external costs to the environment. Logical explanation which might include: End imports of petrol-powered cars by 2032 (1) decreasing the number of petrol−powered cars in New Zealand / reduce use of fossil fuels / by imposing an embargo/increasing the price of petrol-power cars / increasing usage of greener / electric cars (1). Limit the number of cows that each farmer can have (1) decreasing the amount of air pollution emitted by cows / less habitat damaged by cows / government fines to those who have more cows than permitted/ imposing regulations (1). 4 One mark each for each of two plans identified and one mark each for each of two explanations. Accept milk production for keeping cows. Question Answer Mark Guidance 1(e) Draw a demand and supply diagram, to show the effect of a cheaper substitute on the market for petrol- powered cars. Demand and supply diagram: Axes correctly labelled – price and quantity or P and Q (1). Original demand and supply curves correctly labelled (1). New demand curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 4 Question Answer Mark Guidance 1(f) Analyse the relationship between a country’s share of world GDP (%) and its share of world carbon dioxide emissions (%). Coherent analysis which might include: Expected relationship: Positive relationship (1) – the lower / higher total GDP as a % of world GDP, the lower / higher the carbon dioxide emission as a % of world GDP (1). Supporting evidence: up to 2 marks for relevant evidence e.g.  New Zealand has the lowest total GDP as a % of world GDP and lowest level of carbon dioxide emission as a % of world carbon dioxide emissions  Thailand has the second lowest total GDP as a % of world GDP and second lowest level of carbon emissions as % of world carbon dioxide emissions China and USA have the two highest total GDP as a % of world GDP and highest level of carbon emissions as a % of world carbon dioxide emissions. Analysis of expected relationship: As countries produce more goods and services which increases their GDP (1), their carbon emissions also increase as more factories / energy / transport needed for production (1). Exception: China/United States (1) China has 2nd highest GDP as a % of world GDP after the US but China has the highest carbon dioxide emission as a % of world GDP (1). Analysis of exception: e.g. China has a larger secondary sector / higher percentage of heavy industries / larger population (1). 5 Responses do not have to be in the format suggested but they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Question Answer Mark Guidance 1(g) Discuss whether or not an increase in exports of clean and green products will help the New Zealand government achieve its macroeconomic aims. Award up to 4 marks for logical reasons why it might, which may include:  Increase economic growth / GDP (1) as increased exports lead to increased total demand (1) clean and green products may have higher demand (1) and higher prices (1)  Reduce its current account of the balance of payment deficit (1) as value of exports will increase (1) increasing net exports (1) more inflow into the current account / increase in trade in goods inflow (1)  Decrease unemployment (1) as more goods produced (1) requires more workers (1) reduce poverty (1)  Improved HDI (1). Award up to 4 marks for logical reasons why it might not, which may include:  Not all firms benefit (1) as some firms which are less clean / green will lose revenues / profits (1) cut costs (1) hire less workers (1) increase unemployment (1)  Increased total demand (1) will lead to inflation (1) firms increase the price of their products since demand is higher (1) lower purchasing power of consumers / lower real income (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease … 1 ... because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Mark Guidance 1(h) Discuss whether or not job losses caused by a change to a carbon−neutral economy will be harmful. Award up to 4 marks for logical reasons why there might be negative economic consequences, which may include:  increased poverty (1) as fewer jobs means less income (1) can’t afford basic necessities (1) such as shelter / clothes / food (1) possibility of increased crime (1)  huge losses in the other firms that serve these communities (1) less spending in local shops (1) less revenue / profit (1) may have to shut down (1)  lost output (1) economy not producing at its full capacity (1) unused resources (1) actual output lower than maximum output (1) inefficient allocation of resources due to the existence of labour who wants to work but can’t find work (1)  lost skills / lost motivation (1) occupational immobility /can't find new jobs (1) cost of retraining workers (1)  double effect on government finances (1) unemployed don’t pay taxes (1) but get benefits (1) reduce government revenue (1)  may decrease government expenditure on other areas (1)  Unequal burden (1) structural unemployment (1) increases inequality (1) youth and older individuals more likely to be unemployed (1). Award up to 4 marks for logical reasons why negative economic consequences above may not occur:  temporary (1) frictional unemployment (1) as other jobs in carbon−neutral economy are available (1) 6 Question Answer Mark Guidance 1(h)  an economy with a high mobility of factors of production could avoid such problems (1) workers can move to other industries (1) develop skills for jobs in the carbon−neutral economy (1) if education / training is provided (1).  new jobs may be higher paid (1) boosting total demand (1)  better air quality leads to better health (1) improving productivity (1)  government spends less on health care (1) allowing more to be spent elsewhere e.g. on education and training (1).

