Supply-side policy — Paper 2 — IGCSE Economics 0455 topical questions

Question 1

In 2015 the world saw many changes in demand and advances in technology. People were using new ways to transfer money and there was an incr…

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6(a) What is sold on a stock exchange? Shares/stocks (1) in public limited companies (1) government bonds/securities (1). 2 6(b) Explain how money helps specialisation and trade to occur. • If workers and firms specialise they have to sell what they produce (1) to get the products they want/to buy other products (1) • Money helps trade as it avoids the need for barter (1) overcomes the double coincidence of wants (1) • Any functions of money e.g. medium of exchange or store of value (max 2) 4 6(c) Analyse how advances in technology can affect demand and supply. • Advances in technology reduce costs of production (1) increases the speed of production (1) increases supply (1) lower price (1) increases quality/efficiency/reduces waste (1) lower price causes an extension in demand (1) • Advances in technology create new products and newer versions of products (1) higher demand will increase price (1) higher prices will cause supply to extend (1) • Advances in technology decreases demand for some products (1) example (1) • Advances in technology may reduce demand for labour (1) as machines may replace workers (1) example (1) • Advances in technology may enable firms to extract raw materials more easily (1) increasing the supply of raw materials (1) example (1) 6 Maximum of 4 marks if there is only reference to demand or supply. Question Answer Marks Guidance 6(d) Discuss the economic arguments for and against a government raising the school- leaving age. Up to 5 marks for why it should: • It may increase educational standards (1) increase skills (1) raise labour productivity (1) increase innovation/technology (1) lower costs of production (1) raise output (1) improve the current account position (1). • More educated workers are likely to be in higher demand from employers (1) more occupationally mobile (1) lower unemployment (1) create jobs for teachers (1) raise wages (1) improve living standards (1) may reduce income inequality (1). • It may attract more MNCs to set up in the country (1) as they will expect a more skilled labour force (1) which may increase GDP(1). Up to 5 marks for why it should not: • It will increase government spending (1) opportunity cost (1) example (1) may lead to higher taxes (1). • Workers may be sufficiently qualified/there may not be vacancies for more-skilled workers (1) inappropriate use of resources (1) workers may become over-qualified for the jobs they do (1). • In the short run will reduce the size of the labour force (1) lower output/productive potential (1). 8 A response may develop a mixture of relevant points to achieve up to 5 marks on either side. Reward but do not expect education being a merit good. Maximum of 2 marks on each side of the discussion for a list- like approach.

Question 2

In 2008, Zimbabwe reached a record high rate of inflation of 500 trillion per cent. By 2015, it had fallen so much that there was even talk…

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6(a) Identify two ways in which a high rate of unemployment may affect 2 firms. Low demand for products (1) falling prices / lower revenue (1). Good supply of workers (1) downward pressure on wages (1). Trade union action (1) to protect workers’ jobs (1). 6(b) Explain two causes of deflation. 4 1 mark each for each cause identified: • fall in total demand • rise in unemployment • drop in consumer confidence • drop in business confidence • banking crisis • an increase in total (aggregate) supply • fall in costs of production • advances in technology. 1 mark each for each of two causes explained: • lower demand may cause firms to reduce their prices in order to attract more consumers • lower costs of production / advances in technology will enable firms to lower their prices and maintain/increase profits. 6(c) Analyse the disadvantages of a very high rate of inflation. 6 Fall in international price competitiveness (1) currency rapidly devalues (1) worsening current account position / reduced exports (1) if inflation rate is higher than rival countries (1). Discourages saving / savers lose (1) if inflation rate is higher than interest rate (1) redistribution of income from lenders to borrowers (1). Those on fixed incomes are disadvantaged (1) e.g. pensions do not buy as many goods and services as they did before (1). Inflationary expectations increase (1) discouraging investment (1) uncertainty created by inflation (1). Inefficient choices (1) due to difficulty in judging relevant prices (inflationary noise) (1). The cost of changing prices (menu costs) (1) e.g. price tags, menus (1). Costs of moving money around in search of the highest interest rate (1). People’s income dragged into higher tax brackets (fiscal drag) (1) reducing their disposable income (1). Unemployment (1) if caused by higher costs / cost-push inflation (1). Lower purchasing power / fall in values of money (1). Note: maximum 3 marks for a list-like approach. 6(d) Discuss whether increased government spending on training will 8 always reduce inflation. Up to 5 marks for why it might: Training may increase workers’ skills / specialisation (1) raise productivity (1) lower production costs (1) increase total supply (1) reduce cost-push inflation (1). Training may make workers more mobile (1) speed up adjustments to changes in demand (1) reduce shortages (1) lower demand-pull inflation (1). Up to 5 marks for why it might not: Training may be in the wrong areas (1) and not increase productivity (1). Government spending on training will increase total demand (1) if total demand rises by more than total supply (1) price level will rise (1) causing demand-pull inflation (1). Trained workers will find employment / better paid work (1) spend their wages and increase total demand (1). More highly trained workers may demand higher wages (1) if wages rise by more than productivity (1) costs will increase (1) cost-push inflation (1).

