Fiscal policy — Paper 2 — IGCSE Economics 0455 topical questions

Question 1

The amount that workers earn influences their living standards. Some workers receive relatively low pay. There are a number of ways a gover…

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4(a) Identify two wage factors that workers take into account when deciding on their occupation. 1 mark each for each of two wage factors: • wage rate/pay/income • bonuses • overtime payments • commission 2 4(b) Explain two indicators of living standards. 1 mark each for each of two indicators identified: • GDP per head/average income • HDI • e.g. cars per household 1 mark each for each of two explanations given: • total income divided by population • includes income per head, education and life expectancy • gives an indication of the goods and services households can enjoy. 4 No credit for GDP on its own. If real GDP per head is referred to, credit can be given for explanation of ‘real’. Two of three components of HDI accepted. 4(c) Analyse how fiscal policy can produce a more even distribution of income. An increase in a progressive tax (1) taking a larger percentage of the income of the rich (1). A decrease in a regressive tax (1) reducing the percentage of the income of the poor taken in tax (1). Government spending on benefits (1) e.g. benefits given to the unemployed / pensioners (1). Government spending on education / healthcare (1) may increase the earning potential of the poor (1). Government spending/cut in taxes can increase total (aggregate) demand (1) move people from unemployment to employment (1). 6 Question Answer Marks Guidance 4(d) Discuss whether a rise in the wages paid to low-paid workers would benefit an economy. Up to 5 marks for why it might: May reduce poverty/increase living standards (1) giving access to basic necessities (1). May increase motivation of low-paid workers (1) raise productivity (1) increase output/raise GDP/cause economic growth (1) increase quality of output (1) reduce costs of production (1). May make income more evenly distributed (1). May increase total demand (1) raising employment (1). Greater tax revenue (1) may enable government to spend more on e.g. education/health care (1) greater literacy/longer life expectancy (1). May enable the poor to spend more on the education of their children (1) raise their productivity (1) Up to 5 marks for why it might not: May increase costs of production (1) may cause cost-push inflation (1). To reduce costs of production (1) firms may make workers redundant/increase unemployment (1). May increase total (aggregate) demand (1) cause demand-pull inflation (1). Low-paid workers may spend more on demerit goods (1) reduce health (1). Higher costs may make the country’s products less internationally competitive (1) worsen the current account position (1). 8

Question 2

Japan’s birth rate is falling. Its population is ageing, and declining at a faster rate than any other country’s population. This has an im…

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6(a) Identify two causes of a fall in a country’s birth rate. 1 mark each for each of two causes identified: • higher levels of education • better family planning/use of contraceptives • higher proportion of women in the labour force • lower infant mortality rate • increased state provision of state pensions • state support for farmers • war • government policy • drop in standard of living/higher costs • older population • decrease in fertility rates 2 6(b) Explain two reasons why more educated people tend to live longer than less educated people. 1 mark each for each reason identified: • educated people tend to have higher incomes • educated people tend to be better informed • educated people tend to do less physically demanding/dangerous jobs 1 mark each for each of two reasons explained: • can afford a higher standard of living/afford medical care • more likely to lead a healthier lifestyle/smoke less/drink less alcohol • less likely to be worn out/injured at work 4 Opposite wording of the argument is acceptable, i.e. explanations as to why less well educated people might live shorter lives. Question Answer Marks Guidance 6(c) Analyse, using a production possibility curve diagram, what effect net immigration is likely to have on an economy. Up to 4 marks for the diagram: • axes correctly labelled (1) • curve drawn, either bowed out or as a straight downward sloping line, meeting the axes (1) • new curve drawn (1) • position of the new curve to the right of the original indicated either by labelling or an arrow (1) Up to 2 marks for written analysis: • net immigration will increase resources/labour (1) • more resources will increase productive potential/enable countries to produce more (1) 6 6(d) Discuss whether the government of a country should reduce the pensions it pays to retired people. Up to 5 marks for why it should: Ageing population increases the burden of pensions (1) result in higher taxes (1) or lower government spending on another area (1) opportunity cost (1) benefits of spending on alternatives (1). Reducing pensions may encourage some older people to continue to work (1) increase income tax revenue (1) increase output (1) may keep some older people healthier (1). Up to 5 marks for why it should not: May increase poverty/lower standard of living for some (1) with a lower pension some people may not be able to afford basic necessities (1) no other source of income (1). May mean that some older people may have to continue to undertake physically demanding jobs (1) these may harm their health (1). Lower government spending on pensions may reduce total demand (1) may reduce output (1) may increase unemployment (1) lower tax revenue (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 3

In recent years there has been an increase in prices in Mexico. Indirect taxes have also been increased. Bus fares and food have become mor…

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7(a) Define ‘indirect taxes’ and give an example. A tax on spending/the burden can be passed on to someone else (1) e.g. VAT/sales tax/tariffs (1). 2 7(b) Explain two causes of an increase in demand for bus transport. 1 mark each for each of two causes: • a rise in the price of a substitute e.g. cars • a fall/rise in income • an increase in population • an increase in employment • an increase in the quality of bus travel • increase in price of petrol/tax on petrol • introduction of congestion charges • increased concern for the environment • increased advertising/more effective advertising 1 mark each for each of two explanations of the causes: • car travel is a possible substitute • bus travel may be seen as poor quality travel in some countries/may enable some people to be able to afford bus travel • a higher population will mean there will be more people to travel • more people may travel to and from work • bus travel may improve in quality if buses are safer or there are bus lanes • some people are switching away from car travel because of concern with the environment • advertising may persuade some people to travel by bus 4 Question Answer Marks Guidance 7(c) Analyse how a reduction in government spending on education could cause unemployment. Lower government spending will reduce total demand (1) reducing output (1) causing firms to cut back on the number of people they employ (1) causing cyclical unemployment (1). Mismatch between demand and supply of skills (1) results in structural unemployment. Fewer skilled/less qualified workers (1) less productive (1) making them less attractive to employers (1) less adaptive to change (1) structural/frictional unemployment may increase (1). Results in fewer teachers/staff in education (1). 6 Maximum of 3 marks for a list-like approach. 7(d) Discuss whether a government should increase taxes on food. Up to 5 marks for why it should: Would raise total revenue (1) demand for food is price inelastic (1) so a good source of tax revenue (1) enabling the government to spend more on e.g. education and healthcare (1). May reduce the problem of obesity (1) improve health of population (1) reduce the burden on healthcare facilities (1). Reduce food wastage (1) lowering costs of waste disposal (1). Up to 5 marks for why it should not: Taxes on food are regressive (1) take a higher proportion of the income of the poor (1) food is a necessity (1) may mean poor cannot afford sufficient food (1) may cut back on other necessities (1) may increase poverty (1) thereby increasing inequality (1). A tax on food (1) may stimulate wage demands (1) increase costs of production (1) cause inflation (1) may increase government expenditure on healthcare (1) may lead to lower labour productivity (1) there may be tax evasion (1). Fall in demand results in less production of food (1) leading to reduced employment in agriculture and food processing industries (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 4

The Central Bank of Nigeria has set a limit for inflation of 9%, but in August 2015 the country’s inflation rate reached 9.2%. The Governor…

Accepted Answer

5(a) Define ‘Central Bank’. A government owned bank (1) acts as bank to government (1) acts as bank to commercial banks (1) operates monetary policy (1) lender of last resort (1) sets inflation target(s)/sets rate of interest (1). 2 5(b) Explain the difference between a fixed exchange rate and a floating exchange rate. • The value of a fixed exchange rate is set by the government (1) using purchases and sales of foreign currency/changes in interest rates (1) • The value of a floating exchange rate is determined by market forces (1) changes in demand and supply (1) e.g. a rise in demand causes currency to appreciate (1) 4 5(c) Analyse how fiscal policy could reduce the inflation rate. • Contractionary/deflationary fiscal policy could be used (1). • A reduction in government spending (1) may reduce total demand (1) reducing demand-pull inflation (1) • An increase in income tax (1) would reduce disposable income (1) this may lower consumer spending (1) reducing total demand (1) lowering demand-pull inflation (1) • Increased in spending on education/healthcare (1) may raise productivity (1) lower costs (1) and reduce cost-push inflation (1) 6 Increase in tax without type is acceptable. Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 5(d) Discuss whether inflation causes more problems than deflation. Up to 5 marks for disadvantages of inflation or advantages of deflation: • Inflation is a general rise in the price level, whereas deflation is a persistent fall (1) • Inflation reduces the value of money/spending power (1) increasing the cost of living (1) it may be of a high rate/hyperinflation (1) reducing the value of money significantly (1) • It may be fluctuating (1) creating uncertainty (1) • Savers are adversely affected (1) by the fall in the real value of their savings (1) • Living standards will fall (1) if price inflation exceeds wage inflation (1) • It may reduce international competitiveness (1) worsening the current account position (1) • Other costs e.g. menu costs, shoe leather costs (up to 2) • Deflation may be beneficial if it is caused by advances in technology (1) lower costs of production (1) can increase output (1) raise employment (1) improve the current account (1) Up to 5 marks for disadvantages of deflation or advantages of inflation: • Borrowers gain from inflation (1) which reduces the burden of debts (1) if inflation rate is higher than the interest rate (1) • Deflation may be caused by a decrease in total demand (1) consumers delay purchases (1) firms may reduce/delay output/(1) profits may fall (1) unemployment may increase (1) • Inflation at a low rate may stimulate production (1) producers encouraged by rising prices (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

Indonesia is rich in resources including such raw materials as copper, gold and coal. Indonesia is the second-largest exporter of coal. In …

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4(a) What is used to measure a country’s inflation rate? 2 CPI / RPI / other relevant named measure (2) A weighted (1) price index (1) 4(b) Explain two reasons for conserving resources. 4 1 mark each for each of two reasons identified: • scarcity / economic problem • protect them for future generations • to achieve sustainable growth • demand may increase in the future • risk of becoming too dependent on one product. 1 mark each for each of two explanations given: • unlimited wants but limited resources • conserving resources may mean output, income and employment can be higher in the future / habitats can be saved for future generations • there is a continuous need for resources • a higher revenue may be earned / prices may rise in the future • exploiting resources may mean that other products are not produced. 4(c) Analyse how subsidies given to farmers could raise living standards. 6 May increase supply (1) as extra payment received (1) higher supply will reduce price (1) lower price will make food more affordable (1) food is a basic necessity (1). Reduced costs for farmers (1) increases their profits/income (1). Subsidies for capital equipment e.g. tractors (1) improve productivity (1) increasing farm outputs / incomes (1). More/better quality food may make the poor healthier (1) increasing their earning capacity (1). The poor may be able to spend less on food (1) allowing them to buy other basic necessities (1). Note: reward increase in supply (1) lower price (1) if shown on a diagram. 4(d) Discuss whether a rise in direct taxes will reduce economic growth. 8 Up to 5 marks for why it might: A rise in income tax will reduce disposable income (1) this may reduce consumer expenditure (1) lower total demand (1) reduce firms’ output (1). A rise in income tax will reduce incentives to work (1) increase tax avoidance (1) leaving less revenue for government spending on e.g. health and education (1) reducing productive potential of workers (1). A rise in corporation tax (1) will increase costs of production (1) will reduce the profits firms can keep (1) reduce the incentive to produce (1) reduce the funds available for investment (1) to expand output (1). Up to 5 marks for why it might not: A rise in income tax may not reduce consumer expenditure if savings fall (1) wages increase by more than tax rise (1). A rise in corporation tax may not reduce investment if firms reduce savings/dividend payments (1). A rise in income tax may reduce spending on imports (1) this would reduce a current account deficit (1) increase net exports (1). The extra tax revenue earned (1) may increase government spending (1) this could offset any fall in consumer expenditure and investment (1).

Question 6

Moldova has a population of 3.5 million. It is one of the poorest countries in Europe, with relatively low living standards. In 2015, the c…

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6(a) Identify two influences on the size of a country’s population. 1 mark each for each of two influences identified: • birth rate • death rate • migration. 2 influences, factors that would affect size of population. 6(b) Explain two causes of an increase in living standards. 1 mark each for each of two causes identified: • rise in income / fall in poverty / fall in unemployment / rise in employment • improvements in education • improvements in healthcare • increase in leisure time. 1 mark each for each of two causes explained: • higher incomes will enable people to buy more goods and services • improvements in education will enable people to earn higher incomes / make more efficient life choices • improvements in healthcare will increase life expectancy • increase in leisure time will give people the opportunity of follow leisure activities / suffer less pressure. 4 Question Answer Marks Guidance 6(c) Analyse how an increase in the rate of interest could increase unemployment. Rise in the rate of interest may discourage borrowing / increase cost of borrowing (1) increase saving (1) decrease spending (1) decrease total demand (1) lower demand may decrease output (1) encourage firms to make workers redundant (1). Rise in the rate of interest may increase firms’ costs of production (1) this may encourage firms to reduce their output (1). Rise in the rate of interest may increase the exchange rate (1) higher exchange rate may decrease exports and increase imports (1) decrease domestic production (1). 6 Question Answer Marks Guidance 6(d) Discuss whether a government should increase tax rates during a recession. Up to 5 marks for why it should: To prevent tax revenue falling (1) lower output may reduce profits (1) lower revenue from corporation tax (1) a recession will lower incomes (1) reduce income tax revenue (1) reduce revenue from indirect taxes (1). Higher tax revenue could be used to implement policies to stop the recession (1) government may be able to spend on supply-side policy measures (1) example (1). A higher tax on imports / import tariff (1) may encourage some consumers to switch to buying domestic products (1) reverse fall in output/employment (1). May want to redistribute income (1) progressive taxes could be increased (1) and tax revenue used to help the poor (1) who may be particularly harmed by a recession (1). Up to 5 marks for why it should not: Higher tax rates may reduce disposable income (1) reduce consumer expenditure (1) may reduce investment (1) lower consumer expenditure and investment would lower total demand (1) this may reduce output further (1). Higher tax rates may discourage MNCs from setting up in the country (1) this may mean it will take longer to get out of a recession (1). Higher tariffs may provoke retaliation (1) reduce both imports and exports (1). 8 Accept a counterargument i.e. the government should instead reduce tax rates during a recession.

Question 7

In June 2015, trade unions in Argentina demanded higher wages and lower taxes. As well as pressure for increased wages the economy was faci…

Accepted Answer

3(a) Identify two reasons why governments impose taxes. 1 mark each for each of two reasons identified: • raise revenue • discourage consumption of harmful products / correct market failure / negative externalities • discourage purchase of imports • redistribute income / reduce income inequality • reduce total demand / reduce rate of inflation. 2 reference to demerit goods. Question Answer Marks Guidance 3(b) Explain two advantages a business organisation may gain from becoming a public limited company. 1 mark each for each of two advantages identified: • relatively easy to raise finance • likely to be relatively large • sustainability • take advantage of limited liability. 1 mark each for each of two explanations given: • able to sell shares on the stock exchange / limited liability may attract shareholders / banks may be more willing to lend • the ability to raise finance can allow firms to expand/take advantage of economies of scale • not dependent on current owners for survival of firm • owners can only lose the value of their shares. 4 3(c) Analyse how a cut in taxes would increase tax revenue. A cut in income tax rates (1) may increase the incentive to work (1) an increase in disposable income (1) would increase the financial reward from working (1) reduces tax evasion (1). A cut in corporation tax (1) may increase the incentive for firms to increase output (1) increasing the total value of profits that can be taxed (1). A cut in indirect taxes (1) may increase spending (1) raising expenditure that can be taxed (1). 6 Question Answer Marks Guidance 3(d) Discuss whether an economy would benefit from an increase in the strength of its trade unions. Up to 5 marks for why it might: Stronger trade unions may achieve higher wages (1) this could increase living standards (1) enabling workers to afford e.g. better healthcare (1) improve training / skills of workers (1) motivate workers (1). Stronger trade unions may improve working conditions (1) prevent workers being discriminated against (1) this may increase labour productivity (1) can make exports more competitive (1) improving balance of payments (1) which can increase economic growth (1). Stronger trade unions may increase communication between workers and employers (1) may help promote training (1) reduce cost of negotiations / making negotiations more effective (1). Up to 5 marks for why it might not: Stronger trade unions may raise firms’ costs of production (1) higher costs of production can reduce firms’ profits (1) cause wage/price spiral (1) resulting in a fall in output (1) increase in unemployment (1) causing cost push inflation (1). Stronger trade unions may increase industrial action (1) will disrupt firms’ production (1) result in a fall in orders (1) fall in investor confidence (1). Stronger trade unions may restrict the ability of firms to change their output (1) reducing their responsiveness to changes in market conditions (1). 8

Question 8

In 2015, the island of Puerto Rico announced it was considering ending some of its trade embargoes. Its government was also reviewing the a…

Accepted Answer

5(a) Identify two reasons why a government may place an embargo on the import of a product. 1 mark each for each of two reasons identified: • to improve the current account position • to prevent the import of a harmful product • to retaliate against another country’s embargo • to protect domestic employment / infant industry / high unemployment. 2 Question Answer Marks Guidance 5(b) Explain two reasons why some young workers may earn more than some old workers. 1 mark each for each of two reasons identified: • may be more qualified • may be more skilled • may be more up to date with the latest technology • may be more mobile • may work longer hours / less time off for illness • firms discriminate against older workers • work primarily in tertiary industry rather than primary. 1 mark each for each of two explanations: • people with high qualifications are in short supply • people with more skills may be more productive • demand is likely to be high for people who have good technical skills • workers who can change occupations and locations will have more choice of jobs • young workers may be less likely to work part-time / more likely to work overtime. • old workers perceived to be less productive. 4 Accept an argument why some old workers may earn less than some young workers. 5(c) Analyse the factors that may make the supply of a product more price-elastic. The production period may decrease (1) e.g. due to advances in technology (1) making it easier to alter the quantity produced (1). The time period available (1) easier to adjust supply in longer time period (1). It may become easier to store the product (1) e.g. due to the building of more storage facilities (1) making it easier to bring more products onto the market or withdraw them from the market (1). More sources of a raw material may be found (1) giving greater flexibility of supply (1). Mobility of factors of production (1) able to substitute between products being produced (1). Ability to source additional resources /output (1) at similar cost retaining profit margins (1). Lack of barriers to entry (1) enables new firms to enter the market (1). 6 Question Answer Marks Guidance 5(d) Discuss whether a decrease in government spending will benefit an economy. Up to 5 marks for why it might: Lower government spending may reduce total demand (1) lower inflation / demand-pull inflation (1). Lower government spending on e.g. benefits, public sector wages (1) may reduce spending on imports (1) improve the current account position (1). Lower government spending on benefits may encourage the incentive to work (1) reduce unemployment (1). Lower government spending may enable the government to cut taxes (1) increase the incentive to invest (1) the incentive to work (1) disposable income increases (1) increase output (1). Lower government spending may allow growth of the private sector (1) by the release of resources (1). Up to 5 marks for why it might not: May cause cyclical unemployment (1) by reducing total demand (1). If spending on education is cut (1) may reduce the quality / skills / productivity of labour force (1) this may lower output (1) cause structural unemployment (1). Lower government subsidies (1) to infant industries may worsen the current account position (1) may reduce supply (1) cause cost-push inflation (1). Lower government spending on education and healthcare (1) may lower living standards (1) increase poverty (1). 8

Question 9

In 2015, the UK economy experienced an increase in production and relatively low unemployment. There was, however, little growth in labour …

Accepted Answer

7(a) Identify two causes of inflation. Demand-pull/consumer boom/higher government spending/increase in net exports/ increase in aggregate demand (1). Cost-push inflation/higher wages/higher raw material costs / depreciation or devaluation of domestic currency / imported inflation (1). 2 Question Answer Marks Guidance 7(b) Explain two reasons why government spending may be greater than tax revenue. 1 mark each for each of two causes identified: • low level of economic activity • government desire to increase economic activity • actual government expenditure higher than planned expenditure • ageing population. 1 mark each for each of two explanations of the causes: • if economic activity is low, spending on benefits may be high while, due to low incomes with low spending, tax revenue will be low • a government may be engaging in expansionary fiscal policy to increase total demand and raise revenue • planned expenditure and forecast tax revenue may not be achieved • more pressure on pensions and healthcare, while tax revenues may fall due to fewer workers. 4 Maximum of 2 marks if explanation is restricted to either why there may be high government expenditure, or low tax revenue. 7(c) Analyse how an increase in labour productivity can increase living standards. Higher productivity will lower costs of production (1) may lower prices (1) enabling people to consume more goods and services (1) greater supply (1). It may increase output (1) raise employment (1) increase incomes (1) greater purchasing power (1) e.g. greater access to healthcare / education / leisure (1) live longer (1) higher HDI (1). Increase in government revenue (1) higher spending on education/healthcare (1). 6 Question Answer Marks Guidance 7(d) Discuss whether monetary policy measures can increase economic growth. Up to 5 marks for why they might: A cut in interest rates (1) may discourage saving (1) increase borrowing (1) raise consumer spending (1) raise investment (1) increase total demand (1) increase output (1) higher investment will increase productive capacity (1). A reduction in the value of the exchange rate (1) will lower export prices and raise import prices (1) increasing demand for domestic products (1) increase output (1). An increase in the money supply (1) may stimulate higher spending (1) increasing output (1). Up to 5 marks for why they might not: Lower interest rates may not increase consumer spending and investment if confidence is low (1) households and firms may not spend extra disposable income if they think that incomes will fall in the future (1). A lower exchange rate will not lead to a rise in export revenue and a fall in import expenditure if demand is price-inelastic (1) there is an increase in import restrictions imposed by other countries/fall in incomes abroad (1). An increase in the money supply or other measure may lead to demand-pull inflation (1) the economy may not have the resources to produce more goods and services despite the rise in total demand (1). 8 Accept an argument that contractionary monetary policy leading to higher interest rates and lower domestic demand would reduce economic growth. Do not reward the same argument on both sides (mirror image) without additional relevant analysis.

Question 10

In 2014, the government of Kazakhstan devalued its currency, the tenge. A year later the country still had a current account deficit. There…

Accepted Answer

3(a) Define devaluation. A fall in the value (1) of a (fixed) exchange rate (1). Fall in value of currency (1) relative to another (1). Fall/decrease in exchange rate (1). Fall/decrease in currency (0). 2 one currency relative to another. ‘Currency’ means one currency on its own – mark as Too Vague 3(b) Explain TWO advantages of a floating exchange rate. It should automatically eliminate current account imbalances (1) by floating down when there is a deficit (1). No currency reserves are needed (1) as the government will not intervene to influence the value of the currency (1). No government intervention needed (1) as the exchange rate will be at the market price / determined by supply and demand (1). The exchange rate is not a policy target (1) policy measures do not have to be used to influence its value (1). 4 3(c) Analyse how fiscal policy measures could reduce inflation. A rise in taxes (1) causes a fall in disposable income/rise in costs (1) fall in government spending (1) will reduce total (aggregate) demand (1) reduce demand-pull inflation (1). Government spending on education/training/subsidies (1) lower taxes (1) could reduce costs of production (1) will increase total (aggregate) supply (1) lower cost-push inflation (1). Lower taxes on imports would reduce cost-push inflation (1). 6 Question Answer Marks Guidance 3(d) Discuss whether or not a reduction in a current account deficit on the balance of payments will benefit an economy. Up to 5 marks for why it might: May mean that demand for imports has fallen (1) and/or demand for exports has risen (1) higher total (aggregate) demand (1) may increase GDP/create economic growth (1) reduce unemployment (1). Will reduce debt (1) not have to borrow as much to finance it (1). May cause appreciation of exchange rate (1) leading to lower inflation (1). Up to 5 marks for why it might not: If the deficit is reduced by buying fewer imports of raw materials (1) and capital goods (1) may reduce GDP (1) lower exports in the longer run (1). If fewer imports are being purchased because of a recession (1) GDP will be falling (1). If fewer imports are being purchased because trade restrictions are introduced (1) there may be retaliation (1) with tariffs/quotas being imposed one exports (1). Higher total (aggregate) demand might lead to (demand-pull) inflation (1). Exchange rate may appreciate (1) can reduce total demand/worsen the deficit in the long run (1). 8 Accept higher total demand on either side. One mark if given on both sides. More marks can only be awarded if a reason why this leads to a benefit/cost is given.