Question 19

Approximately 95% of students in Macao, a special administrative region of China, attend a private school. Internationally, competition for…

Accepted Answer

3(a) Define privatisation. 2 Privatisation is the sale / transfer of assets (1) from the public sector (1) to the private sector (1). 3(b) Explain how technological innovation can benefit firms. 4 One mark for each identification and one mark for each relevant explanation. Logical explanation which might include: • technological innovation can lead to new / better technology (1) increasing efficiency / productivity (1) • higher levels of output (1) economies of scale / reducing average cost (1) leading to lower prices (1) attracting consumers (1) leading to higher profits (1) • improved / faster capital equipment / IT systems / software (1) producing better quality products (1) • more capital-intensive firms (1) reduced labour costs (1) reduced errors (1). 3(c) Analyse the effects of increased competition amongst 6 Accept lower quality (1) due to firms reducing costs (1) firms. Coherent analysis which might include: • lower price (1) as firms try to attract more consumers (1) this will benefit consumers (1) but could cause firms to close down (1) • improved quality / innovation (1) such as longer-lasting products / products that provide more satisfaction to consumers / products that consumers want to buy (1) • increased choice (1) consumers can to choose between different firms for products (1) • reduced profits for firms (1) costs may increase because of the need to improve quality (1) each firm will have fewer consumers since demand will be distributed between more firms (1). • firms may need to spend more on advertising / marketing (1) increasing costs (1) this may cause external costs e.g. pollution (1) but may provide better information to consumers (1). 3(d) Discuss whether or not improving education can help a 8 Level Description Marks government achieve its macroeconomic aims. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making Why it might: use of economic information and • a more skilled / productive workforce attracts more clear and logical analysis to investments leading to higher total demand and evaluate economic issues and economic growth situations. One side of the • improved education can make finding work easier and argument may have more depth may lead to full employment / lower unemployment than the other, but overall both • high productivity could lead to lower average cost of sides of the argument are production leading to more stable prices / low inflation considered and developed. There • higher level of exports leads to more balance of is thoughtful evaluation of payments stability economic concepts, terminology, • education could give everyone the chance to get a well- information and / or data paid job leading to a more equal redistribution of appropriate to the question. The income. discussion may also point out the possible uncertainties of Why it might not: alternative decisions and • improving education requires increased government outcomes. expenditure leading to higher total demand and may cause inflation • improved education in the country could lead to emigration of skilled workers, causing lower economic growth • there might not be enough jobs for those highly qualified leading to increase unemployment amongst graduates / underemployment • better education might only be accessible to those on higher incomes, therefore increasing inequality in income distribution 3(d) • a better educated workforce may demand higher wages 2 A reasoned discussion which 3–5 causing increase costs of production, decreasing price makes use of economic competitiveness, worsening the current account of the information and clear analysis to balance of payments evaluate economic issues and • the gains from improved education are long term, not situations. The answer may lack short term. some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded 0 for no creditable content.

Question 20

The central bank of Madagascar intervenes in the country’s foreign exchange market. However, Madagascar has a largely market economic syste…

Accepted Answer

3(a) Define foreign exchange market. 2 An arrangement / place (1) where different countries’ currencies are bought/demanded (1) and sold/supplied (1) one currency is exchanged for another currency (1). 3(b) Explain two reasons why a firm may adopt labour- 4 One mark each for each of two reasons identified and one intensive production. mark for each of two explanations. Logical explanation which might include: • Labour may be low in price / wages may be low (1) which might make labour cheaper than capital / there may be a high supply of labour (1). • Labour may be very productive / efficient (1) which can make employment profitable / result in low costs of production (1). • The government may subsidise the employment of workers (1) to reduce unemployment (1). • The firm may provide personal services (1) with individual attention (1). • Labour may be more creative / adaptable / provide feedback (1) produce high quality products / improve methods of production (1) • Labour may be unskilled / low level of education (1) unable to use high-tech capital equipment (1). 3(c) Analyse how the macroeconomic aims of economic 6 growth and balance of payments stability may conflict. Coherent analysis which might include: Economic growth may increase employment (1) increase wages / incomes / purchasing power (1) this may increase imports (1). Higher consumer spending (1) may encourage firms to switch products to the domestic market (1) reduce exports (1) increase / cause a current account deficit (1). To produce more goods and services, firms may import more raw materials (1) capital goods (1). Economic growth may result in inflation (1) which would make domestic products less price competitive (1). Economic growth may deplete resources (1) increase need for imports (1). Economic growth may be export-led (1) may be achieved by restricting imports (1) result in a current account surplus (1). Migrant workers may send more money home (1). Export-led growth may increase the exchange rate (1) which may increase imports / reduce exports (1). 3(d) Discuss whether or not a high level of poverty is likely 8 Level Description Marks to exist in a market economic system. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making use of Why it might: economic information and clear and • may be unemployment logical analysis to evaluate economic • lack of welfare benefits issues and situations. One side of the argument may have more depth than • likely to be income inequality the other, but overall both sides of the • merit goods including healthcare and education may be argument are considered and under-consumed and so underproduced developed. There is thoughtful • monopolies may develop resulting in higher prices. evaluation of economic concepts, terminology, information and/or data Why it might not: appropriate to the question. The • competition / profit motive may result in low prices discussion may also point out the • efficiency is encouraged which can result in high wages possible uncertainties of alternative and high employment decisions and outcomes. • greater response to changes in consumer demand, may increase economic growth 2 A reasoned discussion which makes 3–5 • countries with efficient private sector firms may have use of economic information and clear relative poverty but low absolute poverty. analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