Question 11

More governments are imposing taxes on unhealthy food and drinks. Such taxes are usually regressive. Some of these governments are also inc…

Accepted Answer

7(a) Define regressive tax. A tax that takes a lower percentage of the income of the rich/higher percentage of the income of the poor (2). A tax that falls more heavily on the poor (1). Disadvantages the poor/higher burden on the poor/higher rate for the poor (1). 2 7(b) Explain why the social benefit of healthcare is greater than the private benefit. Social benefit includes both private and external benefits (1). Healthcare also provides external benefits(1). Example of private benefits identified as a private benefit e.g. profits of provider, wages of doctors, higher life expectancy of consumer (max 2). Examples of external benefits identified as external benefits/recognised as 3rd party impacts e.g. higher labour productivity, higher output, reduction in spread of diseases (max 2). 4 7(c) Analyse why a government imposes taxes. To raise revenue (1) to finance government spending/example of spending (1). To discourage the consumption of certain products (1) example/external costs (1). To discourage the production of certain products (1) example/external costs (1). To discourage the consumption of imports (1) improve the current account position on the balance of payments (1). To redistribute income (1) taxing the rich more (1). To influence economic activity (1) raising taxes to reduce total (aggregate) demand (1) to control (demand-pull) inflation (1). 6 Accept but do not expect reference to public and merit goods. Question Answer Marks Guidance 7(d) Discuss whether or not consumers are likely to benefit from state-owned enterprises becoming private sector firms. Up to 5 marks for why they might: There may be more competition in the markets (1) this may force down prices (1) increase quality (1). Firms will be influenced by the profit motive (1) this may make them more responsive to changes in consumer demand (1). State-owned enterprises may be slow in making decisions (1) due to bureaucratic control (1) may not respond quickly enough to consumer demands (1). Up to 5 marks for why they might not: State-owned enterprises might have taken into account social costs and social benefits (1) rather than just private costs and private benefits (1) main goal may be economic welfare (1). Private sector firms may merge (1) form monopolies (1) (use market power to) push up price (1) they may become complacent (1) lower quality (1). Private sector may not have sufficient finance for large-scale projects (1) consumers would lose out on the benefits (1). 8 Accept quality and prices on either side, but only one mark if given on both sides. More marks can only be awarded if a reason for change in quality/prices are given.

Question 12

In 2016, the trade union representing doctors in the UK was involved in collective bargaining with the government over proposed changes to …

Accepted Answer

2(a) Identify two influences on the strength of a trade union’s collective bargaining power. • size of membership • financial position • level of employment • government legislation • willingness to take industrial action 2 If more than 3 answers given only consider the first three. 2(b) Explain the likely impact of trade unions on the welfare of their members. Increase or maintain wages of members (1) increase or maintain material standard of living (1). Improve or maintain working conditions (1) e.g. improved safety / less stress (1). Protect workers’ rights (1) e.g. working hours / sick pay / paternity leave (1). Protect jobs (1) reduce risk of unemployment (1). Provide training (1) helping employees find better jobs / better paid jobs (1). 4 2(c) Analyse the impact of a reduction in government expenditure on healthcare on a country’s unemployment rate. Less spending on healthcare may result in less employment of doctors and nurses (1) causing structural unemployment (1) but may mean less skilled (cheaper) doctors and nurses employed (1) leaving unemployment rate the same (1). Lower government spending is contractionary fiscal policy (1) this will reduce total (aggregate) demand (1) firms’ output will fall (1) causing demand for labour to fall (1) as derived demand (1) causing cyclical unemployment (1). Quantity / quality of healthcare may decline (1) this may reduce labour productivity (1) international competitiveness (1) reducing demand for the country’s products and labour (1). 6 Question Answer Mark Guidance 2(d) Discuss whether or not a decrease in the number of doctors will reduce living standards. Up to 5 marks for why it might: If there are less doctors patients may receive worse quality healthcare (1) reducing life expectancy (1). The productive capacity of the economy could fall in the long run (1) as a result of life expectancy falling / more sick days as a result of a worse quality health service (1). Worse healthcare can decrease productivity (1) causing wages to fall (1). A shortage of doctors would cause their wages to rise (1) making health care less affordable / less available / poor patients can’t afford it (1). Up to 5 marks for why it might not: Technological advancement (1) could mean the quality of healthcare is improving even though the number of doctors is falling (1) I increased expenditure on facilities / equipment (1) could offset the impact of fewer doctors (1) Access to healthcare is more important in determining living standards in the country (1) – there may be less doctors but if healthcare is now more affordable living standards on the whole may be rising (1). If population is increasing (1) less need for doctors / number of doctors per head may not change (1) 8

Question 13

The state of California has the most progressive tax system in the USA. The tax system helps reduce high poverty rates. Policy makers are c…

Accepted Answer

5(a) Define progressive tax. A tax that takes a higher percentage of income of the rich / lower percentage of income of the poor (2). Falls more heavily on the rich / imposes a higher burden on the rich (1). A tax which is used to reduce income inequality (1). 2 5(b) Explain two reasons why a government may want to reduce poverty. Reduce income inequality (1) raise living standards (1). To increase tax revenue (1) as average incomes / GDP will rise (1). To improve the country’s HDI / develop the country (1). Reduce healthcare expenditure (1) as the poor will be fitter (1). Increase labour productivity (1) leading to more output / lower unemployment (1). 4 Question Answer Mark Guidance 5(c) Analyse, using a supply and demand diagram, the effect of increasing a sales tax. Award up to 4 marks for a correct diagram: • Axes labels P and Q (1) • Supply and demand curves correctly labelled (1) • Supply curve shifting left (1) • Original and new equilibrium positions identified (1) Award up to 2 marks for associated explanation: Increasing tax raises a firm’s costs of production (1). A higher price (1) may be passed on to consumers (1). 6 price quantity O S2 S1 p2 p1 D1 q2 q1 Question Answer Mark Guidance 5(d) Discuss whether a government should increase indirect taxes and whether it should reduce direct taxes. Up to 5 marks for why the government should do this: Incentives to work may increase (1) if low income then the extra income from work (1) could reduce poverty (1) if high income then the individuals could work harder (1) generating economic growth (1). Raising indirect taxes on goods with external costs (demerit goods) e.g. cigarettes (1) can help to reduce market failure (1) e.g. health of the country improves (1). Up to 5 marks for why the government shouldn’t do this: Indirect taxes tend to be regressive (1) whilst direct taxes are progressive (1) so this will worsen inequality / poverty in a country (1). Both policies may lead to inflation (1) indirect tax increases push up prices of goods and services (1) direct tax cuts increase total (aggregate) demand (1). Individuals may save any cuts in direct tax (1) minimising the economic impact (1). It could cause individuals to spend more on imports (1) worsening the balance of payments (1). Tax take could fall (1) as indirect taxes can be avoided whereas direct taxes cannot (1). 8

Question 14

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

Accepted Answer

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 15

Droughts in the Pacific Coast region of the US and regulations, in the form of limits on the amount of salmon that can be caught in the wil…

Accepted Answer

3(a) Define supply. The number of products firms are willing to provide/sell (1) and are able to provide/sell (1) at a given price (1). 2 3(b) Explain one market failure that may occur in the salmon market. Market mechanism fails to allocate resources efficiently / not all costs are considered (1). Social cost is greater than private cost (1) as there are external costs / negative externalities (1) consumption at the current rate may lead to depletion of stock (1) consumption becomes unsustainable (1) overconsumption / resources are overused (1) these resources could be conserved for future generations (1) cost to future generations who will not be able to enjoy the product (1) pollution may occur e.g. water pollution (1). Monopoly / one large producer (1) no competition (1) can charge high prices / exploit consumers (1) excess profits of producers (1). Inequality (1) high price (1) poor cannot afford the product (1) and will not be able to attain any health benefits of consuming the product (1). 4 Question Answer Marks Guidance 3(c) Analyse how information on changes in a firm’s revenue can be obtained from price elasticity of demand calculations. PED definition or formula (1) PED provides information on how consumers react to a change in price (1). If PED is elastic / PED > 1, a fall in price will raise revenue (1) as quantity demanded will increase more (1) than proportionately/percentage (1). A rise in price will decrease revenue (1) as quantity demanded will decrease more than proportionately (1). If PED is inelastic / PED < 1, a rise in price will raise revenue (1) as quantity demanded will decrease less (1) than proportionately / percentage (1). A fall in price will decrease revenue (1) as quantity demanded will increase less than proportionately (1). If PED is perfectly elastic, a rise in price will cause revenue to fall to 0 (1) as consumers will stop buying completely (1) If PED is perfectly inelastic / PED = 0, a rise in price will raise revenue (1) as consumers will continue to buy the same amount (1) If PED has unit elasticity / PED = 1, a change in price will keep revenue unchanged (1) as quantity demanded will change by the same proportion (1). 6 Maximum 4 marks for reference to only elastic OR inelastic. Question Answer Marks Guidance 3(d) Discuss whether or not government subsidies are always beneficial to producers. Up to 5 marks on how subsidies are beneficial to producers: Subsidies will lead to a decrease in cost of production (1) leading to a decrease in the price of products / shown on a diagram (1) and an increase the quantity demanded for producers / shown on a diagram (1). Total revenue for producers may increase (1) increasing profits (1). Subsidies will enable producers to increase investment (1) increasing future output (1) Producers can maintain a stable livelihood (1) ensure a stable income (1) ensure jobs can continue to be provided (1). Subsidies can encourage new entrants to an industry (1) increasing competition (1) Up to 5 marks on how subsidies are not beneficial: Subsidies may be relatively small (1) and not be enough to offset the firm’s losses (1) or not enough to offset higher costs (1). Subsidies can lead to complacency (1) where producers do not use subsidies in an effective way (1) they will be reluctant to lose the subsidies (1) and producers not receiving the subsidy e.g. those in a competing industry will be at a disadvantage (1). Subsidies have opportunity cost for the government (1). Other government provisions might be sacrificed (1) e.g. healthcare and education (1). 8 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.

Question 16

Teachers in many countries oppose their governments’ cuts in spending on education. They worry that this could reduce the standard of educa…

Accepted Answer

6(a) Identify two reasons why a person may want to work in the state sector. Higher wages (1) job security (1) better pension (1) good working conditions (1) status of public sector worker (1) job satisfaction e.g. teacher (1) patriotism / to perform a public service (1) state sector jobs may be more widely available (1). 2 6(b) Explain two reasons why a government may want to cut spending on education. Government would like to reduce its total spending (1) to reduce government borrowing (1) cut the national debt (1) avoid having to raise taxes (1) to reduce total demand (1) reducing inflation (1) Spending on education incurs an opportunity cost (1) government would prefer to spend on other areas e.g. defence, healthcare (1). Education is less valued by the public (1) than other services e.g. health, defence (1). Government would like to reduce wasteful expenditure (1) to increase the efficiency of the public sector (1). A drop in the number of students in education (1) less spending needed (1). Government wants students to bear a greater proportion of costs (1) since students ultimately benefit from better paid jobs (1). 4 Question Answer Marks Guidance 6(c) Analyse the contribution that education can make in an economy. Education enables the population to develop the knowledge (1) skills (1) for future development (1) better skills may improve productivity (1) increased output / economic growth (1) improved quality of output (1) better skills may attract foreign investors / MNCs to the country (1). Educated people have better job opportunities (1) potentially enabling them to earn higher incomes (1) leading to increased consumption (1) which reduces poverty / improves living standards (1). Increased consumption could lead to higher demand in the economy (1) increasing output (1). Education enables the economy to move to a tertiary based economy (1) tertiary based economy relies heavily upon a well-educated population (1). Education enables women to play a more active role in the economy (1) enabling them to find jobs (1) and earn a living independently (1). Education enables people to start their own business (1) increasing output (1). Education provides employment e.g. teachers, janitors (1) More highly educated people may be more concerned about the environment (1) may reduce external costs (1). More highly educated people may be healthier (1) reducing costs of healthcare / raising productivity (1). 6 Question Answer Marks Guidance 6(d) Discuss whether or not a worker would always benefit by specialising. Up to 5 marks for why they would benefit: By specialising workers focus on what they are best at (1) acquiring better skills (1) quality of goods increase (1) output/productivity increases (1) worker earns a higher income (1) easier to find job in the same sector (1) more likely to achieve promotion (1) Saves time (1) workers don’t need to think of next process / move from place to place (1). Specialised workers are limited in supply (1) causing their wage to be higher (1). Invention of new technology (1) makes the job easier (1). Up to 5 marks for why they would not benefit: Workers may experience boredom (1) if the work is repetitive (1) reducing productivity/efficiency/motivation (1) Those with a limited amount of skills (1) may find it difficult to obtain alternative jobs (1) may be replaced by machinery more easily (1) risk of unemployment (1). Workers may be over-dependent / too reliant on one skill / risk over- specialisation (1) unable to complete the task without the help of others (1) especially when production is disrupted (1). Training to specialise has an opportunity cost (1) lost income / later starting date (1) 8 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.

Question 17

In 2016, the Indonesian government increased its spending on healthcare and education and considered raising the school leaving age. The go…

Accepted Answer

3(a) Identify two types of tax. Any 2 from: Direct (1) indirect (1) progressive (1) regressive (1) proportional (1) VAT/GST (1) excise duty (1) income tax (1) corporation tax (1) inheritance tax (1) lump sum tax (1) specific tax (1) ad valorem tax (1). 2 3(b) Explain two benefits to a government from a fall in unemployment. Rise in tax revenue (direct/indirect) (1) people earning more / people spending more / output higher (1). Fall in expenditure on unemployment benefit (1) enabling government to spend on other areas e.g. healthcare/education (1) May help the government achieve its macroeconomic objectives (1) e.g. raise GDP / achieve full employment (1) 4 3(c) Analyse, using a production possibility curve (PPC) diagram, the effects of high unemployment in a country. Diagram up to 3 marks: • axes labelled Capital Goods & Consumer Goods (also accept any other combination as long as it is clear that it is two separate products, and not Price and Quantity) • a curve bowed outwards or a downward sloping straight line drawn to the axes • point inside the curve identified as point of unemployment e.g. X Written analysis up to 3 marks: • high unemployment means that the available resources are not fully (1) and efficiently used (1) • the economy will not be able to produce at its maximum level (1) i.e. on the PPC (1) output of the economy is smaller than the maximum (1) lower than potential living standards (1) • May be negative or lower economic growth / recession (1) 6 Question Answer Marks Guidance 3(d) Discuss whether or not a government should raise the school leaving age. Up to 5 marks for why it should: More time in education may increase workers’ skills (1) raise qualifications (1) reduce unemployment (1) raise productivity (1) increase output / increase economic growth (1) raise wages / increase living standards / increase HDI / reduce poverty (1) lower costs of production / improved quality of products (1) increase net exports / raise exports / lower imports (1) improve the current account position (1). May improve life expectancy / health (1) by making people better informed (1). May attract more MNCs to set up in the country (1) reduce their training costs / raise the quality of their output (1). Up to 5 marks for why it should not: May increase government spending (1) it will involve the use of extra resources (1) there will be an opportunity cost involved (1) example (1). In the short run the labour force will be reduced (1) lower potential output (1). A greater quantity of education does not necessarily mean a rise in quality of education (1). Some of those who receive the extra years, of schooling may not take full advantage of these (1) which may disrupt the learning of others (1). The dependency ratio may rise (1) tax rates may have to be increased (1). Families may not be able to afford the extra years schooling (1). 8 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 expected.

Question 18

Nigeria adopts a floating exchange rate In June 2016, Nigeria adopted a floating exchange rate after the country’s central bank had spent m…

Accepted Answer

1(a) Identify, from the extract, two methods of trade protection. Tariffs (1) Exchange control/limit on foreign currency that people can buy (1). 2 1(b) Analyse what may cause a depreciation in an exchange rate. A deficit on the balance of payments on current account (1) imports are greater than exports resulting in fall in market price (1). A fall in demand for the currency (1) a rise in the supply of the currency (1). A fall in exports/rise in imports (1) due to higher inflation (1) lower quality of goods being produced (1) higher costs of production (1). A rise in imports/fall in exports (1) due to increase in demand in the economy/economic growth (1). A fall in the rate of interest (1) due to a fall in FDI/speculation (1). An expansionary government monetary policy (1) to sell currency to encourage exports (1). 5 1(c) Analyse to what extent the information in Table 1 suggests that countries with current account deficits have higher inflation rates and lower economic growth rates than those with current account surpluses. The three countries with current account deficits do have higher inflation rates (1). Correct identification of Columbia/Nigeria/Turkey as the three countries with a deficit (1). China and Germany have lower inflation (1). The picture is less certain in terms of economic growth (1). Evidence (up to 2) e.g. Columbia has a deficit but relatively high economic growth (1). Germany had a surplus but low economic growth (1). 4 Question Answer Marks Guidance 1(d) Explain, using information from the extract, two reasons why poverty may have increased in Nigeria in 2015–2016. Higher price of imported food (1) the poor spend a high proportion of their income on food (1). Current account deficit (1) results in lower demand and unemployment rises (1). Inflation (1) people can afford less (1). Spending on education and health care may have been cut (1) this may have reduced some people’s ability to access this services/reduced employment in these sectors/unable to get jobs due to lack of skills/illness (1). Unemployment may have increased/high unemployment (1) reducing some people’s income (1). Lower tax revenue (1) spending on welfare benefits may have fallen (1). Water pollution (1) clean drinking water is seen as a necessity (1). 4 Question Answer Marks Guidance 1(e) Discuss whether or not a cut in government spending on education would reduce the gap between government spending and tax revenue. Up to 3 marks for why it might: Spending on education may form a relatively high percentage of government spending/a reduction will reduce overall government spending (1) this could have big impact on gap if government does not raise spending on other items (1) if tax revenue remains unchanged (1). The government may have used the tax revenue to spend on stimulating the economy (1) raising tax revenue (1). Up to 3 marks for why it might not: Lower government spending on education may reduce skills (1) lowering employment (1) reducing incomes (1) lowering tax revenue (1) increasing government spending on benefits (1) gap may widen (1). Government may increase spending elsewhere e.g. infrastructure (1) therefore gap is not reduced (1). May encourage emigration (1) fewer people to pay taxes (1). 5 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 Tax revenue may decrease 1 because of reason« e.g. incomes may be lower 1 Tax revenue may increase (reverse of 1st argument) 0 because of a different reason / not a reverse argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 1(f) Explain, using information from the extract, two external costs that arise from oil production in Nigeria. Water pollution (1) imposing a cost on fishermen/poor quality drinking water affects health of local people/cost on third parties/government may have to spend money clearing up the pollution (1). Air pollution (1) imposing a cost on local people e.g. quality of air affects breathing/damage to the environment/global warming (1). 4 Question Answer Marks Guidance 1(g) Discuss whether or not an increase in the wages of low-paid workers will reduce poverty. Up to 4 marks for why it might: One cause of poverty is low pay (1) raising the pay of the poor can take them out of poverty/increase their income (1) their spending is likely to increase (1) enabling them to buy more basic necessities (1) reducing absolute poverty (1) stimulating higher output/demand (1) reducing unemployment (1). Enables low-income families to spend on education of children (1) raising skills and pay in long-run (1). Raising the pay of low-paid workers may increase their motivation (1) which may increase their productivity (1) increasing their chances of keeping their jobs/gaining promotion (1). Up to 4 marks for why it might not: Increase may be very small (1) insufficient to take people out of poverty (1) Increase maybe less than inflation rate (1) leaves poor worse off (1). Poor may not have jobs (1) increase in pay has no affect for them (1). The rise in pay (1) may increase firms’ costs of production (1) causing them to make some workers redundant (1) reducing their income (1). 6 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.

Question 19

A United Arab Emirates (UAE) airport announced a record profit of $1.9 billion in 2016. This was despite a fall in its total revenue. In 20…

Accepted Answer

2(a) Define total revenue. Price × quantity (2). Total cost plus total profit/total cost minus any loss (2). The amount received (1) from selling a product (1). 2 2(b) Explain how a firm may earn a profit despite a fall in revenue. Profit is revenue minus cost (1). Costs of production may fall by more than revenue (1) e.g. fuel costs may have fallen/action taken to reduce costs if revenue falls (1). Revenue may have initially been higher than cost (1) profit may have fallen but still be positive (1). The firm may receive government subsidies (1) reducing costs of production (1). 4 2(c) Analyse how the introduction of an indirect tax may cause unemployment. An indirect tax will impose an additional cost on firms (1) example of an indirect tax (1) producers are likely to pass some of the tax on to consumers (1) raise the price of products (1) to maintain profit (1) higher price reduces demand for products (1) reduces supply (1) reduce demand for labour (1). Higher prices may reduce total demand (1) as consumption is a component of total demand (1) reduction in derived demand for labour (1). If tax mainly borne by producer/demand for the good is elastic (1) less money to invest (1) less jobs available (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not MNCs are likely to set up in countries with low unemployment. Up to 5 marks for why they might: Incomes/GDP may be high (1) creating high demand for the MNCs’ products (1) increasing profit (1). People they employ are likely to have work experience (1) may be trained/need less expenditure on training (1) have higher productivity (1) lowering costs of production (1). Employment may be in primary sector (1) where wages are lower (1). May be a capital intensive and don’t need many workers (1) just skilled workers (1). Tax revenue may be high (1) due to high incomes and spending (1) so the government may not set high corporation tax (1) may provide subsidies to the MNCs (1) infrastructure is good reducing costs for MNCs (1). Up to 5 marks for why they might not: May have to pay high wages (1) provide generous fringe benefits (1) to attract workers from other firms/difficult to recruit (1) increasing costs of production (1) are uncompetitive with other MNCs in other countries (1) reducing profits (1). The workers may be employed in low-skilled jobs (1) the MNCs may have to spend money on training workers (1). High wages mean MNCs are unable to exploit labour with low wages (1) prefer to locate in countries where pay low wages (1) as this means low costs of production (1) and increases profits (1). Low unemployment may mean a high level of demand (1) causing demand -pull inflation (1) it may push up wages (1) causing cost-push inflation (1) higher inflation may make it harder for the MNCs to export (1). 8 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. Accept responses from the opposite perspective i.e. why MNCs may want to establish in countries with high unemployment.

Question 20

The economic problem results in people having to make choices. In Bulgaria, in recent years, people have changed how much they spend. The B…

Accepted Answer

3(a) Identify two ways a government could encourage people to spend 2 more. • lower taxes • increase government spending / expansionary fiscal policy • increase money supply • reduce interest rates / expansionary monetary policy • raise subsidies 3(b) Explain how the economic problem results in people having to make 4 choices. The economic problem is unlimited wants (1) but limited resources (1). As resources are limited, people cannot have everything they want / not everything can be produced / there is scarcity (1) there is an opportunity cost (1). 3(c) Analyse why deflation may cause a fall in output. 6 A fall in the price level (1) may discourage spending / reduce total (aggregate) demand (1) households waiting for prices to fall further (1) the fall in demand may reduce firms’ output (1). Deflation may reduce firms’ profits (1) this may discourage investment (1) reduce demand for capital goods (1) lower the output of capital goods (1). 3(d) Discuss whether or not a country will suffer if its output falls. 8 Up to 5 marks for why it might: Lower output may mean that people will have fewer goods and services (1) this could reduce living standards / reduce incomes (1). Lower output may mean fewer workers are needed (1) unemployment may rise (1). If consumers cannot buy domestically produced products (1) they may buy imports (1) exports may fall (1) resulting in a current account deficit (1). MNCs may leave the country (1) reducing employment (1). Tax revenue may fall (1) reducing government’s ability to spend on e.g. education (1). Up to 5 marks for why it might not: Living standards may rise (1) if output falls by less than population (1). A lower output may reduce external costs (1) e.g. pollution (1) destruction of sights of natural beauty (1). Lower output may reduce demand for imports (1) improve the current account position (1).

Question 21

Average life expectancy is as short for the poorest Americans as it is for the people of Sudan, a low-income African country. Low-income in…

Accepted Answer

4(a) Identify two reasons why someone may want to migrate to the USA. 2 • higher wages • better education • better healthcare • better employment prospects 4(b) Explain two reasons why less-educated people tend to have a shorter 4 life expectancy than people who have received more education. • a lower income (1) worse nutrition/healthcare/housing (1) • less well-informed (1) less likely to eat healthily / more likely to have unhealthy habits e.g. smoking (1) • more likely to be in a more physically demanding / risky job (1) less choice of occupation due to less skills/qualifications (1). 4(c) Analyse how economic growth can reduce absolute poverty. 6 Economic growth is likely to increase employment (1) this may increase the chances of the poor gaining jobs (1) raise income (1) allow them to buy basic necessities / definition of absolute poverty (1). Economic growth can increase tax revenue (1) this may enable the government to spend more to help the poor (1) e.g. improved education for the poor (1) higher state benefits (1). 4(d) Discuss whether or not a cut in the tax on firms’ profits will increase 8 employment. Up to 5 marks for why it might: Firms will be able to keep more of their profits (1) this may increase the incentive for them to expand their output (1) it will provide the funds to spend on expansion (1). To increase their output, firms may take on more workers (1) employment may rise in the private sector (1). Higher profits may attract more shareholders (1) this will also increase the funds for investment (1). Up to 5 marks for why it might not: Firms will not expand if they have spare capacity (1) or they are worried about the future (1). Firms may distribute extra profits to shareholders rather than invest (1). Firms may expand by adopting more capital-intensive methods (1) may actually reduce employment (1). May be lower tax revenue (1) example of what the government may spend less on (1) link to unemployment (1).

Question 22

Universal basic income (UBI) UBI is a scheme where a government provides everyone with a payment, regardless of their circumstances. Such a…

Accepted Answer

1(a) Identify, using information from the extract, two reasons why a person may have a low income. • old • sick • unemployed • being on state benefits • being in need of, but not receiving state benefits in their country 2 Difference between fourth and fifth bullet point is where a country is not able to fund state benefits, so people remain on low income. 1(b) Explain, using information from the extract, whether Russia has a progressive, proportional or regressive income tax system. Proportional (1) AND the same rate / people with different incomes paying the same % / all paying 13% (1). 2 1(c) Calculate, using Table 1, what percentage of annual average income in Costa Rica, a person would have if he receives UBI of $337.5 a month. 25% (2). Correct working: $337.5 × 12 / $16 200 (1). 2 1(d) Analyse, using Table 1, the relationship between annual GDP per head and life expectancy. Generally, the higher the annual GDP per head, the longer the life expectancy (1) e.g. rich people are likely to have better nutrition / healthcare (1). The two countries, Monaco and Finland, with the highest annual GDP per head have the longest life expectancy (1). The country with the lowest annual GDP per head, Mali, has the lowest life expectancy (1). Russia or Costa Rica is an exception (1) e.g. Costa Rica has a lower annual GDP per head but a higher life expectancy than Russia (1). 5 Countries must be named. Question Answer Marks Guidance 1(e) Explain an example of opportunity cost in the extract. • Opportunity cost is the best alternative (1) foregone (1) plus • The opportunity cost of UBI (1) is the existing system of state benefits (1) or • The opportunity cost of spending on unemployment benefits (1) is spending on education / healthcare (1) 4 1(f) Discuss whether or not a monopoly will charge high prices. Up to 3 marks for why it might: A monopoly is a single seller (1) has high market power (1) is a price maker (1) demand for its product may be inelastic (1) due to lack of substitutes (1) can raise revenue by raising price (1) may be seeking to maximise profit (1). A monopoly may be inefficient (1) due to lack of competition (1) resulting in higher costs and prices (1). Up to 3 marks for why it might not: A monopoly may have low average cost of production (1) due to economies of scale (1) example (1). A monopoly may not be a profit maximiser (1) example of another objective (1). A monopoly may have a product with elastic demand (1) e.g. may be producing a luxury (1). A monopoly may be concerned that charging high prices will encourage new firms to enter the market (1) reducing its market power (1). A monopoly may fear government intervention (1) and keep prices low (1). A monopoly may be government controlled (1) and charge low prices (1). 5 Reward but do not expect reference to price discrimination resulting in low prices for some consumers. Question Answer Marks Guidance 1(g) Explain, using information from the extract, two reasons why someone from India with the same income as someone from Finland may enjoy a higher living standard. Lower prices in India (1) an Indian household may have greater purchasing power / be able to buy more goods and services (1) Colder weather in Finland (1) which is likely to increase people’s willingness to spend / greater need to spend to keep warm (1) Lower tax rates in India (1) greater purchasing power / higher disposable incomes (1) 4 Opposite arguments are also correct e.g. higher tax rates in Finland, etc. Question Answer Marks Guidance 1(h) Discuss whether or not a government paying higher state benefits to the unemployed will reduce unemployment. Up to 4 marks for why it might: The unemployed will have a higher income (1) they may spend more (1) total (aggregate) demand may increase (1) firms may expand (1) take on more workers (1). Enables the unemployed to spend on education and training (1) and improve their chances of getting a job (1). Up to 4 marks for why it might not: Unemployment benefit may become higher than the wages the low paid may receive (1) this may encourage some people to stop working (1) increase voluntary unemployment (1). Higher state benefits may be financed by increased taxation (1) total (aggregate) demand may not rise (1). Government spending money on education and training (1) may have greater impact on reducing unemployment (1). 6 Apply this example to all questions with the command word DISCUSS (1(f), 1(h), 2(d), 3(d), 4(d), 5(d), 6(d) and 7(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 to be rewarded. Generic Example Marks Tax revenue may decrease« (one mark) 1 ...because of reason e.g. incomes may be lower (one mark) 1 Tax revenue may increase because incomes may be higher i.e. reverse of 1st argument (no marks) 0 «because of a different reason that is not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education 1

Question 23

It was predicted that global unemployment would rise by over two million in 2017. Unemployment rates, however, vary between countries. Some…

Accepted Answer

7(a) Identify two fiscal policy measures. • Government spending • Taxation 2 Allow two different types of taxes or two different areas of government spending, or a combination. 7(b) Explain two reasons why the unemployment rate may be higher in one country than another. Total demand may be lower (1) higher cyclical unemployment / recession (1). Lower labour mobility (1) causing structural unemployment (1). Greater pace of technological advancement (1) replacing labour / causing structural unemployment (1). Greater voluntary unemployment (1) due to higher benefits (1). Labour force growing faster than economy (1) creating shortage of jobs (1). Lower education standards (1) means workers are less employable (1). Labour market restrictions (1) may make employing workers more expensive (1). 4 Question Answer Marks Guidance 7(c) Analyse how supply-side policy measures may reduce unemployment. Supply-side policy measures increase productive capacity within the economy (1). Education and training (1) could raise the skills of workers (1) labour productivity could rise (1) firms may be encouraged to take on more workers (1). A cut in income tax (1) may increase total (aggregate) demand (1) causing firms to produce more (1) and so take on more workers (1) it may also have an incentive effect (1). A cut in unemployment benefit (1) may encourage more of the unemployed to take jobs (1) if wages are now higher than benefits (1). Privatisation (1) could result in an expansion of firms (1) if they are more competitive (1) and so they may take on more workers (1). Subsidies (1) will lower costs of production (1) encouraging firms to expand (1) employ more workers (1). Trade Union reforms (1) may encourage firms to employ more workers (1) e.g. cheaper / more flexible labour force (1). 6 These must be measures introduced by a government. Question Answer Marks Guidance 7(d) Discuss whether or not a government should protect its country’s industries from foreign competition. Up to 5 marks for why it should: The industries might be infant industries (1) not able to take full advantage of scale (1) and so not able to compete on price (1). The industries may be declining industries (1) if they go out of business quickly, unemployment may increase (1). The industries may be facing dumping (1) which will make it difficult for firms to compete against foreign producers selling at below cost price (1). The government may want to reduce a current account deficit (1) caused by imports exceeding exports (1) encourage economic growth (1) create more jobs (1). Up to 5 marks for why it should not: It may push up the price of imported products if tariffs are used (1) costs of production may rise (1) causing inflation (1) consumers’ purchasing power would fall (1). It may reduce competition for domestic firms (1) this may reduce efficiency (1) raise prices (1) reduce quality (1). Other countries may retaliate (1) reduce exports (1). Opportunity cost (1) e.g. resources could be used to support education / healthcare / infrastructure (1). Free trade may result in lower prices (1) greater variety for consumers (1). 8 Do not accept descriptions of the types of protection measures.

Question 24

Premium Friday At the start of February 2017, the Japanese government introduced its ‘Premium Friday’ scheme. This encourages employers to …

Accepted Answer

1(a) Identify, using information from the extract, two factors that influence an individual’s choice of occupation. • working hours / leisure time • holidays • job security / job insecurity • wages 2 1(b) Explain, using information from the extract, an opportunity cost of working. Leisure time / holidays / time devoted to raising children / looking after the elderly (1) opportunity cost is the (next) best alternative forgone (1). 2 1(c) Calculate, using information from the extract, the number of Japanese workers who left work early on Premium Friday in February 2017. 2.56m / 2 560 000 (2). Correct working: 4% of 64m (66m – 2m) or 2,560 or version of 2.56 (1). 2 1(d) Explain, using information from the extract, why the size of Japan’s population has fallen in recent years. The birth rate has fallen (1) more than the fall in the death rate (1). A fall in the birth rate means fewer children are being born (1) a reason e.g. more women working / people working longer hours / job insecurity / looking after elderly relatives (1). A fall in the death rate means people are living longer (1). If the birth rate falls by more than the death rate there may be a natural decrease in population (1) actual decrease if natural decrease is more than net immigration (1) extra number of older people is more than offset by fewer babies (1). 4 Question Answer Marks Guidance 1(e) Analyse, using Fig.1, the relationship between the average hours worked and productivity. Generally, the shorter the hours worked the higher the productivity (1) inverse relationship / negative relationship (1). The expected relationship (1) workers will not be tired and so will be able to produce more per hour / more leisure time may increase efficiency / may be more motivated (1). Two countries, France and Germany, have the shortest working hours and the highest productivity (1). Country with the longest working hours, Mexico, has the lowest productivity (1). South Korea is an exception (1), long working hours but higher productivity than Mexico / Russia which have shorter working hours (1), 5 Expected relationship may be explained in reverse e.g. long hours may make workers tired. Question Answer Marks Guidance 1(f) Discuss whether or not a cut in income tax would stop deflation. Up to 3 marks for why it might: A cut in income tax will increase disposable income / purchasing power (1) this may increase spending (1) higher spending may encourage more investment (1) higher total (aggregate) demand (1) may encourage firms to raise prices/demand-pull inflation (1). Higher demand may encourage firms to expand (1) they may take on extra workers (1) reduce unemployment (1) they may pay higher wages (1) increasing costs of production (1) causing cost-push inflation (1). Up to 3 marks for why it might not: Consumers may lack confidence (1) and so not spend any more / may save (1) may still delay purchases (1) they may spend on imports rather than domestic products (1). Firms may lack confidence (1) and so not invest (1). Any extra investment which takes place may reduce costs of production (1) and so prices may fall further (1). Firms may have spare capacity (1) and so may be able to increase output without increasing average costs of production (1) and so prices may not rise (1). Government tax revenue may fall (1) reducing government spending which may mean that total demand does not rise (1). Apply this example to all questions with the command word DISCUSS (1(f), 1(h), 2(d), 3(d), 4(d), 5(d), 6(d) and 7(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 to be 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 1st argument 0 Tax revenue may increase« because of a different reason that is not the reverse of a previous argument e.g. «government spending on subsidies may stimulate the economy more than spending on education. 1 Demand-pull inflation and/or cost-push inflation may be shown on a diagram. Question Answer Marks Guidance 1(g) Explain, using information from the extract, why wage rises have been low in Japan. Trade unions have been concentrating on trying to achieve shorter working hours (1) this may suggest they have not been pressing for wage rises (1). Higher demand for labour has been matched by higher supply (1) the higher supply has come from immigration (1) and a higher proportion of women in the labour force / people working past retirement age (1) making it easier for firms to recruit workers without raising wages (1). Long experience of deflation / low economic growth (1) may have resulted in lower consumer spending / low profits / real wages may have increased (1). Job insecurity (1) less willing to press for wage rises (1). 4 Question Answer Marks Guidance 1(h) Discuss whether or not Japan will benefit from employing more migrant workers. Up to 4 marks for why it might: They may increase the size of the labour force (1) increase productive capacity / potential output / economic growth (1). They may increase total (aggregate) demand (1) and so generate more jobs (1). Japan’s population is falling (1) without a rise in the supply of labour, there may be a shortage of workers (1) this may cause cost-push inflation (1). Migrant workers may have higher skills (1) new ideas / up to date with technology (1) this could raise productivity (1) may work for lower wages (1) lower costs of production (1) make the country’s products more internationally competitive / lower prices (1). Tax revenue may increase (1) enabling the government to spend more on e.g. education (1). Up to 4 marks for why it might not: Migrant workers may keep wage rises low (1) and so restrict increases in living standards (1). In some cases, migrant workers may replace domestic workers causing some to be unemployed (1). Migrant workers may need training (1) increase firms costs (1). Migrant workers may bring their families with them (1) this may increase pressure on e.g. housing, school and healthcare (1) may lead to overpopulation (1). Migrant workers may send money home (1) harming the current account position (1). 6

Question 25

In a mixed economic system, such as Portugal’s, the government intervenes in the economy. Reasons for government intervention include to co…

Accepted Answer

6(a) Identify two reasons why market failure may occur. The existence of external costs (1) and external benefits (1). Abuse of monopoly power (1) advertising distorting choice (1). Inefficient allocation of resources / not producing the right quantity / not producing at the lowest possible cost (1). 2 goods, public goods and information failure. 6(b) Explain how resources are allocated in a mixed economic system. Resources in the public sector (1) are allocated by government decisions/directives (1) products are produced by state-owned enterprises resources are allocated to overcome market failure (1). Resources in the private sector (1) are allocated by the price mechanism / market forces / demand and supply / firms / consumer sovereignty (1) profit provides an incentive for firms to produce what consumers demand (1). 4 Maximum of 3 marks for explaining how only one sector allocated resources. 6(c) Analyse how a high rate of inflation may harm the poor. Inflation may raise the price of basic necessities (1) reducing purchasing power of the poor (1) increasing absolute poverty (1). Inflation may reduce the value of any savings the poor have (1) reducing their ability to access e.g. healthcare, education and housing (1) reducing job opportunities (1). Inflation may reduce the country’s international competitiveness (1) lower output (1) increase unemployment (1) making it more difficult for the poor to gain jobs (1). Inflation may reduce the purchasing power of state benefits (1) e.g. pensions or unemployment (1). The poor may be less likely to belong to trade unions (1) less ability to raise wages (1). 6 Question Answer Marks Guidance 6(d) Discuss whether or not increasing government spending will enable a government to achieve its aims for the economy. Up to 5 marks for why it might: Government spending will increase total (aggregate) demand (1) this may encourage firms to produce more (1) economic growth may increase (1) deflation may be avoided (1) and unemployment may fall (1) the poor may gain jobs (1) making income more evenly distributed (1). Government spending on healthcare (1) may raise living standards / life expectancy (1). Government spending on education (1) may improve environmental standards (1). Government subsidies (1) may increase labour productivity (1) costs of production may fall (1) lowering cost-push inflation (1) increasing international competitiveness (1) improving the current account position (1). Government spending on state benefits (1) may reduce income inequality (1) may raise living standards (1). Up to 5 marks for why it might not: Higher government spending may cause inflation (1) if total supply does not rise in line with total demand (1). Some of the higher income created may be spent on imports (1) this may increase a current account deficit (1). An increase in government spending on unemployment benefits (1) may increase voluntary unemployment (1). 8

Question 26

Estonia has one of the fastest internet speeds in the world. The government allows both direct and indirect taxes to be paid online. Accord…

Accepted Answer

3(a) Identify one example of a direct tax and one example of an indirect tax. Income Tax / Corporation Tax / National Insurance / Profit Tax (1). Value Added Tax (VAT) / Goods and Services Tax (GST) / Sales Tax / tax on product e.g. bar of chocolate (1). 2 3(b) Explain two reasons why a firm may become more capital intensive as it grows. • to increase output (1) capital more efficient/productive (1) • to reduce costs (1) labour costs becoming relatively higher than machines (1) increasing profits (1) • may be able to take advantage of technical economies of scale (1) specialist capital may become viable for a large firm (1) 4 Accept making more profit may allow a firm to afford more investment in capital. 3(c) Analyse, using a production possibility curve (PPC) diagram, the possible effects of faster internet speeds for economic growth. Up to 4 marks for the diagram: • axes correctly labelled in terms of two different products or types of products (1) • the curve or downward sloping line is drawn to the axes (1) • second curve or downward sloping line is drawn to the axes (1) • an indication either by labelling or an arrow that the curve has shifted outwards / right (1) Up to 2 marks for written analysis: Faster internet speed increases productive capacity / the maximum quantity of products that can be produced within a certain time period (1) better communication infrastructure (1) e.g. labour can work faster, capital is better (1) lower costs of production (1) encourage more investments therefore increase financial capital (1) increased productive capacity results in (potential) economic growth / cause economic growth (1). 6 Do not reward analysis marks for description of diagram e.g. PPC shifts to the right. Question Answer Marks Guidance 3(d) Discuss whether or not an economy would benefit from less government regulation. Up to 5 marks why it might: More freedom (1) less red tape / bureaucracy (1) easier to set up new firms (1) more competition (1) decrease cost of production (1) decrease price (1) including exports (1) increase quantity demanded (1) increase total revenue (1) increase profits (1) more investments (1) increase demand for labour (1) less unemployment (1) decrease current account deficit (1) increase aggregate demand (1) increase economic growth (1). More control over prices (1) resulting from removal of e.g. a maximum price (1). Up to 5 marks why it might not: Less labour regulations would reduce job security (1) more exploitation of workers (1) e.g lower wages / longer working hours (1) more inequality (1). Less environmental regulations would increase pollution (1) e.g. air pollution / water pollution (1) health standards of society reduces (1) Less antitrust/anticompetitive regulations will create monopolies (1) small firms can’t compete (1) higher prices (1). Less protection of domestic firms from e.g. embargo (1) domestic firms may go out of business (1). Discourage consumption of harmful products (1) e.g. smoking ban (1). External costs may be ignored (1) e.g. air pollution, noise (1). It may mean that there is less consumption of beneficial (merit) goods (1) e.g compulsory state education (1) 8

Question 27

The Monetary Authority of Singapore (MAS), the government body which controls the monetary policy of the country, has allowed the Singapore…

Accepted Answer

5(a) Define monetary policy Policy to control the supply of money / demand-side policy (1) by changing interest rates / influencing the price of money (1) exchange rates / Quantitative Easing (1). 2 5(b) Explain two functions of money • medium of exchange (1) avoids double coincidence of wants needed in barter/enables people to buy and sell products (1) • unit of account / measure of value (1) easy to compare value of products / putting a value on products (1) • store of value (1) for savings / future consumption / will not lose value (1) • standard of deferred payment (1) credit / instalments/enable people to borrow and lend (1) 4 5(c) Analyse the consequences of an appreciating currency on the current account of the balance of payments of a country. An appreciation in the exchange rate means a rise in the value of the currency (1) higher export prices (1) lower import prices (1) increase quantity demand for imports (1) decrease quantity demand for exports (1) increase value of imports (1) decrease value of exports (1) may reduce net exports (1) current account deficit increases / current account surplus decreases (1). 6 Reward but do not expect reference to outcome will be influenced by PED. Question Answer Marks Guidance 5(d) Discuss whether or not a reduction in taxes is beneficial for an economy. Up to 5 marks for why it is: Reduction in taxes will attract investments (1) this creates new jobs (1) this could also improve the productivity of the economy (1) as there might be investments in R&D / technology (1) creating economic growth (1) Cut in income tax will increase disposable income (1) increase total demand (1) lower unemployment (1) Cut in corporation tax/indirect tax (1) may reduce costs of production (1) inflation decreases (1). Cut in tariffs will increase competition (1) improve e.g. product quality (1). Up to 5 marks for why it is not: Decreased government revenue (1) budget deficit (1) government can’t spend on e.g. infrastructure (1) opportunity cost (1) foreign investment might increase the value of the currency further (1) exports become uncompetitive (1). Reduction in indirect tax (1) may increase consumption of harmful products/example (1) may reduce people’s health (1). Reduction in tariffs may e.g. cause infant industries to go out of business (1) increasing unemployment (1). An increase in total (aggregate) demand may cause inflation (1) 8 2 marks could be awarded for an accurately drawn Demand and Supply Diagram showing tax reduction

Question 28

It is predicted that the UK economy will avoid another recession in the next two decades and that its population will increase significantl…

Accepted Answer

2(a) Identify two reasons why people are living longer. • better healthcare • improved nutrition • better housing • better living standards • higher incomes 2 2(b) Explain two reasons why net immigration may increase the standard of living in a country. May increase the size of the labour force (1) increase the number of goods and services available / increase output / increase GDP / economic growth (1). May bring in new skills (1) raise productivity (1) increase the quality of products produced (1). Fill jobs that local workers do not want to do (1) reduce shortages (1). Fill jobs that local workers do not have the qualifications to do (1) reduce shortages (1). Increase total (aggregate) demand (1) which will encourage firms to increase their output (1). Make better use of other resources (1) if the country lacks labour / is underpopulated (1). Increase tax revenue (1) enabling government to spend more on e.g. education (1). Immigrants may set up firms (1) creating jobs / reducing unemployment (1) / purchasing power (1). May lower costs of production (1) make products more affordable (1). 4 Reward but do not expect reference to optimum population. Do not reward lower wages because the effect on the standard of living is uncertain. Question Answer Marks Guidance 2(c) Analyse how fiscal policy could be used to stop a recession. The government could cut taxes (1) this could raise disposable income / purchasing power (1) which may increase consumer spending (1) cuts in corporate tax may provide more funds for firms (1) raise investment (1) encourage firms to expand their output (1) increase employment / reduce unemployment (1). A government could increase its own spending (1) example e.g. healthcare (1) this would increase total (aggregate) demand (1) encouraging an increase in output (1). Spending on infrastructure (1) may reduce firms costs and so encourage higher output (1). 6 2(d) Discuss whether or not low-income countries have a faster rate of population growth than high-income countries. Up to 5 marks for why some do: Some have a high birth rate (1) reasons e.g. low number of women working, (1) need for children to support parents in old age (1) lack of education (1) falling death rate (1) natural increase (1) due to improved healthcare (1) rise in incomes (1). Up to 5 marks for why some do not: Some high-income countries experience a high rate of net immigration (1) factors attracting immigrants e.g. job opportunities, high income (2). Some low-income countries experience net emigration (1). Some low-income countries experience natural disasters and wars (1) poor health care (1) which increase the death rate (1). Some high-income countries are experiencing a fall in the death rate (1) causes e.g. improved living standards, advances in medicines (2) although birth rates falling (1) governments may provide incentives to try to raise the birth rate (1) including financial aid / free child care (1). 8 Some points may be interchangeable e.g. factors attracting immigrants may encourage emigration from poorer countries, but do not reward on both sides of the discussion. Maximum of 4 marks for a list-like approach.