Question 21

In 2023, India became the country with the largest population. This may affect the government’s macroeconomic aims. In 2018, the Indian Gov…

Accepted Answer

4(a) Identify two macroeconomic aims of government that 2 If more than two macroeconomic aims given, consider the may conflict. first three. • Full employment / low unemployment (1) and price Allow any macroeconomic aim. stability (1). • Economic growth (1) current account balance (1). • Price stability (1) redistribution of income / poverty reduction (1). • Economic growth (1) economic sustainability (1). 4(b) Explain two reasons why a country may have a high 4 One mark each for each of two reasons identified and one population growth rate. mark each for each of two explanations. Logical explanation which might include: If more than two reasons given, consider the first three. • High birth rate (1) due to e.g. low age of marriage / lack of education on birth control (1). • Low death rate / high life expectancy (1) due to e.g. good quality healthcare (1). • Immigration /net immigration (1) due to e.g. high incomes (1). • High fertility rates (1) due to e.g. young female population (1). • Birth rate higher than the death rate (1) results in higher natural growth rate (1). 4(c) Analyse how a cut in the corporation (corporate income) 6 Do not credit answers that refer to income tax or any other tax rate can increase economic growth. tax than corporation tax. Coherent analysis which might include: • Cut in corporation (corporate income) tax will increase the amount of profits that can be kept by firms (1) may attract MNCs to country (1) this will increase the funds firms have to spend (1) on capital goods (1) and increase incentive to invest (1) more to spend on wages (1) may create job opportunities / reduce unemployment (1) raise consumer expenditure (1) firms grow faster (1). • Higher investment (1) will increase total demand (1). It may also increase the quality of capital goods (1) may introduce new technology (1) may increase productivity /productive capacity (1) increase output / GDP (1). • Provide an incentive to enterprise (1) as more profits can be retained / higher profits (1). 4(d) Discuss whether or not a decrease in government 8 Level Description Marks spending will reduce inflation. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic argument, making use of economic Why it might: information and clear and logical • may reduce total demand analysis to evaluate economic issues • lower total demand may reduce demand-pull inflation and situations. One side of the • if near full employment, lower demand may have a argument may have more depth than significant impact on inflation the other, but overall both sides of the • may reduce need for taxes, lower indirect taxes may argument are considered and reduce prices. developed. There is thoughtful evaluation of economic concepts, Why it might not: terminology, information and/or data • lower government subsidies may raise prices appropriate to the question. The • lower government spending on education and training discussion may also point out the may reduce productivity and may increase cost of possible uncertainties of alternative production decisions and outcomes. • lower government spending on infrastructure could increase transport costs 2 A reasoned discussion which makes 3–5 • higher costs of production may increase cost-push use of economic information and clear inflation analysis to evaluate economic issues • may be other causes of inflation e.g. rise in wages and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 4(d) 8 Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

Question	Answer	Marks	From
1	see sheet	20	0455/22 Feb/March 2017
2	see sheet	30	0455/21 May/June 2017
3	see sheet	30	0455/22 May/June 2017
4	see sheet	20	0455/22 May/June 2017
5	see sheet	20	0455/23 May/June 2017
6	see sheet	30	0455/21 Oct/Nov 2017
7	see sheet	30	0455/22 Oct/Nov 2017
8	see sheet	20	0455/21 May/June 2018
9	see sheet	30	0455/21 Oct/Nov 2018
10	see sheet	20	0455/23 May/June 2019
11	see sheet	30	0455/23 Oct/Nov 2020
12	see sheet	20	0455/22 Feb/March 2021
13	see sheet	20	0455/21 May/June 2021
14	see sheet	30	0455/23 May/June 2021
15	see sheet	20	0455/22 May/June 2022
16	see sheet	30	0455/23 May/June 2022
17	see sheet	20	0455/22 Feb/March 2023
18	see sheet	30	0455/23 May/June 2023
19	see sheet	20	0455/21 Oct/Nov 2024
20	see sheet	20	0455/22 Oct/Nov 2024
21	see sheet	20	0455/21 May/June 2025

The macroeconomic aims of government — Paper 2 · IGCSE Economics 0455

Questions12 pages

Mark scheme21 answers

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