Question 29

The Chinese government reformed the Chinese tax system in 2016. It extended VAT (sales tax) from the sale of goods to the sale of services …

Accepted Answer

5(a) State two reasons for levying taxes. One mark each for any two from: • raise revenue • redistribute income • discourage consumption of demerit goods • reduce imports • reduce / influence total demand / influence economic activity / reduce inflation. 2 5(b) Explain the difference between a progressive tax and a regressive tax. Logical explanation which might include: A progressive tax takes a larger proportion (1) of the income of the rich / of income as it rises (1) falls more heavily on the rich (1) make income more evenly distributed (1) direct taxes are often progressive (1) example (1). A regressive tax takes a larger proportion (1) of the income of those on low income / falls as income rises (1) falls more heavily on those on low income (1) make income less evenly distributed (1) indirect taxes are often regressive (1) example (1). 4 One mark for each difference identified and one mark for each explanation. Maximum of 2 marks for progressive tax and maximum of 2 marks for regressive tax. Question Answer Marks Guidance 5(c) Analyse how a cut in in the rates of corporation tax and income tax may influence the number of MNCs setting up in the country. Coherent analysis which might include: Firms will be able to keep more of their profits (1) firms may be profit motivated/seeking to maximise profits (1) MNCs will compare the profits they can earn in a number of countries (1) lower corporation tax will enable them to invest more / expand (1) pay higher dividends (1). Lower income tax will increase disposable income (1) may increase demand for consumer goods (1) increase the market for the MNCs products (1) may reduce pressure for wage rises (1) may make workers more motivated and so more productive (1). Lower tax revenue may reduce a government’s ability to spend (1) on e.g. education and healthcare (1) this may reduce labour productivity (1) which may increase MNCs’ costs (1). 6 A maximum of 4 marks if only corporation tax or income tax is considered. Question Answer Marks Guidance 5(d) Discuss whether or not people in a high income country always enjoy a higher living standard than those in a low income country. In assessing each answer, use the table opposite. Why they might: • may be able to enjoy more / better quality goods and services • may receive good healthcare and so enjoy long life expectancy • may enjoy good education and so have more choices • working conditions may be better with less workers in jobs involving hard physical labour / more people working in the tertiary sector • may be able to save, providing security for the future. Why they might not: • income may be unevenly distributed and some people in the population may be living in poverty, some may be unemployed • pollution levels may be higher in the country • people may be working longer hours, having less leisure time, more stressed • some of the products produced in high income countries may be demerit goods • may be high cost of living • may have high tax rate Example of a Level 1 answer: Yes because people living in high income area will enjoy luxuries of life and those living in low income country will get less opportunity to enjoy their life. Principal Examiner comment: This answer is a maximum of L1. It only identifies that people in high income countries are more likely to enjoy luxury products. There is no development of links (analytical or evaluative discussion) in response to either side of the question. 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 5(d) Level Description Marks 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 30

(a) Calculate Vietnam’s GDP per head in 2017. [1] (b) Identify two rewards to factors of production. [2] (c) Explain what happened to Vietn…

Accepted Answer

Question Answer Marks 1(a) Calculate Vietnam’s GDP per head in 2017. 1 $6900 (1). 1(b) Identify two rewards to factors of production. 2 Wages (1) profits (1). 1(c) Explain what happened to Vietnam’s foreign exchange rate between 2 2010 and 2017. Logical explanation which might include: It fell/depreciated (1) more dong had to be given to buy one dollar (1). 1(d) Explain two benefits an economy may gain from having a young 4 labour force. Logical explanation which might include: May be more flexible (1) switch from doing different tasks (1). May be more mobile (1) able to switch from one job to another or from one place to another place (1). May be more up to date with advances in technology (1) more productive/able to use advanced technology (1). 1(e) Analyse why Vietnam’s budget deficit may decline in the future. 4 Coherent analysis which might include: High economic growth will raise incomes/wages rising (1) higher profits (1) more revenue from direct taxes (1) higher incomes is likely to result in more spending (1) more revenue from indirect taxes (1). Tax rates may be increased (1) reducing the gap between tax revenue and government spending (1). Deregulation / privatisation may increase profits (1) resulting in higher revenue from direct taxes /corporation tax (1). 1(f) Analyse the relationship between government spending on education 5 and the percentage of the labour force employed in the tertiary sector. Coherent analysis which might include: Generally the countries with the highest % spending on education have the highest percentage employed in the tertiary sector and vice versa (1) up to two examples e.g. Norway has the highest % spending and the highest % employed in the tertiary sector, Bangladesh has the lowest % spending and the lowest % employed in the tertiary sector (2) the main exception is Vietnam – second highest % spending but lowest % employed in the tertiary sector (1) there may be a time lag in this case (1). It is the expected relationship as some tertiary jobs require high skills (1) countries that can afford to devote a high percentage of resources to education may have achieved a relatively high level of development (1) a higher percent spent will create jobs in education (1). 1(g) Discuss whether or not an increase in competition is likely to benefit 6 Vietnamese consumers. 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. 0 reverse of a previous argument. Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on 1 subsidies may stimulate the economy more than spending on education. Award up to 4 marks for logical reasons why it might, which may include: • prices may be reduced to attract more consumers (1) making them more affordable to consumers (1) • choice will be increased in terms of sellers (1) and possibly in terms of a greater range of products (1) • quality may rise (1) with pressure being put on producers to produce good products to attract consumers (1) • producers may respond more fully to changes in consumer demand (1) Award up to 4 marks for logical reasons why it might not, which may include: • firms may be smaller (1), less able to take advantage of economies of scale (1), so prices may be higher (1) • firms may have less profit (1) and so spend less improving the quality of the product (1) • some firms may be MNCs (1), less concerned about causing external costs (1) 1(h) Discuss whether or not the increase in borrowing is likely to have 6 caused inflation in Vietnam in 2017. Award up to 4 marks for logical reasons why it might, which may include: • higher consumer demand (1) and investment (1) will increase total (aggregate) demand (1) • higher total demand may cause demand-pull inflation/cause producers to raise prices (1) • government spending may rise, further adding to total (aggregate) demand (1) • the economy has very low unemployment/full employment (1) making it difficult for supply to respond to higher demand (1) • tax rates may rise (1) which may increase costs of production (1) causing cost-push inflation (1) Award up to 4 marks for logical reasons why it might not, which may include: • higher investment may reduce costs of production (1) lowering cost- push inflation (1) • higher consumer spending may enable firms to grow (1) and take greater advantage of economies of scale (1) • increased education (1) may raise labour productivity (1), reduce costs of production (1) and lower cost-push inflation (1) • privatised firms may be more efficient (1) • more competition may reduce price rises (1)

Question 31

Economists are uncertain about the future United States (US) macroeconomic performance. For instance, in recent years, US unemployment has …

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4(a) Define macroeconomics. 2 The study of the whole economy (2). Example of a macroeconomic topic e.g. unemployment/study of economics on a large scale (1). 4(b) Explain two consequences to firms of unemployment. 4 Logical explanation which might include: Lower demand (1) lower revenue (1). Lower ability to take advantage of economies of scale (1) due to lower output (1). Lower average costs (1) lower wages (1). Less risk of industrial action (1) workers afraid of losing their jobs (1). Greater ease of recruiting workers (1) reducing recruitment costs (1). 4(c) Analyse how tax cuts could increase exports. 6 Coherent analysis which might include: Lower indirect taxes could reduce costs of production (1) could encourage investment (1) use of more advanced technology/more efficient methods of production (1) which could lower prices / make prices more internationally competitive (1). Lower income tax could motivate workers (1) raise productivity (1) lower price of exports (1) raise quality of exports (1). Lower taxes in other countries (1) e.g. a lower tariff will encourage foreigners to purchase more exports (1). 4(d) Discuss whether or not a current account deficit on its balance of 8 payments harms an economy. In assessing each answer, use the table below. Level Description Marks 3 A reasoned discussion which accurately examines both 6–8 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. 2 A reasoned discussion which makes use of economic 3–5 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. 1 There is a simple attempt at using economic definitions 1–2 and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no creditable 0 content. Why it might: • income/demand is leaving the economy • employment will be lower than it could be • it may put downward pressure on the exchange rate • the country will get into debt • other countries may not be willing to lend to it / invest in the country. Why it might not: • deficit may be low / short term • enables the country to consume more than it produces • imports of raw materials and capital goods will increase output in the future.

Question 32

In 2017, the Japanese government announced improvements to its tax system. The amount of tax raised is influenced by the size and age distr…

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4(a) State two qualities of a good tax. 2 One mark each for two from: convenient, equitable, certain, efficient, flexible. 4(b) Explain two causes of a decrease in the death rate. 4 Logical explanation which might include: Rises in income (1) leading to better living standards (1). Better education (1) resulting in e.g. better nutrition (1). Better healthcare (1) due to e.g. advances in medical technology (1). Reduction in crime/end of a war (1) fewer people dying violently (1). 4(c) Analyse, using a production possibility curve (PPC) diagram, the effect 6 of a decrease in population size on an economy. capital goods O consumer goods Up to 4 marks for the diagram: Axes correctly drawn (1). Initial curve drawn as a curve / line sloping downward to the axes (1). New curve drawn as a curve / line sloping downward to the axes (1). Shift to the left indicated by arrow or letter (1). Up to 2 marks for coherent analysis which might include: A decrease in population size may decrease the size of the labour force (1) decrease productive capacity (1). 4(d) Discuss whether or not an ageing population is a benefit to an 8 economy. In assessing each answer, use the table below. Level Description Marks 3 A reasoned discussion which accurately examines both 6–8 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. 2 A reasoned discussion which makes use of economic 3–5 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. 1 There is a simple attempt at using economic definitions 1–2 and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no creditable 0 content. Why it might: • older people may be an economic asset through their knowledge and experience • the retirement age may be raised so that the labour force may increase • in some countries, an increase in the average age of the population may mean more people are in the labour force and may reduce the dependency ratio • may indicate a good standard of living increasing life expectancy. Why it might not: • may be an increase in the dependency ratio with a smaller proportion of workers to support a higher proportion of retired • any increased spending on healthcare and pensions will involve an opportunity cost • taxes may have to be increased to finance increased costs of healthcare and pensions • any shortage of workers may drive up wages and cause cost-push inflation • older workers may not be up to date with new technology and new ideas

Question 33

Mali is a low income and low productivity country in Africa. Its government is using fiscal policy to reduce poverty. The country’s main in…

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5(a) State two key questions about how resources are allocated. 2 One mark each for two from: What to produce, how to produce it, for whom / who gets what is produced. 5(b) Explain two fiscal policy measures that can be used to reduce poverty. 4 Logical explanation which might include: Rise in government spending on education (1) make it easier for people to gain jobs / better paid jobs (1). Rise in government spending on healthcare (1) providing a basic necessity / increase productivity of workers (1). Subsidise / free provision of food (1) providing a basic necessity / reduce absolute poverty (1). Subsidise / free provision of housing (1) helping those unable to afford housing (1). Increase in state benefits (1) e.g. paying more in unemployment benefit will raise the income of some of the poor (1). Use of progressive taxes / reduction of regressive taxes (1) reduce relative poverty (1). 5(c) Analyse why a country may have low productivity. 6 Coherent analysis which might include: Education may be low (1) and training may be low (1) workers may lack skills (1). Wages may be low (1) working conditions may be poor (1) reducing the motivation of workers (1). There may a lack of investment (1) workers working with out of date/low quality capital goods (1). Healthcare may be low (1) causing workers to be tired (1). 5(d) Discuss whether or not mergers benefit an economy. 8 In assessing each answer, use the table below. Level Description Marks 3 A reasoned discussion which accurately examines both 6–8 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. 2 A reasoned discussion which makes use of economic 3–5 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. 1 There is a simple attempt at using economic definitions 1–2 and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no creditable 0 content. Why they might: • may enable the new firm to take greater advantage of economies of scale, lower average cost and lower prices, resulting in lower inflation • may enable the new firm to earn higher profits and spend more on research and development and investment. This could raise the quality of products and increase economic growth • may enable the new firm to compete more effectively internationally which could improve the current account position • a vertical merger can increase the efficiency of production by co- ordinating the production stages. This could increase productive potential. Why they might not: • the new firm may experience diseconomies of scale, higher average cost and higher prices. This may increase the inflation rate • a horizontal merger will reduce competition which can increase prices, reduce choice, lower efficiency and reduce quality. This may reduce international price competitiveness which may harm the country’s current account position. It could also lower the country’s economic growth rate • the new firm may rationalise and this may result in unemployment.

Question 34

Business-friendly fiscal policy in the United States (US) has encouraged firms to produce more. The US government has also encouraged merge…

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4(a) Define profit maximisation. 2 When a firm produces at the level of output (1) which makes the highest profits for the firm (1). When a firm produces where the gap between TR and TC (1) is largest (1). Reward, but do not expect, produce at a point where MC = MR 4(b) Explain two types of mergers 4 Logical explanation which might include: Horizontal (1) when two or more firms from the same industry and the same stage of production merge (1). Vertical (1) when two or more firms from the same industry but different stage of production merge (1). Conglomerate (1) when two or more firms from different industries merge (1). Allow vertical forward and vertical backward as two separate points. 4(c) Analyse how fiscal policy can encourage firms to produce more. 6 Coherent analysis which might include: Reduce corporation tax (1) could lead to more profits after tax (1) enabling firms to invest more and expand (1). Reduce income tax (1) could increase spending (1) raise total demand (1) encouraging firms to produce more (1). Increase government spending (1) such as increasing subsidies (1) could lead to firms being able to expand production (1) decreasing cost of production (1) decreasing prices (1) increasing demand for the firms’ products (1). 4(d) Discuss whether or not maximum prices are beneficial. 8 In assessing each answer, use the table below. Level Description Marks 3 A reasoned discussion which accurately examines both 6–8 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. 2 A reasoned discussion which makes use of economic 3–5 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. 1 There is a simple attempt at using economic definitions 1–2 and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no creditable 0 content. Why maximum prices will be beneficial: • More affordable products • More choices for consumers • Less poverty • To prevent exploitation of consumers by producers – especially monopolies • Firms forced to become more efficient to be able to make profit. Why maximum prices will not be beneficial: • Producers will not want to supply that much • Firms leave the market • Could lead to shortage • Black market creation • Less choices for consumers

Question 35

The election of a new president in South Africa in 2018 led to improvement in business and consumer confidence. Inflation rates fell despit…

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2(a) State two components of the current account. Any two from: • trade in goods • trade in services • primary income • secondary income 2 Any two components. Accept exports and imports for 1 mark. 2(b) Explain why inflation may fall even if there is an increase in total demand. Logical explanation which might include: There may have been an increase in total supply (1) which may be greater than the increase in total demand (1). There could be an improvement in productivity (1) better technology / capital (1). Costs of production could have gone down (1) e.g. lower taxes / lower costs of raw material, stronger exchange rates (1). 4 2(c) Analyse how a country’s current account deficit might be reduced if its firms become internationally competitive. Coherent analysis which might include: Being internationally competitive e.g. high productivity, low inflation, low exchange rates (max 2) increases production (1) reduces cost of production (1) decreases price of exports (1) increases quality of exports (1) increases demand for exports (1) increases value of exports / net exports (1). Imports relatively more expensive / other countries products more expensive (1) lower relative quality of imports (1) decreases imports (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not lower taxes on firms will be beneficial for an economy. In assessing each answer, use the table opposite. Why it might be beneficial: • will increase after tax profits • increase ability and incentive to invest • firms may expand output leading to higher employment and economic growth • higher investment may increase innovation and productivity which may improve the current account • will reduce cost of production. This may reduce inflation Why it might not be beneficial: • firms might not invest more and just keep the profits to themselves • government will get less revenue from firms, reducing ability to spend to improve the economy • may attract MNCs which may replace domestic firms • capital goods may replace labour, causing unemployment • higher output may result in external costs e.g. pollution. 8 Level Descriptors Mark 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 or 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 Answer Marks Guidance 2(d) Example of L3 answer: Lower taxes on firms will be beneficial for an economy, as this will reduce the production costs for firms and increase their profits. With greater profits, firms may invest in labour, which will decrease unemployment, and allow the firm to increase its output. With greater output, a firm’s exports may increase, and this will improve the current account position. Furthermore, lower taxes may allow for lower prices as the reduced production costs may be passed on to consumers. Also, lower taxes may allow a firm to increase its wages which not only increase average incomes, but also increase productivity and so economic output. On the other hand, low taxes may not be beneficial, as firms may use their increased income for expansion, but may also increase external costs such as pollution when they do this. Furthermore, lower taxes may allow firms to become monopolies, which will hurt competition and the potential for new firms. Moreover, with increased income, firms may choose to become capital-intensive rather than labour-intensive, which would increase unemployment. Principal Examiner comment: Strong on one side and reasonable on the other side.

Question 36

Mexico has a history of trade deficits. The government is moving the economy closer to free trade, to try to improve its macroeconomic perf…

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2(a) Define trade in goods balance. Value of exports of goods / revenue earned from exports minus value of imports of goods / expenditure on imports of goods (2). Exports minus imports (1) of goods / visible items (1). 2 Accept exports (of goods) = imports of (goods) for 1 mark 2(b) Explain two benefits producers may gain from free trade. Logical explanation which might include: Availability of larger/global market (1) may increase revenue/profit (1). Ability to produce on a larger scale / higher output (1) take advantage of economies of scale (1) specialise (1). Access to cheaper / better quality raw materials / raw materials without tariffs imposed on them (1) lowering costs of production/raising quality of products produced/lowering price (1). Access to advanced technology/ideas from abroad (1) resulting in improved methods of production/new products (1). Increased competitive pressure (1) which may raise efficiency (1). 4 One mark for each of two benefits identified and one mark for each of two explanations. Question Answer Marks Guidance 2(c) Analyse, using a production possibility curve (PPC) diagram, the effect of an increase in unemployment on an economy. Up to 4 marks for the diagram: Axes correctly labelled (1). Curve drawn as a curve or downward sloping line to the axes (1). Two production points shown – one on or to left of PPC and the other further to the left of the PPC (1). Movement of the production point inwards indicated by arrow or lettering (1). Up to 2 marks for coherent analysis which might include: Unemployment means resources are not used (1) there is inefficiency (1) reduces output/GDP / causes a recession (1). 6 For analysis, only accept a PPC shifted inwards if logical justification is given i.e. an increase in unemployment may cause some workers to leave the labour force – ‘unemployment causing unemployment’. capital goods O consumer goods A B Question Answer Marks Guidance 2(d) Discuss whether or not an increase in the rate of income tax will reduce inflation. In assessing each answer, use the table opposite. Why it might: • reduce disposable income/purchasing power • consumer expenditure likely to fall • investment may fall • total (aggregate) demand may fall • demand-pull inflation may decrease • higher government revenue may increase government spending on supply-side policy measures. Why it might not: • workers may seek higher wages • higher wages may increase costs of production • cost-push inflation/wage-price spiral may occur • higher tax revenue may increase government spending • higher government spending may offset lower consumer expenditure leaving total (aggregate) demand unchanged • people may be very confident about the future so they cut back on savings rather than spending. 8 Level Descriptors Mark 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 or 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 Answer Marks Guidance 2(d) Example of L3 answer: Due to an increase in the rate of income tax, inflation may fall as disposable income will fall. People will have less money to spend so they may spend less and total demand will fall. A fall in demand will cause prices to fall as producers will not be able to sell as many goods and services. They will want to keep their market share. Demand-pull inflation will decrease. However, an increase in income tax may not cause inflation to fall. Workers may force up the wage rate. Firms’ labour cost and costs of production will increase so firms may push up prices to maintain profits. This can cause cost-push inflation and a wage price spiral. Plus, government revenue from high taxes will rise and government spending may rise. This may offset the fall in consumer expenditure and inflation may not fall. Principal Examiner comment: Strong on both sides. Example of L1 answer: Inflation refers to the fall in the purchasing power of money. Income tax is a payment to the government. The increase in direct tax will definitely help the government. This may help the government solve the problem of inflation and will increase the purchasing power of money. Principal Examiner comment: Definitions given but the answer does not explain why inflation may, or may not, be reduced.

Question 37

The population of Hungary is the most obese in Europe. Hungarians eat fewer vegetables than most Europeans and more food types that may be …

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3(a) Define demerit good. A product which is more harmful to consumers than they realise / the government considers is more harmful (2). It is over-consumed / overproduced (1) it creates external costs (1). A product that is harmful (1). 3(b) Explain the difference between an extension in demand and an increase in demand. Logical explanation which might include: An extension in demand is caused by a change in the price of the product (1) rise in quantity demanded (1) it is shown by a movement along the demand curve (1). An increase in demand is caused by a change in an influence on demand other than a change in the price of the product / means more is demanded at each and every price (1) example of a cause of an increase in demand e.g. rise in incomes (1) it is shown by a shift in the demand curve (1). 4 Up to 2 marks for diagram(s) showing the difference. Maximum of 2 marks for extension in demand and a maximum of 2 marks for an increase in demand. Question Answer Marks Guidance 3(c) Analyse the effects on income distribution and tax revenue of an increase in indirect taxes. Coherent analysis which might include: Income is likely to become less evenly distributed (1) indirect taxes are usually regressive (1) taking a larger percentage of income of the poor (1). Tax revenue likely to rise (1) will rise more on goods with inelastic demand (1) e.g. food (1) may fall if demand falls significantly (1). If any extra tax revenue is spent on lower income groups (1) e.g. welfare benefits (1) the effect on income distribution is less certain / income may be more evenly distributed (1). Tax evasion and avoidance is less common in the case of indirect taxes (1) though there may be informal markets (1). 6 Question Answer Marks Guidance 3(d) Discuss whether or not a government should impose a maximum price on food. In assessing each answer, use the table opposite. Why it should: • may influence price and quantity purchased • if set below the equilibrium level, will reduce price • some people will be able to purchase food at a lower price • may reduce poverty – food is a basic necessity • may stop monopoly food producers setting high prices. Why it should not: • if set above the equilibrium, it will have no effect • it set below the equilibrium, will result in shortages • some additional measure will have to be introduced to ration out food • some foods may be harmful to health and their consumption should be discouraged • may result in firms making losses and so reducing quality of food or employment of workers • free market forces may result in a more efficient allocation of resources. 8 Level Descriptors Mark 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 or 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 Answer Marks Guidance 3(d) Example of L2 answer: Government should impose a maximum price on foods. Price is likely to fall and this will aid those in poverty. They will be able to buy basic necessities easier and allow them to spend on other things. Governments should not impose a maximum price on food as it can cause businesses to make a loss and need government subsidisation. Principal Examiner comment: Reasonable on one side and limited on the other side. The effect on price, quantity demanded and quantity supplied may be shown on a diagram.

Question 38

(a) Calculate the number of Germans aged over 65 in 2017. [1] (b) Identify two measures of living standards. [2] (c) Explain one cause of g…

Accepted Answer

1(a) Calculate the number of Germans aged over 65 in 2017. 17.82m / 17 820 000 (1). 1 Accept 17.8 m and 18 m. 1(b) Identify two measures of living standards. Two from: • GDP per head / average income • HDI • quality of education / education 2 If more than two are given, consider the first two. 1(c) Explain one cause of globalisation. Fall in transport costs (1) reducing costs of exporting and importing / increasing international trade (1). Improvement in communications (1) due to advances in technology / increasing growth in MNCs / encouraging consumers to buy from other countries / enabling branches in different countries to keep in touch (1). 2 One mark for the cause identified and one mark for the explanation. 1(d) Explain two advantages of an increase in the occupational mobility of labour. Logical explanation which might include: Lower unemployment / increase employment (1) workers losing one job will find another job more quickly / find another job more easily / maybe more skilled / reduce frictional unemployment / reduce structural unemployment (1). Higher output / higher GDP / economic growth (1) firms experiencing higher demand will be able to expand more quickly / more elastic supply / quicker adjustment to changes in market conditions / workers may be able to multitask / change roles / may be more skilled / fewer unfilled vacancies / greater use of resources / fewer idle resources (1). 4 One mark each for each of two advantages identified and one mark each for each of two explanations. Do not credit ‘more skilled’ more than once. Question Answer Marks Guidance 1(e) Analyse why the price of German luxury cars may have increased in 2018. Coherent analysis which might include: Increase in demand (1) rise in incomes (1) people buy more luxury cars as they get richer / luxury cars become more affordable (1). rise in price of US luxury cars (1) these are substitutes to German luxury cars (1). Fall in the price of petrol / gas (1) petrol / gas is a complement to cars (1) firms can raise revenue / profits by increasing price (1). Decrease in supply (1) rise in wages (1) increasing costs of production (1). 4 Question Answer Marks Guidance 1(f) Analyse whether the strength of German trade unions increased from 2013–2016. Coherent analysis which might include: Overview Trade union membership fell (1) unemployment fell and / or wages rose (1). Analysis of why trade union strength may have fallen Trade union members represented a smaller proportion of labour force / proportion fell from 42.7% to 39.3% / number of members fell by approx. 5.6% (1). Fewer members so funds of / subscriptions to trade unions may have fallen (1) reduces ability to take industrial action / reduces collective bargaining strength (1). Lower unemployment / higher wages may mean workers feel less need to join a union (1). Analysis of why trade union strength may have increased Lower unemployment / higher wages may be the result of successful collective bargaining (1) firms would have found it more difficult to replace members asking for better wages / better working conditions / firms may be reluctant to dismiss staff (1) industrial action would have more effect / collective bargaining power may be stronger (1). Output / profits / demand for products may have increased (1) Comments. Other factors may have influenced trade union power e.g. government trade union legislation (1). Other factors may have influenced wages / unemployment e.g. national minimum wage / higher output /more skilled labour force (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not an ageing labour force will reduce productivity. Award up to 4 marks for why it might: • May discourage investment (1) workers will have less capital equipment to work with (1). • Older workers may find it more difficult to adapt to new technology (1) may resist change (1) there may not be the time to train them (1) may be less mobile (1). • Older workers may be less fit (1) less able to do manual work (1) may have time off sick (1) may have less energy / get tired (1) work slower (1). Award up to 4 marks for why it might not: • May encourage investment because of shortage of workers / desire to rely less on labour / help workers (1). • Older workers may have more experience (1) built up more skills / qualifications (1) may need less training / have received more training (1) may train young workers (1) make fewer mistakes / produce better quality output (1). • May be more reliable (1) e.g. better punctuality (1). • May stay with the employer longer / lower rate of labour turnover (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 Marks Guidance 1(h) Discuss whether or not immigration will increase a country’s budget surplus. Award up to 4 marks for reasons why it might: • May increase size of the labour force (1) quality of the labour force may rise (1) employment may rise (1) more people with incomes (1) higher tax revenue (1) more income tax / direct tax revenue (1) more spending / higher total demand (1) more indirect tax revenue (1) higher profits may increase corporate tax revenue (1). Award up to 4 marks for reasons why it might not: • Some immigrants may be dependents (1) some may be unemployed (1) increase government spending on state benefits / unemployment benefits (1) pensions (1). • The government may have to spend more on education (1) healthcare (1) housing / infrastructure (1). • Labour force / population may not increase if matched by emigration (1), • Larger population size may result in the government having to spend more on measures to reduce pollution (1). 6 Increase in the size of the labour force linked to why it might.

Question 39

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 40

It is estimated that half of Egyptian men smoke. This is one of the highest rates in the world. In recent years the Egyptian government has…

Accepted Answer

4(a) Identify two qualities of a good tax. Two from: • certainty / easy to understand / people know how much to pay • convenience / easy to pay • economy / cheap to collect • efficiency / not harm performance of markets • equity / fair / based on ability to pay • flexibility / easy to change 2 4(b) Explain two reasons why governments tax cigarettes. Logical explanation which might include: To raise revenue (1) demand for cigarettes is price-inelastic / smoking is addictive / to spend on e.g. education (1). To discourage consumption / to discourage production (1) they are a demerit good / cigarettes are more harmful than smokers realise / they cause health problems (1). To reduce external costs / they create external costs (1) impose a cost on third parties / cause pollution / health problems for non-smokers (1). To improve the current account position (1) cigarettes may be imported (1). 4 One mark each for each of two reasons identified and one mark each for each of two explanations. Question Answer Marks Guidance 4(c) Analyse how a central bank could reduce inflation. Coherent analysis which might include: A central bank could use contractionary monetary policy (1). A central bank could increase the rate of interest (1) increase saving (1) reduce borrowing (1) reduce consumer expenditure (1) reduce total (aggregate) demand (1) reduce demand-pull inflation (1). A central bank could reduce the money supply (1) print less money / sell government bonds (1) restrict bank lending (1) fewer loans may reduce investment (1) reduce consumer expenditure (1). Raising the exchange rate (1) may reduce the price of imports (1) lowering cost-push inflation (1). One effect of a lower interest rate might be to lower costs of production (1) reduce cost-push inflation (1). 6 Accept but do not expect reference to increasing reserve / liquidity ratio (1). Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 4(d) Discuss whether or not an increase in government subsidies will reduce a deficit on the current account of the balance of payments. In assessing each answer, use the table opposite. Why it might: • reduce costs of production • lower prices, making products more internationally competitive • export revenue may rise • import expenditure may fall Why it might not: • firms may not lower prices • firms may be encouraged to be inefficient • demand for exports may not rise if quality is poor • demand for exports and imports may be price- inelastic • other countries may retaliate by imposing trade restrictions / giving subsidies • subsidies to consumers can increase demand for imports and divert exports to the home market • subsidies to producers may increase demand for imports of raw materials and capital goods Example of an L3 answer An increase in government subsidies would reduce a deficit in the current account of the balance of payments as domestic firms could use the subsidy to lower the price of its goods, improve quality and hence make its products more internationally competitive. This would increase exports of the country’s products. It would also reduce imports as citizens would substitute the imported products with the more competitive domestically made goods. 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 4(d) The increased government subsidies may also allow firms to make more profits and households to save more. The profits and extra savings may be invested abroad. This would increase the primary income on return on investments would come from abroad back to the home country. This would also reduce a current account deficit. On the other hand, government subsidies may not reduce the current account deficit if domestic industries become dependent on them and don’t actually improve their methods of production and lower costs. This would not make their products more internationally competitive and demand for exports would not increase. It may not also improve the deficit in the short run if firms use the subsidies to import raw materials and capital goods from abroad. However, on the long run it would lead to better products and lower pricing, making the products of domestic firms more internationally competitive. Example of an L2 answer Current account deficit means import expenditure is more than export revenue. This happens when export prices are higher than import prices. Providing subsidies to producers can cause them to lower prices and export more. It can also increase firms’ confidence and they may invest more. However, sometimes subsidy may increase imports. A subsidy may make firms more inefficient and produce lower quality products. The subsidy may also be given to firms making products not in demand and so the firms will not have the potential to grow. Example of an L1 answer Government subsidy refers to an incentive provided by the government to producers. Governments can reduce deficit on the current account of the balance of payments by increasing the total supply, it will also result in an increase in GDP and promote economic growth. 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 41

(a) Calculate the value of Nigeria’s exports of goods in 2017. [1] (b) Identify two examples of capital goods. [2] (c) Explain whether Nige…

Accepted Answer

1(a) Calculate the value of Nigeria’s exports of goods in 2017. $43.1bn 1 $ is not essential. 1(b) Identify two examples of capital goods. Two from: • [delivery] vehicles • machines • [office] equipment 2 1(c) Explain whether Nigeria had a budget deficit or a budget surplus in 2017. • budget deficit (1) • government spending exceeded tax revenue (1) • government spending was $19.5bn and tax revenue was $12.9bn (1) 2 1(d) Explain how government spending on training may increase tax revenue in the long run. Logical explanation which might include: • Training may increase skills of workers (1) raise productivity (1) raise wages / incomes (1) increase job opportunities / employment / reduce unemployment (1) increase income tax revenue (1). • Higher wages may increase spending / demand (1) increase indirect tax revenue (1). • A more productive labour force may reduce costs of production (1) raise profits (1) increase corporation tax revenue (1). 4 Question Answer Marks Guidance 1(e) Analyse how living standards in Nigeria compare with the living standards in Ethiopia in 2017. Coherent analysis which might include: • Nigeria’s higher GDP per head (income) (1) suggests Nigerians may have been able to enjoy more goods and services (1). • Nigeria has a lower life expectancy (1) suggesting poorer healthcare (1). • Nigeria has a higher average number of years spent at school (1) suggesting the labour force may be more educated (1). • Nigeria has a higher percentage of underweight five-year olds (1) suggesting poor nutrition / income inequality (1). • Overall comment: Nigeria’s income per head and average years spent at school suggests a higher living standard but life expectancy and percentage of five years underweight suggests a lower living standard (1). 4 Question Answer Marks Guidance 1(f) Analyse how a government could encourage firms to increase their investment. Coherent analysis which might include: • Reduce the rate of interest (1) making it cheaper to borrow (1) encouraging borrowing as consumer spending is likely to rise (1). • Lower corporation tax (1) increasing the funds available to invest (1) increasing the incentive to invest as return from investment would rise (1). • Create greater economic certainty / confidence (1) by e.g. keeping inflation low and stable / not changing government spending and taxation frequently (1) making it easier for firms to plan / it can take time to get a return from investment (1). • Provide subsidies/grants/loans (1) decreasing cost of investments (1) encouraging MNCs (1). • Raise tariffs (1) increasing demand for home produced goods (1). • Less government regulation/policies (1) reduces costs for firms (1) more willing to invest (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not an increase in Nigeria’s population will benefit its economy. Award up to 4 marks for why it might: • Fall in death rate (1) may indicate improved healthcare (1). • Total (aggregate) demand will increase (1) may enable existing firms to expand / increase output (1) new firms to set up (1) attract MNCs (1). • Labour force may increase (1) causing total (aggregate) supply to increase / raise productive capacity (1) increase output / GDP (1). • May move country towards optimum population (1) if there are unused resources (1). • Net immigration will increase labour force (1) and reduce dependency ratio (1) • More tax revenue (1) can be spent on improving e.g., public services (1). Award up to 4 marks for why it might not: • Birth rate is rising (1) will increase dependency (1) resources which may have increased economic growth may have to be devoted to rearing the children (1). • Labour force may fall in the short run (1) to look after the children (1). • Pressure will be put on the environment (1) there may be more pollution (1) causing overcrowding / poor health (1). • If food output cannot be increased (1) may be more malnourishment/famine / poverty (1) more food is required / food may have to be imported (1) food prices may increase (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(g) • Population is rising but age structure may be changing (1) as there is net emigration of young people (1) may result in reduction in labour force (1). • [Opportunity] cost for government (1) which has to spend on health/education rather than infrastructure (1). • Increase in output to meet demand (1) results in faster usage of resources in country (1) and shortages (1). Question Answer Marks Guidance 1(h) Discuss whether or not an increase in Nigeria’s import tariff on rice would increase the output of Nigerian rice. Award up to 4 marks for why it might: • A higher tariff may raise the price of imported rice (1) may reduce demand for / consumption of imported rice (1) may cause Nigerians to demand more home- produced rice as it is cheaper (1) effect would be greater, the greater the elasticity of demand for the import of rice (1) may enable Nigerian rice farmers to raise their price / make more profit (1). • A tariff may raise government tax revenue (1) some of this could be used to subsidise Nigerian rice farmers / modernise farming methods and so raise productivity (1). Award up to 4 marks for why it might not: • Nigerian farmers are less productive than Asian competitors (1) have high(er) costs of production (1) Nigerian price may still be higher even with the higher import tariff (1). • The supply of Nigerian rice may be price-inelastic (1) so even if Nigerian farmers could sell their rice for more, they may have difficulties adjusting supply (1). • More Nigerian rice will not be sold if quality is poor (1) consumers my prefer the varieties of rice produced in other countries (1) other countries retaliate by imposing higher tariffs (1) current account surplus may be reduced (1). • Increase in import tariffs may be small (1) making little difference to import prices and consumption (1). • Not enough resources/ factors of production e.g., farmers (1) to produce more rice in Nigeria (1). 6

Question 42

Nearly one million people in Cairo, the capital city of Egypt, live in crowded, unhealthy housing. One reason why people lack basic necessi…

Accepted Answer

2(a) Identify two basic necessities, other than housing. Two from e.g.: Food, water, clothing, healthcare and education. 2 Accept any relevant basic necessity e.g. heating or electricty. If more than two examples given, only consider the first three. 2(b) Explain how frictional unemployment differs from cyclical unemployment. Logical explanation which might include: Frictional unemployment arises from people being in between jobs (1) may be waiting for a better paid job / may be seasonally unemployed / may have worked on a short-term contract / may lack information about vacancies (1) may exist even when there is full employment / may be self-correcting (1). Cyclical unemployment is caused by a lack of total (aggregate) demand (1) more people unemployed than there are job vacancies (1) may arise from a recession / economic downturn (1) may need government action to reduce it (1). Frictional unemployment would be reduced by a rise in labour mobility (1) cyclical unemployment would not be (1). Frictional unemployment may be short term (1) cyclical unemployment may be long term (1). 4 Up to 2 marks for each type of unemployment. Question Answer Marks Guidance 2(c) Analyse why the children of the rich tend to become rich adults. Coherent analysis which might include: The children of the rich tend to receive a good education (1) may not have to take part-time jobs / not have to help in family business when studying / not have to leave school early (1) become well qualified / well educated / gain high level of knowledge (1) become highly skilled / productive / efficient (1) find it is relatively easy to find employment / get a good job (1) well-paid (1). The children of the rich tend to receive good health care (1) good nutrition (1) have good housing (1) unlikely to miss time at school (1) unlikely to miss time at work (1) income will be high (1). The children of the rich tend to have high expectations (1) apply for better jobs (1). The children of the rich may inherit e.g. property (1) may gain income from e.g. inherited property / business / savings (1). Rich parents may have connections with e.g. bosses of major employers (1) more likely to gain high paid work (1). 6 Note the focus here is on the children of the rich so no marks for e.g. the children of the poor may lack education. Reference to highly skilled / productive or efficient may be linked to education, healthcare or nutrition but can only be credited once. Question Answer Marks Guidance 2(d) Discuss whether a government should provide subsidies to families to spend on housing. In assessing each answer, use the table opposite. Why it might: • will increase the spending power of families who receive it • may increase quantity supplied • may give low-income families access to a basic necessity, reducing poverty • may enable families to spend more on e.g. education • may increase employment / reduce unemployment, creating jobs building housing / increase labour mobility • may increase quality of housing and so improve health Why it might not: • rich can already afford housing • some families may not spend it on housing • may be inflationary, demand increasing for housing and e.g. furniture, carpets • opportunity cost • taxes may be raised to finance subsidy • building more houses may result in environmental damage 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 sided 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 1 There is a simple attempt at u sing 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 43

Cyclical unemployment is below the national average in some big cities in Canada such as Toronto, Vancouver, and Montreal. This could be a …

Accepted Answer

3(a) Define structural unemployment. Workers without jobs (1) Unemployment due to a change in the structure of the economy / change in demand and supply conditions / decline of some industries (2) lack of the appropriate skills (1) lack of labour mobility (1). 3(b) Explain two causes of low productivity. Logical explanation which might include: Poor education and training (1) leading to lack of skills / qualifications (1). Poor technology (1) slower or less output per capital / labour input (1). Poor management (1) waste of resources (1). Lack of investment (1) capital older/slower/out-of-date (1). Emigration of skilled workers (1) output of unskilled workers who are left is lower (1). Poor working conditions (1) making it difficult for workers to do their jobs efficiently (1). Low pay (1) which may demotivate workers (1). Long working hours (1) making workers tired (1). 4 One mark for each cause identified and one mark for each explanation. Lack of specialisation is too vague. Question Answer Mark Guidance 3(c) Analyse how higher government spending and tax cuts can lead to a fall in cyclical unemployment. Coherent analysis which might include: Higher spending on e.g. unemployment benefits / education / infrastructure / healthcare (1) could lead to higher demand for goods and services (1) increased demand for goods and services leads to higher revenues/profits for firms (1) increased investments (1) increasing output (1) increased demand for workers to produce the output (1). Tax cuts such as income tax cuts (1) increased disposable income (1) increase consumer expenditure (1) increased demand for goods and services (1) higher revenues/profits for firms (1) increased investments (1) increasing output (1). Tax cuts such as corporation tax cuts (1) increased after tax profits (1) increased investments (1) increasing output (1). Tax cuts such as indirect tax cuts (1) decrease cost of production (1) increased supply / output (1). 6 Maximum of 4 marks for only higher spending OR tax cuts Question Answer Mark Guidance 3(d) Discuss whether or not competition between firms in the same industry is always a disadvantage to workers. In assessing each answer, use the table opposite. Why it might be a disadvantage • more competition between firms means firms try to be more efficient, which could lead to lower job opportunities / greater instability of employment • there may be greater use of short-term employment contracts • more competition between firms could push down the wages of the workers. • more competition between firms could lead to workers being exploited e.g. overtime work, worse working conditions. Why it might be an advantage • more competition between firms would lead to firms training workers to be more productive • increased productivity leads to higher wages • increased productivity could lead to more investments – leading to more demand for workers • more competition between firms could lead to lower prices, which benefits workers who are also consumers • lower prices could lead to more demand, which increases the demand for workers as well • greater efficiency could result in higher revenue some of which may be spent improving working conditions • more competition between firms could lead to them raising wages and / or improving working conditions to attract the best workers • more competition between firms gives more opportunities for workers to switch jobs. 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 Mark Guidance 3(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 44

Some economists criticise high government spending and trade unions for creating market disequilibrium. However, trade unions may also play…

Accepted Answer

5(a) Define market disequilibrium. When quantity demanded does not equal quantity supplied (2). When there are shortages (1) or surpluses (1) of a product. 2 5(b) Explain the difference between labour-intensive and capital- intensive industries Logical explanation which might include: Labour-intensive industries rely more on human labour (1) i.e. workers (1) low-cost labour may be available (1) example of industry (1) Capital-intensive industries rely more on capital (1) i.e. machines (1) capital more efficient / cheaper than labour (1) example of industry 4 5(c) Analyse how trade unions could increase economic development. Coherent analysis which might include: Trade unions could help engage in collective bargaining on wages (1) higher wages (1) leads to higher purchasing power of workers (1). May increase motivation of workers (1) increase output (1). Better working hours (1) improved working conditions (1) protect workers’ rights (1) better health and safety (1) more job security (1) leads to higher standards of living (1) higher life expectancy (1). Increased productivity / efficiency of workers (1) decreases cost of production (1) decrease final price of goods and services produced in the country (1) increase competitiveness (1) higher output / economic growth (1). May help with training (1) raise quality of output (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not high government spending can help a government achieve its macroeconomic aims. In assessing each answer, use the table opposite. Why high government spending can help a government achieve its macroeconomic aims: • economic growth – increase total demand • full employment/low unemployment – increase demand for workers through more government infrastructure projects • government spending on education may raise workers’ skills and so lower unemployment • balance of payments stability – through subsidies for producers • redistribution of income – through spending on social welfare. Why high government spending cannot help a government achieve its macroeconomic aims: • increased total demand could lead to increase demand-pull inflation • too much government spending could lead to less private investments • overreliance of government subsidies could lead to complacency • high spending on social welfare could discourage the unemployed from trying to find jobs • may be accompanied by higher taxes which could be a disincentive to effort and enterprise • may increase budget deficit which could reduce confidence in the economy. 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 sided 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 5(d) Level Description Marks 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 u sing 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 45

(a) Calculate the number of obese people in the UK in 2016. [1] (b) Identify two reasons why the demand for vegan food has increased in the…

Accepted Answer

1(a) Calculate the number of obese people in the UK in 2016. 18.2 million/18 200 000/18.2 × 106 1 Accept 18 million. 1(b) Identify two reasons why the demand for vegan food has increased in the UK. Two from: • (concerns about) health • (concerns about) obesity • (compassion for) animal welfare • rise in income/getting richer/higher standard of living • advertising of vegan products • less consumption of meat 2 One mark each for each of two reasons. 1(c) Explain one external benefit that may arise from eating less meat. Healthy/less obese people (1) are more productive/higher output/live longer/government can spend more on education and raise skills (1). Improved environment/air/water quality (1) less greenhouse gases/pollution/people sick (1). 2 One mark for the external benefit identified and one mark for the explanation. Question Answer Marks Guidance 1(d) Explain how food consumption in Senegal differed from the US in 2015. Senegalese citizens consumed fewer calories (1) consumed less than the recommended amount/US consumed more than the recommended amount (1). Senegalese may have suffered malnourishment (1) US may have suffered from obesity (1). Senegalese had a healthier diet (1) e.g. more fruit and vegetables (1). A higher proportion of the Senegalese diet consisted of cereals/grains (1) because it was cheap (1). Senegalese citizens consumed less meat (1) because it was expensive/low incomes (1). Senegalese citizens consumed less sugar and/or sweeteners (1). Senegalese consumed a higher proportion of fruit and/or vegetables (1). Senegalese consumed less added fats and/or oils (1). 4 Accept a response from the viewpoint of the US e.g. US citizens ate more meat. Question Answer Marks Guidance 1(e) Analyse how an increase in labour mobility could improve the performance of a country’s trade in goods. Coherent analysis which might include: Labour markets will become more efficient (1) workers become more skilled (1) workers will move more easily between industries/become more occupationally mobile/respond quickly to changes in demand (1). Workers can move more easily from one place to another/become more geographically mobile (1). If demand for a product rises (1) it will be easier to recruit new workers/fill vacancies (1) more can be produced/supplied (1) less need for imports (1) import expenditure could fall (1) more can be exported (1) export revenue could rise (1). 4 Question Answer Marks Guidance 1(f) Analyse how an increase in meat consumption could benefit African economies. Coherent analysis which might include: May reduce malnutrition/make people healthier (1) make workers more productive/efficient (1) improve quantity/quality of output (1) lower costs of production (1) more competitive internationally (1) exports increase/imports reduce (1) economic growth (1). Increase demand for vets and transport firms (1) increase number of meat processing firms (1) greater investment by firms (1) will increase output (1) raise employment (1) raise incomes/standard of living (1). Reduces government spending on health care (1) can spend more on education/unemployment benefits/infrastructure increasing skill levels/productivity (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not an increase in Senegalese government spending will stop the country experiencing a recession. Award 1 mark for explanation of recession. Award up to 4 marks for logical reasons for why it might, which might include: • Government spending part of total (aggregate) demand (1) may increase total (aggregate) demand (1) may offset fall in consumer expenditure (1) this may encourage firms to produce more/attract new firms to set up (1) employ more staff/lower (cyclical) unemployment (1) earn more income (1) purchase more goods and services (1). • Government spending on education/training/healthcare infrastructure (1) improves productivity (1) make products more internationally competitive (1) increasing total (aggregate) demand (1) raising output (1). • Government subsidies (1) will lower costs of production (1) encouraging firms to produce more (1). Award up to 4 marks for logical reasons for why it might not, which might include: • May not be great enough to offset fall in investment (1) business confidence may be low (1). firms may not increase output after being given government subsidies (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 Mar k 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(g) • Consumer expenditure may fall (1) investment may not rise (1) exports may fall (1) • if consumer confidence is low (1). • May be global recession (1) exports may fall (1). • If taxes are raised to pay for the increase in government spending (1) government borrows (1) effect on total (aggregate) demand may be small (1). Higher spending on education/health/infrastructure may not result in increased workforce/greater productivity (1). Question Answer Marks Guidance 1(h) Discuss whether or not emigration would reduce poverty in Senegal. Award up to 4 marks for logical reasons for why it might, which might include: • Workers’ remittances may increase/emigrants may send money home to Senegal (1) working abroad may enable them to provide more financial support for their families (1) than working at home (1) if wages are higher abroad (1) • Unemployment may fall (1) if potential emigrants could not gain work at home (1) • Increase ability of people to gain skills/work experience (1) increasing their ability to earn more (1) can share those skills with workers when they return to Senegal (1) • Emigration may move the country towards the optimum population (1) if the country lacks resources (1) this could increase income per head (1) increasing ability to purchase basic necessities (1) Award up to 4 marks for logical reasons for why it might not, which might include: • Skilled workers may leave the country (1) reducing output (1) discouraging MNCs (1) reducing jobs (1) reducing income (1) • There will be fewer people to pay taxes (1) lower tax revenue available to spend to reduce poverty (1) e.g. on education (1) • May be more dependents on the government (1) if parents leave children and elderly relatives behind (1) • Fewer workers in the population (1) will make it harder to finance state pensions (1) may reduce income of pensioners (1) 6

Question 46

South Africa (SA) experienced a recession in the second half of 2019 and an unemployment rate of 29%. Only a small proportion of this unemp…

Accepted Answer

2(a) Define frictional unemployment. Workers in between jobs / caused by a delay between workers moving from one job to another job (1) temporary / short term unemployment (1) Seasonal / casual / search / voluntary unemployment (1) Unemployment that exists when there is full employment (1). 2 2(b) Explain why an infant industry may need protection. Logical explanation which might include: New industries (1) need time/potential to grow / to survive / to establish themselves / to build up a reputation / lack resources (1) need time to take advantage of economies of scale / may be competing with foreign firms which are more able to take advantage of economies of scale (1) economies of scale lower costs / foreign firms may have lower costs (1). Lower costs may reduce price the infant industry can charge (1) make the infant industry more competitive / be able to compete / foreign firms may be more competitive / foreign firms may drive the infant industry out of business (1). The growth of infant industry may increase employment / elimination may increase unemployment (1) growth of infant industry may reduce imports/increase exports/promote domestic products / elimination of infant industry may increase imports/reduce exports (1) growth of infant industry may increase economic growth / elimination of infant industry may reduce economic growth (1). 4 Question Answer Marks Guidance 2(c) Analyse how a fall in a country’s foreign exchange rate could reduce a deficit on the current account of its balance of payments. Coherent analysis which might include: Deficit occurs when debit items including imports on the current account of the balance of payments exceed credit items including exports (1). Fall in the exchange rate would reduce price/value of the currency / depreciation/devaluation has occurred (1) this would reduce the price of exports (1) increase price of imports (1) make exports more competitive / imports less competitive (1) demand for exports is likely to rise / exports increase (1) increase export revenue / money flowing into the country (1) demand for imports is likely to fall / imports reduce / switch from imports to domestically produced products (1) reduce import expenditure / reduce money flowing out of the country (1) increase net exports (1) if demand is price-elastic (1). Value of remittances/money sent home may rise (1) increasing secondary income (1). 6 Accept imports exceed exports for understanding of a deficit on the current account of the balance of payments for the first mark. Question Answer Marks Guidance 2(d) Discuss whether or not a reduction in income tax will end a recession. In assessing each answer, use the table opposite. Why it might: • increase disposable income • increase consumer expenditure • increase investment (spending on capital goods) • increase total (aggregate) demand • increase employment • raise GDP. Why it might not: • lack of confidence • people save more • more could be sold from stocks / inventory • workers may work fewer hours keeping disposable income unchanged • people may spend more on imports • people may still delay spending if prices are falling • may reduce tax revenue and government spending on e.g. education. 8 Accept a discussion of a cut in personal income tax and/or corporate income tax. 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) Level Description Marks 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 47

(a) Calculate the number of births in Cyprus in 2019. [1] (b) Identify two indicators of living standards. [2] (c) State why the global mar…

Accepted Answer

1(a) Calculate the number of births in Cyprus in 2019. 12 240 (1) 1 1(b) Identify two indicators of living standards. GDP per head / per capita (1). HDI (1). Life expectancy / healthy people (1). Proportion of people in primary sector (1). Level of education / qualifications (1). 2 Do not reward GDP 1(c) State why the global market for grapes was in disequilibrium in 2019. Bad weather / failure of the grape harvest (1) there was a shortage (1) which means demand exceeded supply (1). 2 1(d) Explain two reasons why more well-educated workers tend to work past retirement age than less-educated workers. Logical explanation which might include: Well-paid / good work benefits (1) which provides an incentive to work for longer / high job satisfaction / enter workforce late (1). Healthy (1) and so more able to work for longer / remain productive (1). Work in jobs which do not require physical strength / less tiring (1) older workers tend to be less strong / allows them to continue working as long as remain fit (1). 4 One mark for each of two reasons identified and one mark for each explanation. Question Answer Marks Guidance 1(e) Analyse how a rise in a country’s retirement age is likely to affect its government’s budget. Coherent analysis which might include: A rise in the retirement age / less people retired will reduce the cost of pensions (1) may reduce government spending / government may spend on alternatives e.g., infrastructure, education or health (1). More people in work will increase incomes / businesses expand production (1) raise direct tax revenue (1) spending will increase (1) raise indirect tax revenue (1). 4 Question Answer Marks Guidance 1(f) Analyse the relationship between inflation rates and current account balances. Coherent analysis which might include: Overview: Generally, an inverse relationship / the lower the inflation rate, the higher the current account surplus or the higher the inflation rate, the higher the current account deficit (1). Supporting evidencemax of 2 marks Mongolia has the highest inflation rate (1) and the largest current account deficit (1) Mongolia / Kenya / Nepal have the highest inflation rates (1) all have a current account deficit (1). Iceland / Slovenia have a low rate of inflation (1) but have a current balance of payments surplus (1) Exception: Cyprus lowest inflation rate (1) but a current account deficit / 3rd highest current account deficit (1). Comments: Most of the table shows the expected relationship. (1) Low inflation rates may make products more price competitive / high inflation rates may make prices less price competitive (1) 5 Do not accept current account balance is high or low. Answers need to refer to size of surplus or deficit. Simply using data without explanation is description rather than analysis. Question Answer Marks Guidance 1(g) Discuss whether or not, after 2019, Cyprus’s production possibility curve (PPC) is to shift to the right. Award up to 4 marks for logical reasons why it might, which may include: Quantity / quality of resources may have increased (1) retirement age may have increased (1) people living longer (1) so labour force is likely to have increased (1). Investment may have increased (1) due to low interest rates (1) more capital goods would increase productive capacity (1). Award up to 4 marks for logical reasons why it might not, which may include: Quantity and quality of resources may have decreased (1) land quality is decreasing (1) which will reduce the productivity of land (1). Entrepreneurs may emigrate (1) reducing the supply of enterprise / skilled workers (1). Birth rate is falling (1) size of workforce may fall in future (1) Covid19 may have reduced productivity (1). For recognising that any of these reasons could result in PPC shifting to the left / stay unchanged (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 Marks 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 adopting capital-intensive production will benefit consumers. Award up to 4 marks for logical reasons why it might, which may include: It may reduce costs of production / more efficient / may result in economies of scale (1) lower costs may reduce prices (1). It may avoid disruption to supply (1) as no industrial action / strikes (1). It may be quicker / faster (1) to respond to changes in consumer demand (1) It may raise quality (1) as absence of human error (1). Award up to 4 marks for logical reasons why it might not, which may include: Products may be standardised / lack variety (1) individual wants may not be met (1). Capital equipment may break down / costly to maintain (1) causing delays in production (1). Initial high cost of capital equipment (1) may push up prices (1). 6

Question 48

Australia’s foreign exchange rate fluctuates. The value of Australia’s exports is regularly greater than the value of its imports. Australi…

Accepted Answer

2(a) Define foreign exchange rate. The price / value of a currency (1) in terms of another currency / currencies (1). 2 2(b) Explain two reasons why the value of a country’s exports may be greater than the value of its imports. Logical explanation which might include: Price of exports may be lower than price of other countries’ products (1) due to e.g., devaluation / depreciation / weaker currency / higher productivity / lower inflation (1). Quality of exports may be higher than the quality of other countries’ products (1) due to e.g., more investment / better education / specialisation (1). Incomes abroad may have increased (1) enabling foreigners to buy more of the country’s products (1). Protective measures (1) restrict imports / subsidise domestic firms or exports (1). May have high value exports e.g., oil (1) with high (global) demand (1). Recession / low demand at home (1) results in fewer imports / encourages firms to export (1). 4 One mark for each of two reasons identified and one mark for each explanation. Question Answer Marks Guidance 2(c) Analyse how an increase in income tax can affect a country’s inflation rate. One mark for a simple explanation that an increase in income tax can reduce the rate of inflation Coherent analysis which might include: An increase in income tax will reduce disposable income / purchasing power (1) this may reduce consumer spending (1) lower total demand (1) this may encourage firms to reduce prices / reduce price rises (1) lower demand-pull inflation (1). Increase in income tax may encourage workers to press for wage rises (1) increase costs of production (1) cause cost-push inflation (1). Income tax revenue can be used to provide e.g., subsidies to certain goods and services (1) reducing prices (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not governments should aim for a high rate of economic growth. In assessing each answer, use the table opposite. Why it should:  economic growth can raise incomes  higher incomes can raise living standards  economic growth can reduce unemployment  economic growth can increase tax revenue allowing the government to spend more on e.g., education. Why it should not:  may deplete non-renewable resources which can reduce future growth  may result in pollution  may put other demands on workers who may have to work long hours  may lead to a deficit on current account of the balance of payment  may result in greater inequality  risk of inflation 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) 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 49

(a) Calculate Bhutan’s GDP in 2018. [1] (b) Identify two indicators that are in both the World Happiness Index and the Human Development In…

Accepted Answer

1(a) Calculate Bhutan’s GDP in 2018. $2.6 bn / $2600 m / $2 600 000 000 / 2.6  10⁹ (1). 1(b) Identify two indicators that are in both the World Happiness Index and the Human Development Index. Life expectancy (1) GDP per head (1). 2 If more than two indicators are given, consider the first three. 1(c) State why Bhutan’s 2018 government budget is likely to have increased total demand in Bhutan. Government spending was greater than government revenue (1) there was a budget deficit (1) of $70 m (1) the government may have used expansionary fiscal policy (1). 2 1(d) Explain two reasons why someone may prefer to work in the tertiary sector rather than in the primary sector. Logical explanation which might include: Better working conditions / non-wage factors (1) e.g. working inside / not having to work in wet weather / less stress / more job satisfaction / fringe benefits (1). Shorter working hours (1) permitting more leisure time (1). Type of work / less physically demanding / not manual work (1) less risk to health / less tiring / less dangerous / fewer accidents / may lack physical strength (1). Better paid (1) enabling more goods and services to be purchased / higher standard of living / as may require more qualifications / skills/training / value added may greater in the tertiary sector / tertiary sector may be expanding / primary sector contracting / may be higher demand for tertiary workers (1). 4 One mark for each of two reasons identified and one mark for each explanation. Note there is a degree of ‘mix and match’ here. For example, working hours or manual work can be taken as a development of working conditions. Accept an answer that explains the disadvantages of working in the primary sector e.g. may prefer to work in the tertiary sector as working hours are longer in the primary sector. Question Answer Marks Guidance 1(e) Analyse how investment in capital goods and education can increase New Zealand’s productivity. Coherent analysis which might include: Higher investment in capital goods will enable workers to work with better equipment (1) more output per worker / worker hour (1). New capital goods may incorporate advances in technology / be of higher quality (1) result in innovation (1) can work for long hours (1). Higher investment in education can enable more children to be educated / children to be educated for longer / improve quality of education / increase knowledge (1) increase workers’ skills / qualifications (1) enable workers to use more advanced technology (1). Investment in capital goods and/or education can enable capital goods/ workers to work at a faster rate (1) be more efficient (1) make fewer mistakes / less wastage (1). 4 Up to 3 marks for analysis on investment in capital goods and up to 3 marks for investment in education. Note only credit increase efficiency once. Question Answer Marks Guidance 1(f) Analyse the relationship between GDP per head and net migration. Coherent analysis which might include: Overview Generally, the countries with higher GDP per head have net immigration / net migration / the countries with lower GDP per head tend to have net emigration / positive/direct relationship (1). Supporting evidence Up to 2 marks for two pieces of supporting evidence e.g.  New Zealand has the highest GDP per head and the highest net immigration / net migration / highest positive migration (1)  Cyprus has the second highest GDP per head and the second highest net immigration / net migration / positive migration (1)  the four countries with the highest GDP per head, all have net immigration / positive net migration (1)  the two countries with lowest GDP per head both have net emigration / negative net migration (1) Exception Exception is Kenya or Mozambique (1) Kenya has higher GDP per head but higher net emigration than Mozambique (1). Comments Higher GDP per head may encourage people to move to the country to increase their living standards / income / people who migrate into the country may be high skilled / lower GDP per head may encourage people to emigrate to increase their living standards/income (1) other influences e.g. immigration controls / size of population / wars / political instability (1). 5 There may be an implied comparison e.g. generally countries with a high GDP per head have net immigration. New Zealand has a GDP per head of approx. $55 000 and net immigration of about 40,00 whereas Kenya has a GDP per head of $2,000 and net emigration of about 50 000 (1 mark). For explanation of exception, do not accept that Kenya has ‘lower net migration’ / Mozambique has ‘higher net migration’ – a misinterpretation of the figure. Question Answer Marks Guidance 1(g) Discuss whether or not enterprise is likely to have increased in New Zealand after 2019. Award up to 4 marks for logical reasons why it might, which may include: High labour productivity / high-skilled workers (1) may keep costs down (1) and increase profits (1) which will motivate more people to be entrepreneurs (1). Higher investment / better quality capital goods (1) may increase the number of firms / result in expansion of firms (1) and the opportunities to become entrepreneurs (1). Investment in education / better quality education (1) may increase the people with the skills to become entrepreneurs / increase risk taking ability (1). Higher government spending on mental health / child poverty / pollution (1) may increase workers’ skills / increase workers’ health / increase workers’ productivity (1) higher government subsidies (1) reduce firms’ costs of production (1) higher government spending may increase total demand (1). Higher economic growth (1) may have created more opportunities / greater confidence / higher total demand (1). Net immigration may have continued (1) and some immigrants may have been entrepreneurs / may set up new firms (1) more people in the country may raise total demand (1). Cut in income tax rates (1) could increase demand (1) firms’ revenue / profits (1) create greater profit incentive (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 Marks Guidance 1(g) Award up to 4 marks for logical reasons why it might not, which may include: Uncertainty / lack of confidence (1) reason e.g. there may have been a recession / negative economic growth / unclear what may happen to GDP (1) which could have resulted in the reward to enterprise declining (1) may think there is a greater risk of running / setting up a firm (1). Corporation tax may have increased / tax may have increased (1) which would reduce retained profits / amount of profit that can be kept (1). Government attempts to reduce pollution / poverty / improve mental health (1) may increase firms’ costs of production and reduce profits (1) may have an opportunity cost (1) less spending on something that could increase enterprise (1) e.g. reduction is spending on education (1). Accept tax revenue may have increased for tax may have increased for why it might not Reward recognition that tax revenue may rise without a rise in tax rates or with a fall in tax rates. Question Answer Marks Guidance 1(h) Discuss whether or not a cut in income tax rates will increase living standards. Award up to 4 marks for logical reasons why it might, which may include: Will increase disposable income (1) increase ability to buy goods and services / increase purchasing power (1) buy basic necessities / reduce absolute poverty (1) may be able to fulfil more wants / buy more luxuries (1). May increase spending (1) increase total demand (1) reduce unemployment / increase employment (1) increase output / increase economic growth (1). May increase saving (1) and so provide a safety net (1). May encourage investment (1) which may lower costs of production (1) reduce prices (1). May be able to buy more merit goods / better quality education/healthcare (1) increase health / life expectancy (1). May increase the incentive to work (1) may earn more in work than on unemployment benefits (1). May enable people to work fewer hours (1) enjoy more leisure time (1). 6 Rise in income is not sufficient – need idea of disposable income. Question Answer Marks Guidance 1(h) Award up to 4 marks for logical reasons why it might not, which may include: Tax revenue may fall (1) may result in a cut in government spending (1) on e.g. education / health care / mental healthcare / child poverty / pollution / unemployment benefit (1) poor may be most reliant on public services (1). It may increase congestion as people buy more cars (1) may lead to pollution (1). It may increase depletion of non-renewable resources as consumption increases (1). It may benefit mostly the rich / poor may not benefit / will not benefit the unemployed (1) and so not everyone may enjoy higher living standards (1). People may spend on demerit goods (1) higher spending which could reduce health / life expectancy (1). Higher spending / demand may increase prices / cause inflation (1) leave purchasing power unchanged / reduce purchasing power (1).

Question 50

Bulgaria is part of the European Union (EU), but it has much lower corporation tax rates than other EU members. However, regulation by the …

Accepted Answer

5(a) Define regulation. 2 Award 1 mark for any relevant examples e.g. a set of rules or laws (1) normally imposed by government / form of No smoking for under 16s, not allowed to government intervention (1) to affect behaviour of various economic actors leave home, no chewing gum, prohibition of in the economy (1). alcohol sales, compulsory face masks. 5(b) Explain two causes of a fall in the quantity of labour in a country. 4 Logical explanation which might include: • Negative net migration (1) emigration rates higher than immigration rates (1) as people search for better job opportunities / higher wages / higher living standards elsewhere (1). • High death rates (1) the ratio of deaths to the population (per thousand people per year) increases (1) due to poor healthcare facilities / lack of medicines / diseases (1). • Ageing population (1) average population getting older (1) lots of retirees / pensioners (1) no longer contributing to the labour force (1). 5(c) Analyse how differences in the rates of corporation tax between 6 countries may affect multinational companies (MNCs). Coherent analysis which might include: Lower corporation tax in one country will attract more MNCs into the country (1) this is because their potential after tax profits will increase (1). Lower corporation tax will attract more MNCs to reinvest in the economy (1) this is because they will be able to get more profits and thus more capital for reinvestments (1) this could to an increase in investment in capital which leads to increased productivity (1) and increased output of MNCs (1). Lower corporation tax will enable more firms to expand their operations (1) and therefore hire more workers (1). 5(d) Discuss whether or not a decrease in a country’s economic growth 8 Level Description Marks rate will harm its economy. 3 A reasoned 6–8 In assessing each answer, use the table opposite. discussion which Why a decrease in economic growth rate will harm an economy: accurately examines • Less job creation – higher unemployment both sides of the • Reduction in consumer confidence in the economy economic argument, • Reduction in investor confidence in the economy making use of • Lower tax revenues – less spending on development economic • Reduction in level of increase in living standards. information and clear and logical Why a decrease in economic growth rate will not harm an economy: analysis to evaluate • Reduce inflation economic issues • Less harm to the environment and situations. One • Might reduce level of imports – less deficit in the current account of the side of the argument balance of payments may have more • Less stress – lower working hours. 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. 5(d) Level Description Marks 2 A reasoned 3–5 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. 1 There is a simple 1–2 attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero 0 should be awarded for no creditable content.

Question 51

(a) Calculate how many dollars 6400 Nigerian naira would have bought in 2019. [1] (b) Identify two ways a bank could increase demand for it…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate how many dollars 6400 Nigerian naira would 1 have bought in 2019. 16 (1). 1(b) Identify two ways a bank could increase demand for its 2 services. Open more branches (1) carry out an advertising campaign (1) improve online / mobile banking (1). 1(c) State why a merger between two commercial banks is a 2 horizontal merger. Same stage of production / both in the tertiary (service) sector / same sector (1) same industry / same product / same service (1) can increase market share (1). 1(d) Explain two reasons why a large US commercial bank 4 One mark for each of two reasons identified and one mark may charge a high price for its services. for each explanation. Logical explanation which might include: High spending on opening new branches / advertising campaigns / developing online banking (1) need to get back costs / make a profit / may experience diseconomies of scale (1). May offer high quality services (1) have high demand / customers willing to pay a high price (1). High degree of monopoly / market power / control 32% of market (1) customers may have brand loyalty / reluctant to switch banks / lack of substitutes / inelastic demand / can charge high prices to earn high profits/raise total revenue / be a price maker (1). High incomes in the US (1) many customers have the ability to pay a high price (1). Employ skilled / well educated workers (1) so may pay high wages / may have high costs of production (1). 1(e) Analyse how an increase in unemployment may affect 4 the Nigerian government’s budget. Coherent analysis which might include: Likely to increase a deficit / reduce a surplus / may result in a budget deficit (1). Tax revenue likely to fall / budget likely to fall (1) due to lower incomes (1) less income tax revenue (1) lower profits (1) less corporation tax revenue (1) lower spending (1) less indirect tax revenue (1) government may cut taxes to reduce unemployment (1). Government spending likely to rise (1) more spending on e.g. benefits / subsidies to the poor / law and order/ healthcare (1) may be more spending on measures to reduce unemployment / expansionary fiscal policy (1) may spend less on other areas e.g. education (1). 1(f) Analyse the relationship between countries’ average 5 No marks for just stating what the figures are e.g. Germany years of schooling and birth rates. has 15 years of schooling and a birth rate of approximately 8. US has 14 years of schooling and a birth rate of Coherent analysis which might include: approximately 12. Argentina has 11 years of schooling and Overview a birth rate of approximately 16 etc. Generally, an inverse relationship / the more years of schooling, the lower the birth rate / the fewer years of schooling, the higher the birth rate (1). Supporting evidence Up to 2 marks maximum for two pieces of relevant supporting evidence e.g.: • Germany has the highest years of schooling and lowest birth rate (1) • Chad has lowest years of schooling and highest birth rate (1) • US has more years of schooling than Argentina and so a lower birth rate (1) • the three countries with three highest years of schooling have the three lowest birth rates (1). Exception Nigeria / Eritrea (1) Nigeria has more years of schooling than Eritrea but a higher birth rate (1). Comments More years of schooling is likely to cause people to form partnerships / have children later / focus on careers / increase awareness of contraception/family planning / increase health / reduce size of families (1) increase cost of raising children / having more children may reduce the ability of families to keep their children in education for many years / exception may be result of other influences e.g. differences in fertility rates / differences in social attitudes (1). 1(g) Discuss whether or not a subsidy, given to farmers by 6 Apply this example to all questions with the command the Nigerian government, would reduce the deficit on word DISCUSS the current account of its balance of payments. (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it might, which Each point may be credited only once, on either side of an may include: argument, but separate development as to how/why the It should raise supply / increase output (1) equivalent to outcome may differ is rewarded. lower cost (1) lower price (1) increasing international competitiveness (1). Generic example mark There may be more funds available to invest (1) raise quality (1) increase exports / reduce imports (1). Tax revenue may decrease… 1 Award up to 4 marks for logical reasons why it might not, ...because of reason e.g. incomes may be 1 which may include: lower. It may increase inefficiency (1) as firms rely on the subsidy (1) may not pass on the benefit of the subsidy to consumers Tax revenue may increase because incomes 0 (1). may be higher i.e. reverse of a previous Nigeria may have a high inflation rate (1) which may offset argument. the cost advantage of the subsidy (1). There may an increase in incomes at home (1) which may Tax revenue may increase because of a 1 increase imports / divert exports to the home market (1). different reason i.e. not the reverse of a There may be a recession abroad / decrease in incomes of previous argument e.g. government spending trading partners (1) which reduces exports (1). on subsidies may stimulate the economy more Lower export prices will not raise export revenue if demand than spending on education. is inelastic (1). The exchange rate may rise (1) increasing export prices / lowering import prices (1). Farmers may import e.g. more machinery (1). There may be adverse weather conditions / disease (1) which reduces quality / quality may remain poor (1). There may be import restrictions / increase in import restrictions imposed by other countries (1). 1(h) Discuss whether or not the US government should 6 A minimum price diagram without explanation can get a impose a minimum price on chocolate. maximum of 2 marks. These marks may be the equivalent of a combination of two of higher price, demand extending, Award up to 4 marks for logical reasons why it should, supply extending or a surplus being created. which may include: It will raise price (1) reduce demand / demand contracts / quantity demand falls / consumption falls. (1) reduce obesity (1). Social cost of eating chocolate may exceed social benefit (1) due to external costs (1) example e.g. cost on health service / may reduce need for government spending on healthcare (1) overconsumption of chocolate (1) move market closer to where social benefit equals social cost (1) increase welfare (1). May raise health of the population / eating chocolate may be unhealthy (1) raise labour productivity (1). There may be information failure (1) some chocolate is a demerit good (1). Award up to 4 marks for logical reasons why it should not, which may include: Poor may not be able to afford chocolate (1) regressive measure (1). Not everyone overweight / some may consume chocolate in quantities that are not harmful (1) may cause demand to switch to other high sugar products / discriminate against other high sugar products (1). It will encourage supply to extend (1) a surplus may develop (1). There may be an illegal market in chocolate (1). There may be a cost to the government (1) it may have to pay to monitor that the price is being charged (1) lower tax revenue from chocolate (1) may be an increase in unemployment (1). 1(h) Demand may be inelastic (1) resulting in a relatively small fall in demand / chocolate may be addictive (1). It depends on how high the minimum price is (1) may have no effect if set below the market equilibrium (1).

Question 52

In 2019, Russia had an unemployment rate of 4.6%. Russia experienced full employment in the past. Its government wants unemployment to be l…

Accepted Answer

3(a) Define full employment. 2 One mark for idea of full employment of resources e.g. all workers in employment. The lowest unemployment possible (very low percentage) / job vacancies matching the number unemployed (2). Low unemployment (1). May still be some workers in between jobs / some frictional unemployment (1). Zero unemployment (1). 3(b) Explain the difference between a proportional income 4 Three marks maximum for proportional income tax system tax system and a progressive income tax system. and three marks maximum for progressive income tax system. Logical explanation which might include: Proportional income tax system takes the same percentage / proportion of income (1) from all income groups (1). In a proportional income tax rate system, the tax rate does not change (1) as income changes (1) has no effect on the distribution of income (1). Progressive income tax system takes a larger percentage / smaller percentage (1) of the income of the rich / the poor / places a larger burden on the rich (1) helps redistribute income from the rich to the poor / reduces the gap between rich and poor / may be used to promote equity (1). In a progressive income tax rate system, the tax rate increases (1) as income increases (1). 3(c) Analyse why a cut in government spending might 6 increase poverty. Coherent analysis which might include: A cut in government spending might reduce total demand (1) increasing unemployment (1) reducing incomes (1). Government spending on subsidies to firms might be reduced (1) which may raise prices (1). Government spending on education might be reduced (1) this might cause a decrease in skills (1) reducing wages (1) may lead to vicious cycle of poverty (1). Government spending on healthcare might be reduced (1) lowering productivity and wages (1). Government spending on state / unemployment benefits might be reduced (1) reducing goods and services that can be bought (1). Government spending on state pensions might be reduced (1) the old may not be able to buy basic necessities (1). 3(d) Discuss whether or not a fall in a country’s 8 Level Description Marks unemployment rate always benefits workers. 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 be: economic information and clear and • increase choice of jobs logical analysis to evaluate economic • increase wages issues and situations. One side of the argument may have more depth than • raise living standards the other, but overall both sided of the • increase job security argument are considered and • competition for workers may raise working conditions developed. There is thoughtful • more may be spent on training. evaluation of economic concepts, terminology, information and/or data Why it might not be: appropriate to the question. The • may be result of workers leaving the labour force e.g. discussion may also point out the emigrating possible uncertainties of alternative • may not benefit all workers as some may still be decisions and outcomes. unemployed • may not be high quality jobs 2 A reasoned discussion which makes 3–5 • may be low-paid jobs use of economic information and clear • may be temporary jobs analysis to evaluate economic issues and situations. The answer may lack • may cause inflation reducing real wages. 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 53

Romania’s indirect tax rate was 19% between 2017 and 2019. There is a high proportion of foreign multinational companies (MNCs), especially…

Accepted Answer

3(a) Define, with an example, an indirect tax. 2 Allow an example of a product that is taxed for the example mark e.g. motor cars. A tax on goods and services / tax on sales / purchases / consumer spending (1) Allow an answer that explains that the tax is levied on a VAT / GST / import tariff (1). producer but passed onto consumers to pay. Do not reward answers that refer to a tax levied on a third party. 3(b) Explain two benefits of MNCs to their home countries. 4 One mark for each of two benefits identified and one mark Logical explanation which might include: for each explanation. Increasing income / improving the current account balance / raise living standards /higher tax revenue (1) if profits Note: common error is to confuse host and home country so returned to home county (1). before awarding marks be clear that the candidate is not writing about the host country. Reduces prices in the home country (1) if goods now produced at lower costs in host countries (1). Reduce unemployment (1) employment of workers from the home countries in host countries / may employ more in head office (1). Higher revenue for firms (1) which may increase their profits (1) can gain subsidies/grants from host countries governments (1) May e.g. be able to dump waste materials / reduce pollution (1) host countries may have fewer rules and regulation (1). 3(c) Analyse how an increase in productivity can affect 6 Candidates need to be clear about distinction between unemployment. productivity and production. Coherent analysis which might include: An increase in productivity will lower average costs of production (1) may increase output / revenue (1) raise firms’ profits (1) may encourage firms to expand / attract MNCs (1) employ more workers (1) reducing unemployment (1). An increase in productivity will make firms more competitive internationally (1) leading to more exports (1) and higher demand for labour further reducing unemployment (1). May enable the same or more output to be produced with fewer workers (1) saving money / increasing profits (1) may increase unemployment (1). Higher productivity may mean higher wages (1) raising consumption / demand for goods and services (1) more incentive to seek employment / leading to more employment (1). Increase productivity may be due to capital investment / better equipment /technology (1) could reduce demand for labour (1). 3(d) Discuss whether or not a decrease in a country’s 8 Level Description Marks unemployment rate will reduce poverty. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the Why it might: economic argument, making use of • may increase employment economic information and clear and • may raise incomes logical analysis to evaluate economic issues and situations. One side of the • may enable people to buy more goods and services argument may have more depth than • may reduce the gap between the high-paid and the low- the other, but overall both sided of the paid argument are considered and • More government tax revenue to spend on developed. There is thoughtful benefits/services for poor. evaluation of economic concepts, terminology, information and/or data Why it might not: appropriate to the question. The • may not be an increase in employment – unemployed discussion may also point out the may have left the labour force e.g. emigrated, retired possible uncertainties of alternative • may be in low-paid jobs decisions and outcomes. • may be in part-time jobs • some of the poor are not in the labour force e.g. 2 A reasoned discussion which makes 3–5 homemakers, sick and informal economy use of economic information and clear • may result in inflationary pressures reducing real analysis to evaluate economic issues and situations. The answer may lack incomes • may reduce absolute poverty but may not reduce some depth and development may be one-sided. There is relevant use of relative poverty. 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 54

(a) Calculate the value of US imports from China in 2020. [1] (b) Identify two causes of the increase in the quantity of US factors of prod…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the value of US imports from China in 1 Accept the correct figure without the $ sign. 2020. 560 000 000 000. 5.6  10^11 $560bn (1). 1(b) Identify two causes of the increase in the quantity 2 If more than two causes given, consider the first three. of US factors of production. Accept increase in labour for increase in the labour force. Land reclamation (1) increase in the labour force (1). 1(c) Explain one way that import tariffs could improve 2 One mark for a way identified and one mark for an explanation. the US economy. If more than one way identified, consider the first two. Could improve the current account / trade in goods / To gain two marks, one mark must come from improving the trade in goods and services / balance of payments (1) current account, increase output or raise tax revenue. by reducing imports / making domestic goods more competitive with imports / raising the price of imports Could raise more revenue is not sufficient – need more tax (1) revenue or more government revenue / income. Could increase output / cause economic growth (1) by increasing demand for US goods / raise employment (1). Could raise tax revenue (1) allowing the government to spend more on (e.g. education) / improve the (government budget position) (1). 1(d) Explain two reasons why the US inflation rate fell 4 One mark each for each of two reasons identified and one mark in 2020. each for each of two explanations. Logical explanation which might include: If more than two reasons given, consider the first three. Fall in consumer expenditure (1) lower total demand / reduce demand-pull inflation (1). Reduction in bargaining power may also be linked to lower total Reduction in workers’ bargaining power (1) fall in demand. wage rises / wages / fall in rise in costs / fall in costs / reduce cost-push inflation (1). Higher unemployment (1) reduces confidence / lower total demand / fall in consumer spending (1). Fall in (real) GDP (1) lower incomes / purchasing power / lower total demand (1). Current account deficit (1) lower total demand / reduce demand-pull inflation (1). 1(e) Draw a demand and supply diagram to show the 4 effect of an increase in the price of a complement on the market for ice cream. Demand and supply diagram: Axes correctly labelled – price and quantity or p and q (1). Original 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 equilibrium points marked as E1 and E2 (1). 1(f) Analyse the relationship between government 5 Alternatively, some candidates may argue that changes in spending and unemployment. unemployment, could lead to changes in government spending. Credit both responses. Coherent analysis which might include: Overview: Inverse relationship / negative relationship (1) generally, the higher government spending, the lower the unemployment rate (1). Supporting evidence: E.g. 2015 to 2019, government spending increased and unemployment fell / 2015 to 2017 government spending increased and unemployment fell (1) processing / interpreting of data e.g. between 2015 to 2019, government spending rose by $700bn and unemployment fell by 1.6% (points) (1). Analysis of the expected relationship: • higher government spending will increase total demand (encouraging firms to expand and employ more workers) (1) • higher government spending may be on e.g. education, training, infrastructure, subsidies which could increase workers’ chances of gaining jobs (1) • higher employment will provide more tax revenue for the government to spend / lower employment will reduce tax revenue for the government to spend (1). Exception: 2020 (1) both government spending and unemployment rose / government spending and unemployment both at their highest (1). 1(f) Analysis of the exception: • government spending on unemployment benefits may have increased / rise in government spending not enough to stop GDP / consumer expenditure falling / GDP fell / there may be a time delay before higher government spending reduces unemployment (1). 1(g) Discuss whether or not a central bank should aim 6 May approach the answer from the point of view of the for a low inflation rate. disadvantages of high inflation. 2nd side should examine either the possible negative effects of Award up to 4 marks for logical reasons why it should, what the central bank may do to reduce the inflation rate or the which may include: possible loss of any beneficial effects of high inflation. • can increase international price competitiveness (1) improve the current account balance / No marks for possible effects on the exchange rate. increase exports (1) increase employment / reduce unemployment (1) Apply this example to all questions with the • can create certainty (1) which may increase command word DISCUSS confidence (1) which may encourage investment / (1g, 1h, 2d, 3d, 4d and 5d) attract MNCs (1) which may increase output / result in economic growth (1) Each point may be credited only once, on either side of an • can prevent a random redistribution of income (1) argument, but separate development as to how / why the outcome e.g. protect savers (1) may differ is rewarded. • may protect purchasing power (1) by promoting price stability (1) Generic example Mark • maintain / increase living standards (1) if wages rise by more than the price level (1) Tax revenue may decrease… 1 • can avoid fiscal drag (1) prevent people being put in higher tax brackets (1) ...because of reason e.g. incomes may be lower. 1 • can reduce menu / shoe leather costs (1) reduce firms’ costs of production (1). Tax revenue may increase because incomes may be 0 higher i.e. reverse of a previous argument. Award up to 4 marks for logical reasons why it should not, which may include: Tax revenue may increase because of a different 1 • increases in the rate of interest (1) contractionary reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may monetary policy (1) can reduce consumer stimulate the economy more than spending on expenditure / can reduce investment (1) can education. reduce total demand (1) 1(g) • lower total demand can increase unemployment (1) cyclical unemployment (1) reduce economic growth (1) • low inflation can turn into deflation (1) leading to a recession (1) • makes it harder to pay off debt (1) increasing the risk of firms going out of business / households getting into difficulties (1) • central bank may aim for economic growth / low unemployment (1) higher demand-pull inflation may provide more encouragement to firms to expand (1). 1(h) Discuss whether or not economic growth benefits 6 everyone in the US. Award up to 4 marks for logical reasons why it might, which may include: • economic growth increases output / GDP (1) increases income per head / higher incomes / higher wages (1) enables more purchasing power / people to enjoy more goods and services (1) • economic growth can increase employment (1) raise living standards (1) may reduce poverty (1) • economic growth can increase tax revenue (1) enabling the government to spend more on e.g. education and healthcare (1) • economic growth may introduce better working conditions (1). Award up to 4 marks for logical reasons why it might not, which may include: • there may be an increase in unemployment due to lack of skills / some industries declining / greater use of capital / capital-intensive production (1) structural unemployment may occur (1) • income is unevenly distributed (1) those on low incomes e.g. the sick may not benefit (1) • higher output may result in external costs (1) e.g. pollution (1) people living near factories may suffer (1) • higher output may be the result of more resources being devoted to capital goods (1) may take time for consumers to benefit from more consumer goods (1) 1(h) • higher output may reduce natural resources (1) reducing future generations’ ability to benefit from them / reduce sustainability (1) • higher output may be the result of workers working longer hours (1) in poor working conditions (1) • may cause inflation (1) adversely affecting the poor / savers (1).

Question 55

Serbia is the world’s second largest producer of raspberries, a product with elastic demand. Consumers experience the economic problem when…

Accepted Answer

5(a) Identify two determinants of price elasticity of 2 If more than two determinants given, consider the first three. demand. Two from: • substitutes • whether a luxury or necessity • proportion of income taken • whether habit forming / addictive • whether the purchase can be postponed • time period • breadth of definition • brand loyalty • number of uses • complements 5(b) Explain how the economic problem results in 4 consumers having to make choices. Logical explanation which might include: The economic problem is unlimited / infinite wants (1) exceeding limited / finite / scare resources (1) resulting in scarcity (1). Consumers have limited incomes (1) and so cannot buy everything they want (1). Buying one product involves an opportunity cost (1) in the form of another product sacrificed / example (1). 5(c) Analyse why some workers decide not to join a 6 trade union. Coherent analysis which might include: Trade unions charge a subscription fee (1) workers cannot afford to join (1) may be unemployed / have low income (1). Government legislation may prevent trade union membership / government may discourage membership (1) may reduce the power of trade unions (1) less benefit from joining (1). Employers may discourage membership (1) may think it will reduce chance of employment / increase chance of unemployment (1) chance of promotion (1). May be satisfied with wages (1) working conditions (1) may have job security (1) no need for collective bargaining (1). May be employed in industries that do not have a history of trade union membership (1). May be reluctant to take industrial action (1) may lose pay during a strike (1). May not agree with the objectives of the trade union (1). May follow example of fellow workers (1). 5(d) Discuss whether or not a government should 8 Level Description Marks reduce the amount of money it gives to each state pensioner. 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 should: to evaluate economic issues and • ageing population can mean the amount of situations. One side of the argument may government spending on pensions rises have more depth than the other, but significantly overall, both sided of the argument are • a reduction in the state pension could reduce a considered and developed. There is budget deficit thoughtful evaluation of economic • may persuade people to work longer, raising concepts, terminology, information and / output and tax revenue or data appropriate to the question. The • paying pensions involves an opportunity cost, discussion may also point out the could spend more on e.g. education possible uncertainties of alternative decisions and outcomes. Why it should not: 2 A reasoned discussion which makes use 3–5 • will reduce living standards of pensioners of economic information and clear • may increase the numbers living in absolute analysis to evaluate economic issues poverty and situations. The answer may lack • will reduce total demand some depth and development may be • lower spending by pensioners could reduce one-sided. There is relevant use of output and increase unemployment. 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 no 0 creditable content.

Question 56

(a) Calculate Australia’s unemployment rate in 2021. [1] (b) Identify two substitutes for coal. [2] (c) Explain one economy of scale that c…

Accepted Answer

1(a) Calculate Australia’s unemployment rate in 2021. 4% Allow 4 without percentage 1(b) Identify two substitutes for coal. Two from:  gas  offshore wind / wind power  solar power / panels 2 1(c) Explain one economy of scale that could benefit a coal- mining firm. Managerial / labour economy (1) employing specialist workers e.g. mining engineers (1). Technical economy (1) employing efficient / technologically advanced equipment e.g. drones (1). External economy of scale (1) example e.g. skilled labour force (1). 2 One mark for the economy of scale identified and one mark for an explanation. 1(d) Explain two influences on the price elasticity of supply of coal. Storage time (1) expensive to store so inelastic supply (1). Construction of new mine / production time (1) takes a long time, so inelastic supply (1). Stocks (1) may make supply elastic (1). 4 One mark each for each of two influences identified and one mark each for each of two explanations. Question Answer Marks Guidance 1(e) Draw a demand and supply diagram to show how setting a maximum price below the equilibrium price will affect a market. Demand and supply diagram: Axes correctly labelled – price and quantity or p and q (1). Demand and supply curves correctly labelled (1). Price line set below the equilibrium (1). Demand shown as greater than supply (1) e.g. has the two dotted lines downwards (it does not have to be labelled Qs and Qd). 4 Note: Accept unlabelled price line / line drawn only to demand curve. Accept shortage if correctly identified on the diagram. Do not accept demand greater than supply if demand and supply curves are incorrectly drawn Question Answer Marks Guidance 1(f) Analyse whether large coal-producing countries are likely to be net exporters of coal. Coherent analysis which might include: Expected outcome: Large coal producing countries may have a surplus to sell / may have grown their production in order to sell abroad (1) most of the evidence supports this relationship (1) Supporting evidence: Five of the seven countries consume less coal than they produce (1) calculation e.g. US could have exported 11 million tonnes / Australia could have exported 394 million tonnes or simply the difference (1). Analysis: Countries that produce more coal than they consume may benefit from economies of scale / can export because their prices are low (1). Exceptions: China or India are an exception (1) as they consumed more coal than they produced (1). Analysis: they may have been net importers (1) since had used up stocks of coal / need more energy as a developing country (1) may not be able to export coal if world demand for coal is low / countries may both import and export coal (1). 5 Responses do not have to be in the format suggested but they should address the expected / normal outcome, 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 an increase in the size of its coal industry will benefit the Australian economy. Award up to 4 marks for logical reasons why it might, which may include:  may increase GDP / economic growth (1) increasing living standards / raise incomes / reduce poverty (1)  may reduce unemployment (1) structural unemployment (1)  may improve current account position / have a surplus (1) as Australia seems to be a net exporter of coal (1)  may increase tax revenue (1) increasing government’s ability to spend (1)  economies of scale (1) result in lower prices for households and industries (1). Award up to 4 marks for logical reasons why it might not, which may include:  may increase pollution (1) lowering living standards / cause health issues (1) reduce tourism / negative impact on current account (1)  other forms of power may not be developed (1) example (1)  some workers may leave other jobs (1) these jobs may have better working conditions (1)  coal mining is a relatively dangerous industry (1) so life expectancy may be reduced / creates chronic illnesses / workers unable to work (1).  Global demand for coal may fall (1) impact upon Australia e.g. unsold stock (1).  May rapidly deplete stocks (1) leading to lower exports (1) and less employment (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 Marks Guidance 1(h) Discuss whether or not Australia is likely to have a budget deficit in 2026. Award up to 4 marks for logical reasons why it might, which may include:  unemployment is forecast to increase (1) so there may be more government spending on unemployment benefits (1) less income tax revenue (1)  there may be more government spending on retraining unemployed workers (1)  some of the rise in population may result in more government spending (1) e.g. on pensions / healthcare / education (up to 2 marks)  budget deficit in previous years (1) would mean interest would have to be paid on the debt that has built up (1). Award up to 4 marks for logical reasons why it might not, which may include:  population and the labour force are forecast to increase (1) so there may be more taxpayers / fewer claiming benefits (1)  tax revenue may rise (1) due to higher profits / higher tax rates (1)  GDP is forecast to increase (1) more people in work (1) which would be likely to increase direct and indirect tax revenue (1)  state support for industries may fall (1) may have been high in 2021 due to Covid-19 (1). 6

Question 57

Living standards, including education, have improved for most people in South Africa in recent years. Most households have more money and t…

Accepted Answer

2(a) Identify two functions of money. Two from:  Medium of exchange  Unit of account / measure of value  Store of value  Standard of deferred payments 2 Note: a description of the function, without the term, gets a mark e.g. money can be used to buy and sell products, may be used to trade. Nothing for characteristics of money. If more than two functions are given, consider the first three. 2(b) Explain how improved education may affect the demand for cigarettes and for fresh fruit. Logical explanation which might include: It may reduce demand for cigarettes (1) people may be better informed about harmful effects / cigarettes are a demerit good (1). It may increase demand for fresh fruit (1) people may be better informed about beneficial effects / fresh fruit is a merit good / may gain better paid jobs and so able to afford fresh food (1). 4 Only accept demand for cigarettes may increase if linked to higher income (resulting from improved education). One mark for each of two reasons identified and one for each of two explanations. Question Answer Marks Guidance 2(c) Analyse the causes of an increase in a government’s tax revenue. Coherent analysis which might include: Tax revenue is government income / part of government fiscal policy (1) which can be spent on government objectives e.g. education (1) Increase in employment (1) increase in income (1) More convenient (1) easier to pay (1) and collect the tax (1) higher income tax revenue (1) Increase in spending (1) higher indirect tax revenue (1) Increase in profits (1) higher corporation tax (1) Increase in population (1) more people to pay taxes (1) Change in tax rates (1) higher tax rates can increase revenue without a change in income / spending / profits (1) lower tax rates may reduce tax avoidance / evasion (1) increase incentives (1) Greater efficiency in tax collection (1) reduction in corruption / simpler forms (1) Wider tax base (1) more products / more people taxed (1) Increase in imports (1) higher revenue from tariffs (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not an increase in unemployment benefit payments would reduce poverty. In assessing each answer, use the table opposite. Why it might:  raise incomes of those on low incomes  may enable them to buy more basic necessities  may reduce absolute poverty  may increase total demand  higher total demand may reduce unemployment  Also enable them to seek education / become more employable Why it might not:  may be a disincentive to find employment  people may become dependent on benefits  will not help all those on low incomes e.g. the retired and the sick  may not reduce relative poverty  some of the unemployed may not claim benefits  opportunity cost – government could spend on e.g. education which might be more effective.  Size of unemployment benefit may be small and may be less than inflation 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 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 58

Liechtenstein is a high‑income economy in the middle of Europe. The country’s low tax rates and low levels of regulation make it an attract…

Accepted Answer

2(a) Identify two types of cost to a firm. total cost (1) average total cost (1) fixed cost (1) variable cost (1) average fixed cost (1) average variable cost (1) 2 Accept any relevant costs e.g. labour cost Accept abbreviations e.g. TC If more than two costs given, consider the first three. 2(b) Explain two roles of commercial banks for firms. Logical explanation which might include: Provide loans / overdrafts to banks / source of finance (1) to fund investments / expansion / start−up / day to day operations (1). Help process payments (1) internet banking / fund transfers / credit card / debit card payments (1). Issuing bank drafts / bank cheques (1) to help firms make payments (1). Safe place to store money / savings (1) firms making deposits / earn interest (1). Safekeeping of documents and other items (1) in safe deposit boxes (1). Currency exchange (1) to facilitate transfers between firms / international transactions (1). Provides insurance (1) to reduce various risks to the firm (1). 4 One mark each for each of two roles identified and one mark each for each of two explanations. If more than two roles given, consider the first three. Question Answer Mark Guidance 2(c) Analyse the causes of differences in the level of income between countries. Coherent analysis which might include:  difference in productivity (1) countries with higher productivity have higher incomes (1) as workers can produce more (1) and earn more money from their production (1)  difference in availability of natural resources (1) e.g. valuable commodities such as oil or gold (1).  difference in population growth (1) countries with higher population growth have higher incomes (1) as there are more people to produce goods and services (1) lower labour costs (1) encourage more investments (1)  differences in distribution of primary, secondary and tertiary sectors / level of development (1) those with higher secondary and tertiary sectors have higher incomes (1) more value added (1) less dependent on weather (1) higher productivity (1)  difference in specialisation / diversification (1) level of exports (1).  difference in minimum wage level (1) affects the level of total demand in a country (1)  difference in level of saving and investment (1) higher savings leads to higher investment (1) and higher productivity growth (1) and therefore higher income growth (1)  difference in education levels (1) higher education levels lead to higher incomes (1) workers have more qualification / skills / experience (1) leading to higher productivity / higher output (1) 6 Alternatively, accept arguments which describes reasons for lower incomes. Question Answer Mark Guidance 2(c)  difference in health / healthcare standards (1) higher health / healthcare standards lead to higher incomes (1) less sick / healthier / stronger (1) produce more / higher productivity leading to higher income (1).  difference in unemployment rates (1) the more unemployed resources a country has, the less income is likely to be earned (1).  differences in birth rates / proportion of elderly people (1) high birth rate and ageing population may place high demands on a country's resources (1)  difference in frequency of war / natural disasters (1) reducing a country’s ability to produce goods and services (1) Question Answer Mark Guidance 2(d) Discuss whether or not low tax rates benefit an economy. In assessing each answer, use the table opposite. Why it might:  low corporation tax rates encourage more investments and therefore higher productivity growth which encourages economic growth  low corporation tax rates encourage more investments which increases demand for labour and reduces unemployment  low income tax rates encourage more people to enter the labour force  low income tax rates increase disposable income which can encourage higher consumer expenditure and, as a result, higher output  low indirect tax rates reduce cost of production which reduces cost−push inflation  low indirect tax rates reduce cost of production which increases competitiveness of exports which reduces current account deficit / increases current account surplus Why it might not:  low tax rates reduce government revenues which could reduce spending on public goods / infrastructure, reducing investments / productivity growth  low tax rates increase production which increases pollution and environmental degradation  low direct tax rates may be inflationary 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 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 Mark Guidance 2(d)  low tax rates increase trade which increases need for international transport such as ships and planes which increases pollution  low direct tax rates increase inequality  low tax rates on demerit goods may worsen health / result in market failure.  low tax rates on imports (tariffs) may worsen the current account of the balance of payments

Question 59

The food processing, tourism, and education industries all contribute significantly to the government budget for the US state of Wisconsin.…

Accepted Answer

5(a) Define government budget. Government budget is a plan / forecast (1) for government expenditure (1) and government revenue (1) 2 5(b) Explain, with examples, the difference between private benefits and external benefits. Logical explanation which might include: Private benefits are benefits incurred by the consumers or producers of a product (1) for example, getting a better job in the future for those consuming education / profits that a firm earns (1) External benefits are benefits incurred by the third party (1) for example, increased productivity due to better education and better healthcare as a result of better qualified doctors (1) 4 Question Answer Mark Guidance 5(c) Analyse the reasons why workers employed in education may earn more than workers employed in other industries. Coherent analysis which might include: Higher demand for education workers (1) due to higher demand for education than other industries (1) demand for education workers is derived demand (1). Lower supply (1) less people available to work in education (1) e.g. not many qualified people want to become teachers / lecturers (1). Higher bargaining strengths (1) stronger trade unions (1) e.g. teachers’ union is very strong. Less discrimination (1) everyone is paid according to their level of productivity (1) for example, female teachers less discriminated than in other industries (1). More favourable government policy for workers in education / government spends more on education (1) higher wages set by the government for workers in education (1) as education is essential for the economy / society (1). More skilled (1) long-term training required (1) higher productivity (1). tertiary workers earn more (1) more value added (1). 6 Question Answer Mark Guidance 5(d) Discuss whether or not having a large population is beneficial for the economy. In assessing each answer, use the table opposite. Why it might:  high labour supply – higher levels of factors of production – high productive capacity – PPC shifts outwards  workers can be taxed − enabling spending on public services  high spending leads to high total demand –high economic growth  high investment as firms can gain more profit  high investment as firms can easily find more workers  high competition amongst workers – high quality / productivity of workers  many entrepreneurs – increased competition – increased innovation  high demand for goods and services – increased output of firms – economies of scale. Why it might not:  strain on resources – e.g. lack of proper housing, schools, hospitals  external costs – e.g. pollution  high total demand could lead to increase demand−pull inflationary pressures  shortage of jobs – increased unemployment  it depends upon the composition of the population e.g. large proportion of under 5's will not increase output in the short run. 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 sided 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 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 60

Digital money, such as cryptocurrencies, is increasingly being used. Digital money transactions take place on electronic devices such as co…

Accepted Answer

3(a) Identify two types of tax. 2 Accept any relevant examples of taxes e.g. income tax, tariffs. Accept, but do not expect, specific and ad Direct (1) Indirect (1) valorem taxes. Progressive (1) Proportional (1) Regressive (1) 3(b) Explain two functions of money. 4 One mark each for each of two functions identified and one mark each for each of two explanations. Logical explanation which might include: • a medium of exchange (1) to buy goods and services / to trade (1) • a measure of value / unit of account (1) to measure how much a product is worth (1) • a store of value (1) to allow people to save (1) • a method of deferred payment (1) for borrowing and lending (1). 3(c) Analyse the consequences of market failure. 6 i.e. labour market failure. Coherent analysis which might include: • market failure exists when the production or consumption of goods and services in a market is not efficient (1) • overconsumption of demerit goods (1) and goods with external costs (1) leading to an overall misallocation of resources (1) e.g. overconsumption of cigarettes, fossil fuels (1) • underconsumption of merit goods (1) and goods with external benefits (1) e.g. education, healthcare (1) • non-supply (1) of public goods (1) e.g. defence (1) • abuse of monopoly power (1) resulting in higher prices (1) reducing affordability / choice (1) • factor immobility (1) resulting in shortages and surpluses (1) causing unemployment (1) resulting in lower income / poverty (1). 3(d) Discuss whether or not a tax on a product can reduce 8 Level Description Marks external costs. 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 logical analysis to evaluate economic • tax will increase price, reducing the quantity demanded issues and situations. One side of the • if demand for the product is elastic, quantity demanded will argument may have more depth than be responsive to the price increase, quantity demanded will the other, but overall both sides of the change significantly argument are considered and • tax will increase the cost of production, therefore decreasing developed. There is thoughtful supply evaluation of economic concepts, • tax will decrease the profits of firms terminology, information and / or data • tax will provide governments additional revenue to help with appropriate to the question. The subsidising less-polluting products. discussion may also point out the possible uncertainties of alternative Why it might not: decisions and outcomes. • tax is insignificant compared to the final price of the product 2 A reasoned discussion which makes 3–5 • tax avoidance / evasion / unofficial or illegal markets use of economic information and clear • if demand for the product is inelastic, quantity demanded analysis to evaluate economic issues will be unresponsive to the price increase, quantity and situations. The answer may lack demanded will not change significantly, e.g. addictive some depth and development may be products. one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3(d) 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 61

(a) Calculate Montenegro’s budget deficit as a percentage of its GDP. [1] (b) Identify two examples of capital goods in Montenegro. [2] (c)…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate Montenegro’s budget deficit as a percentage 1 Calculation is -$0.6 bn divided by $4.8 bn of its GDP. Allow 12.5 12.5%. 1(b) Identify two examples of capital goods in Montenegro. 2 These are the only two capital goods mentioned in the text but accept answers such as telecommunications equipment Computers (1) office buildings (1). and aluminium production factories 1(c) Explain one way price elasticity of demand may 2 One mark for the way identified and one mark for an influence firms’ decision making. explanation. If demand is price elastic / high (1) firms will know that if they Note: source material only mentions demand for holidays as raise price, revenue will fall / if they lower price, revenue will being price-elastic. rise (1). No mark for identifying price-inelastic but do allow second mark that price inelastic demand means if they raise price revenue will rise / if they lower price, revenue will fall. Do not reward impact on demand or on profits 1(d) Explain two ways the pattern of employment has 4 One mark each for each of two reasons identified and one changed in Montenegro in recent years. mark each for each of two explanations. Logical explanation which might include: Note: question requires a reason for the change in pattern Higher proportion of workers employed in the tourism of employment industry / tertiary sector (1) growth in tourism / lower proportion employed in primary and secondary sectors (1). More workers employed in the private sector / commercial banks / telecommunications / aluminium products (1) due to privatisation / less employed in state sector (1). 1(e) Draw a demand and supply diagram to show the effect 4 of a minimum price set above the equilibrium price on the market for oranges. Coherent analysis: Demand and supply diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). Minimum Price / Price floor line set above the equilibrium and correctly labelled – accept Pmin or Pm or MP but not P2. Supply shown as greater than demand e.g. labelling of Qd<Qs (1). Note: No mark for showing minimum price if also shows a shift in supply or demand curve as it is no longer above market equilibrium. Ignore all written comments. 1(f) Analyse the relationship between countries’ trade in 5 Allow income for primary income and current transfers for goods and services balance and their current account secondary income. balances. Responses do not have to be in the format suggested but There are two approaches to answering this question: they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, Approach A: Coherent analysis which might include: and analyse the overall data. Expected relationship: MAX 2 marks. Do not accept relationship is directly proportional. Positive / direct relationship (1). Countries which have a deficit on the trade in goods and services balance might be expected to have a deficit on the current account balance (1). Countries which have a surplus on the trade in goods and services balance might be expected to have a surplus on the current account balance (1). Supporting evidence: MAX 2 Marks Three countries / Bosnia & Herzegovina / Kosovo / Montenegro all have a deficit on the trade in goods and service balance also had a deficit on the current account balance (1) two countries / Bulgaria / Slovenia had a surplus on the trade in goods and service balance but also had a surplus on the current account balance (1). Exception: Max 2 marks Croatia (1) had a deficit on trade in goods and services balance but a surplus on the current account balance (1). Approach B: Expected Relationship: Max 2 marks. 1(f) There is no expected relationship as the current account balance contains other items which can either be positive or negative (1) and are not dependent on the trade in goods and services (1). Supporting evidence: Max 2 marks There are 5 countries where the current account balance is higher than the trade in goods and services balance (1) example (1). Exception: Max 2 marks Slovenia (1) where current account balance is worse that trade in goods and services balance / trade in goods and services is $4.6bn but current account balance is only $3.0bn (1). Analysis for both approaches: Max 3 marks Trade in goods and services is the largest component of the current account (1) current account also includes primary income and secondary income (1) Bosnia & Herzegovina, Bulgaria, Croatia, Kosovo and Montenegro must have had a surplus on the primary and secondary income (1) Slovenia must have had a deficit on the primary and secondary income (1). 1(g) Discuss whether or not privatisation is likely to have 6 Apply this example to all questions with the command word benefited consumers in Montenegro. DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it might, Each point may be credited only once, on either side of an which may include: argument, but separate development as to how/why the outcome may differ is rewarded. • Firms are profit driven (1) may have increased investment / research & development (1) raising quality Generic Example Marks of goods and services (1) lowered cost of production (1) • more firms entering the market (1) increased Tax revenue may decrease… 1 competition (1) may reduce prices (1) may give more choice to consumers (1) ...because of reason e.g. incomes 1 • firms may respond more quickly (1) to changes in may be lower. consumer demand (1). Tax revenue may increase 0 Award up to 4 marks for logical reasons why it might because incomes may be higher not, which may include: i.e. reverse of a previous argument. • state-owned firms may have been subsidised (1) investment may be now lower (1) Tax revenue may increase 1 • privatised firms may be profit maximisers (1) may because of a different reason i.e. become monopolies (1) and may restrict supply (1) to not the reverse of a previous push up prices (1) lowered quality of goods produced argument e.g. government (1) creates inequality as not all consumers can afford to spending on subsidies may buy (1) stimulate the economy more than • privatised firms may be smaller (1) and so not able to spending on education. take advantage of economies of scale (1) • privatised firms do not take account of external costs (1) Note: The question is about the impact on consumers. Do e.g. pollution (1). not reward answers that relate to the economy or the government. Award one mark for an accurate explanation of what is meant by privatisation. 1(h) Discuss whether or not deflation would benefit the 6 Reward but do not expect explanation of benign and malign Montenegro economy. deflation. Award up to 4 marks for logical reasons why it might, Allow reference to demand-side deflation but not demand- which may include: pull deflation or cost-push deflation as they are not acceptable terms. • could make products more internationally competitive (1) leading to greater exports (1) reducing imports (1) improving the current account balance / reducing a deficit on the current account (1) • if caused by advances in technology / supply side measures e.g. higher labour productivity (1) could increase output (1) and employment (1) and lead to economic growth / higher standard of living (1). Award up to 4 marks for logical reasons why it might not, which may include: • current inflation rate is only 0.4% (1) • greater uncertainty (1) could discourage consumer spending / investment by firms (1) as households and firms could expect prices to fall further (1) • if caused by a fall in total demand (1) could reduce output (1) and causing recession (1) firms make losses / go out of business (1) could cause more unemployment (1) and unemployment is already high at 18% (1) • could increase a budget deficit (1) due to lower tax revenue from lower sales taxes / income taxes (1) increase in unemployment benefits (1). Award one mark for an accurate explanation of what is meant by deflation e.g. a fall in the price level is sufficient here.

Question 62

(a) Calculate the average wage paid in Denmark in 2020. [1] (b) Identify two possible opportunity costs of a Danish person using their leis…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the average wage paid in Denmark. 1 Accept 84 000. $84 000 (1). 1(b) Identify two opportunity costs of a Danish person using 2 their leisure time to cycle. Playing golf (1) jogging (1). 1(c) Explain one way that living standards are measured in 2 One mark for a way identified and one mark for an Denmark. explanation. Identification Do not accept GDP. HDI / average wages / income / GDP per head leisure hours (1). Explanation HDI includes GDP per head / income / education / health/life expectancy / average wages / income / GDP per head influences the goods and services which can be purchased / leisure hours may affect physical / mental health (1). 1(d) Explain two reasons why the supply of ships is price- 4 One mark each for each of two reasons identified and one inelastic. mark for each of two explanations. Logical explanation which might include: Ignore comments on PED. They take a long time to produce (1) so supply cannot be adjusted quickly (1). They are expensive to store (1) take up a large space / likely to be few or no spare ships to sell / low inventories / difficult to keep for future sales / if prices fall will have to sell ships as nowhere to store them (1). 1(e) Analyse the relationship between government spending 4 Responses do not have to be in the format suggested but and GDP in Denmark. they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, Coherent analysis which might include: and analyse the overall data. Expected relationship: Higher government spending would be expected to be associated with a higher GDP / move in the same direction / Government spending will always be lower than GDP (1) positive relationship / direct relationship (1). Supporting evidence up to 2 marks: 2015 – 2018 government spending and GDP rose / (1) 2019 – 2021 government spending and GDP rose (1). Government spending and GDP rose over the period / government spending and GDP was lowest at the start of the period / 2015 and was highest at the end of the period 2021 (1). Analysis of expected relationship up to 2 marks: Higher government spending will increase total (aggregate) demand which will add to GDP (1) may be higher government spending on education/training/healthcare/subsidies which can raise productivity and output (1) higher GDP may increase tax revenue which can be used to increase government spending (1). Exception: 2018 – 2019 / 2018 / 2019 (1) government spending rose but GDP fell (1). Analysis of exception: A government may spend more when GDP falls in a bid to stimulate an increase in GDP (1). 1(f) Analyse, using a demand and supply diagram, how an 5 increase in the birth rate would affect the market for toys. Coherent analysis which might include: D&S diagram up to 4 marks: 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 right (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). Written analysis up to 1 mark: An increase in the birth rate would increase the number of children who parents may buy toys for / more consumers / higher demand (1) the higher demand will raise price / increase quantity (traded) (1). 1(g) Discuss whether or not a surplus on the current 6 Apply this example to all questions with the command account of its balance of payments would benefit the word DISCUSS Danish economy. (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it might, which Each point may be credited only once, on either side of an may include: argument, but separate development as to how/why the • exports exceed imports / credit items have a higher outcome may differ is rewarded. value than debit items (1) and so adds to total (aggregate) demand (1) which may increase GDP (1) Generic example Mark • it can increase employment (1) which may increase incomes (1) Tax revenue may decrease… 1 • may attract foreign investment (1) as may be taken to be a sign of a strong economy (1) ...because of reason e.g. incomes may be lower. 1 • may raise the exchange rate (1) which can enable exports to exchange for more imports (1). Tax revenue may increase because incomes 0 may be higher i.e. reverse of a previous Award up to 4 marks for logical reasons why it might not, argument. which may include: • it means more products are produced than consumed / Tax revenue may increase because of a 1 reduces availability of products / reduces consumer different reason i.e. not the reverse of a previous choice (1) reduce potential living standards (1) may argument e.g. government spending on contribute to resource depletion (1) subsidies may stimulate the economy more than • it may add to inflationary pressure (1) especially if the spending on education. economy is close to full employment (1). • demand for the currency will exceed the supply of the currency (1) this may raise the exchange rate (1) make exports less internationally competitive (1) which can reduce the surplus / cause a deficit in the long run (1). 1(h) Discuss whether or not more people working from home 6 Note 1 mark for recognising productivity may change. So, if will benefit an economy. a candidate writes productivity may increase and may decrease, award 1 mark. Two further marks could be gained Award up to 4 marks for logical reasons why it might, which if a candidate explains why productivity may increase and may include: why it may decrease. • may raise productivity / efficiency / quality of output (1) as workers may be less tired / less stressed / saves Note: 1 mark for productivity increase or decrease and 1 transport costs as a result of not having to travel to work mark for GDP increase or decrease. (1) may work longer hours (1) increase GDP (1) • may increase the quantity of labour (1) more people e.g. those with dependents may be able to work / more flexible hours (1) as save time travelling (1) • workers may be happier (1) and so may stay with firms longer (1) which would reduce the cost of recruiting workers (1) • pollution may be reduced (1) traffic congestion may be reduced (1) less need for transport infrastructure (1) reduce external costs (1) improve health (1) • firms’ costs may fall (1) as less need for office space (1) • may reduce conflict between workers (1) may reduce chances of industrial action (1). Award up to 4 marks for logical reasons why it might not, which may include: • transport firms may experience a fall in demand / revenue / less people travelling (1) which may create unemployment of e.g. bus drivers (1) • restaurants/cafes may have to close down in city centres (1) which may create unemployment of e.g. waiters (1) reduce tax revenue (1) 1(h) • may reduce productivity / efficiency/ quality of output (1) reduce GDP (1) as workers may be distracted by e.g. small children / become lazy / may work fewer hours / may have poor internet connection (1) may not be supervised (1) may not co-ordinate with other workers / communication problems (1).

Question 63

Since 2016, South Korea’s population has declined, due to a falling birth rate, and a high proportion of its population is now aged over 64…

Accepted Answer

2(a) Identify two benefits people may gain from a good 2 education. Two from: • high income / high living standards / less risk of poverty • skills / high productivity / high efficiency • qualifications • good job / good job opportunities / increased occupational mobility • wide range of interests • better health/better nutrition/avoidance of demerit goods • may gain entrepreneurial skills 2(b) Explain two reasons for a change in the amount of tax 4 One mark each for each of two reasons identified and one revenue a government receives. mark for each of two explanations. Logical explanation which might include: Change in GDP / economic growth (1) will affect revenue from direct taxes / move into different tax brackets (1). Change in employment / wages / incomes (1) will affect (personal) income tax (1). Change in profits (1) will affect corporate (income) tax (1). Change in spending (1) will affect revenue from indirect taxes / VAT / GST (1). Change in demand for imports (1) affect revenue from import tariffs / import duty (1). Change in tax rates (1) e.g. higher sales tax rates on products with inelastic demand may increase tax revenue (1). Change in tax avoidance / tax evasion (1) as a result of e.g. campaigns / greater penalties (1) Change in population size (1) will affect number of people paying taxes (1) Inflation (1) fiscal drag (1). Change in what is taxed (1) the more products taxed, the more revenue might be raised (1). 2(c) Analyse the economies of scale a school may gain from 6 Up to 3 marks for one type of economy of scale that is well- an increase in its size. developed. Coherent analysis which might include: Allow one mark for internal economies of scale. Economies of scale reduce average cost of production / lower long run costs (1). Purchasing / buying economies (1) buying e.g. desks / computers in bulk (1) at a discount (1). Management economies (1) employing e.g. school accountant (1). Labour economies (1) teachers specialising e.g. in teaching biology (1). Technical economies (1) e.g. a film studio for media studies (1). Financial economies (1) a school may be able to borrow at a lower rate of interest (1) find it easier to get a loan (1). Marketing / selling economies (1) a private sector school may be able to advertise more cheaply (1). 2(d) Discuss whether or not having a high proportion of a 8 Level Description Marks country’s population over the age of 64 is a benefit to its economy. 3 A reasoned discussion which 6–8 accurately examines both sides of the In assessing each answer, use the table opposite. economic argument, making use of economic information and clear and Why it might: logical analysis to evaluate economic • may still be in work and may be efficient due to issues and situations. One side of the experience argument may have more depth than • may provide family support and care the other, but overall both sides of the • may be the result of a rise in life expectancy which may argument are considered and mean living standards have risen developed. There is thoughtful • may be a smaller proportion of young dependents evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the Why it might not: • may be a high proportion of older dependents possible uncertainties of alternative decisions and outcomes. • may be high healthcare costs • may be a high cost of state pensions 2 A reasoned discussion which makes 3–5 • older workers may be out of date with new technology / use of economic information and clear may be less innovative. 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 64

Some firms in Monaco have experienced external growth. Firms in Monaco pay high wages. Workers in Monaco benefit from fiscal policy which c…

Accepted Answer

3(a) Define external growth of firms. 2 Accept but do not expect reference to acquisition as merger. Increase in size / output of a firm / expansion of a firm (1) due to a merger / takeover (1). 3(b) Explain two reasons why low-skilled workers may be 4 One mark each for each of two reasons identified and one highly paid. mark for each of two explanations. Logical explanation which might include: Award 2 marks for high national minimum wage. High demand / inelastic demand (1) due to e.g. expansion of the industry / economy (1). High cost of capital / relative cost of factors of production (1) may encourage use of labour-intensive production (1). Low supply (1) due to e.g. emigration / high employment / unsociable hours (1). Minimum wage (1) set at a high level / government policy may be to raise wages of low-skilled workers (1). The job may be dangerous/ unpleasant / poor working conditions (1) so a high wage is needed to attract workers / retain workers / example (1). The workers may be in a trade union (1) with strong/collective bargaining power / may take industrial action (1). May work long hours (1) so total pay is high (1). May work in a very profitable/high value-added industry (1) example (1). 3(c) Analyse how fiscal policy can increase employment. 6 Coherent analysis which might include: Rise in government spending / reduction in taxation (1) expansionary fiscal policy (1) may increase total (aggregate) demand (1) which can encourage firms to expand (1) reduce cyclical unemployment (1). Increase in government spending on education / training / health care (1) may increase skills / productivity of workers (1) which may increase their mobility / attractiveness to employers (1). Increase in government spending on infrastructure (1) can attract MNCs / attract FDI (1). Increase government spending on housing (1) which can increase (geographical) mobility of labour (1). Increase subsidies (1) which can encourage firms to expand and take on more workers (1). Cut in (personal) income tax (1) cut in unemployment benefit (1) increase disposable income (1) may increase the incentive to work (1). Cut in indirect taxes (1) which can encourage an increase in consumer spending (1) which can encourage firms to expand and take on more workers / reduce costs of production (1). Cut in corporate (income) tax (1) may give firms the funds / incentive to expand (1). Higher import tariffs (1) may encourage domestic firms to expand (1). 3(d) Discuss whether or not a government should provide 8 Level Description Marks free fruit to consumers. 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 should: economic information and clear and • fruit is a merit good logical analysis to evaluate economic • people may not appreciate its private benefits issues and situations. One side of the • social benefit of consuming it exceeds the private argument may have more depth than benefit the other, but overall both sides of the • without government intervention, it may be under- argument are considered and developed. There is thoughtful consumed • may increase the health of the population and so may evaluation of economic concepts, terminology, information and/or data increase workers’ productivity appropriate to the question. The • may benefit fruit farmers discussion may also point out the • would enable the poor to consume it. possible uncertainties of alternative decisions and outcomes. Why it should not: • rich can afford to buy it 2 A reasoned discussion which makes 3–5 • may result in it being overconsumed use of economic information and clear • some may be wasted analysis to evaluate economic issues • may lose tax revenue if indirect tax imposed on food and situations. The answer may lack • opportunity cost – government spending on e.g. some depth and development may be education may have to be reduced. 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.

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60	see sheet	20	0455/21 Oct/Nov 2023
61	see sheet	30	0455/23 Oct/Nov 2023
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