Question 3

The government of Slovenia has introduced a range of supply-side policy measures to influence the country’s inflation rate. Among other fac…

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5(a) Identify TWO price indices. RPI (1) CPI (1). other valid indices. 5(b) Explain TWO supply-side policy measures. Improvements in education/training (1) to raise skills/labour productivity (1). Cutting income tax (1) to encourage the reward for working (1). Cutting corporation tax (1) to encourage enterprise/increase investment/lower costs of production (1). Privatisation (1) transferring assets from the public to the private sector/to stimulate competition/improve efficiency (1). Deregulation (1) removing rules and restrictions/increase competition/lower costs of production (1). Subsidies (1) may reduce costs of production/stimulate output (1). 4 1 mark each for up to 2 identifications, plus up to 2 marks for explanation 5(c) Analyse why a government may want to reduce its country’s inflation rate. A lower inflation rate may increase a country’s international competitiveness (1) increase exports (1) reduce imports (1) improve the current account position (1). A lower inflation rate may create greater certainty (1) encourage investment (1) increase economic growth (1). A lower inflation rate may benefit savers (1) create funds for investment (1). A lower inflation rate will reduce the rate at which money loses its purchasing power/value (1) protect living standards (1) make products more affordable (1) helps people on fixed incomes (1). If cost-push inflation, total demand will fall/unemployment rise (1). Lower inflation tends to have larger benefits for the poor than the rich (1) and helps towards reducing inequality (1). There may be hyperinflation (1) which could lead to a breakdown in economic activity (1). 6 Reward an approach that analyses the disadvantages of inflation. Question Answer Marks Guidance 5(d) Discuss whether or not increasing the strength of trade unions will benefit an economy. Up to 5 marks for why it might: Stronger bargaining power with employers (1) may improve working conditions of workers (1) increase health and safety (1). May raise the wages of workers (1) may reduce poverty (1) may increase labour productivity (1) through increasing worker morale/motivation (1). May counterbalance the power of employers (1) protecting the rights of workers (1). May provide worker training (1) increasing skills/productivity (1). Up to 5 marks for why it might not: May lead to more industrial disputes (1) e.g. strikes/go slows (1) reduce output (1) may discourage investment/discourage MNCs (1) which would damage long run economic growth (1). May cause inflation (1) by raising labour costs (1) make products less internationally competitive (1) increasing a current account deficit/reducing a current account surplus (1). Higher wage costs could reduce profits (1) raise unemployment (1). 8 NB: Max 5 marks for a static answer (i.e. that discusses benefits and drawbacks of trade unions, not the impact of the increasing strength of TUs).

Question 4

In early 2016, the central bank of the Republic of Turkey cut interest rates five times. This was despite an inflation rate of 7.6%. The ec…

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4(a) Identify two functions of a central bank. • Control money supply • Issue notes • Set interest rates • Maintain price stability / low inflation • Act as a lender of last resort / lend money to government / lends to commercial banks • Ensure stability of financial system • Manage foreign exchange reserves 2 4(b) Explain how the Consumer Prices Index (CPI) is calculated. A representative basket of most commonly purchased goods and services is constructed (1) the price of these goods and services is monitored over time (1) the goods and services are ‘weighted’ (1) according to the proportion of disposable income they account for (1) annual price changes are measured (1) and multiplied by weights (1) weighted price changes are measured against a base year (1). 4 Up to 2 marks for correct numerical examples. 4(c) Analyse the impact of a cut in interest rates on saving and investment. Saving is expected to fall (1) as the return from saving falls (1), reducing opportunity cost of spending (1), causing individuals to spend more (1) and borrow more (1). Investment will rise (1) as it becomes cheaper for firms to borrow (1), reducing the cost of investment (1) and making investment more profitable (1). 6 Question Answer Mark Guidance 4(d) Discuss the impact of supply-side policy measures on government expenditure and on government revenue. Up to 5 marks for why it might increase government expenditure and decrease tax revenue: Policies such as subsidies may be expensive (1) if funded through borrowing government spending on interest payments will increase (1) gains from supply side policies take a long time to materialise (1) meaning in the short run there may be no increase in tax revenue (1). Cut in income tax (1) may decrease income tax revenue in short run (1). Cut in corporation tax (1) may decrease corporation tax revenue in short run (1). Privatisation in the long run may reduce government revenue (1) if privatised firms have been profitable (1) Up to 5 marks for why it might decrease government expenditure and increase tax revenue: Supply side policies will increase the productive capacity of the economy (1) which will enable long run growth to be achieved (1) and more tax revenue from sales of goods and services (1) and from higher income (1). Income tax receipts may increase in the long run if more people are working (1) and corporation tax receipts may increase is firms are making bigger profits (1). Spending on education and training (1) is likely to increase employment (1) reducing spending on welfare benefits (1) increasing income tax revenue (1). Deregulation may not alter government spending and tax revenue in the short run (1) but may increase tax revenue in the long run if efficiency increases (1). Privatisation in the short run may increase government revenue (1) from the sale of shares (1). 8

Question 5

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

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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 6

A relatively high proportion of people from the Philippines either work in call centres or abroad. Call centres employ 1.2 million people i…

Accepted Answer

6(a) Define Gross Domestic Product. The (total) output/income/expenditure (1) of a country/economy (1). 2 6(b) Explain two reasons why a person may be willing to work at night. A person may lack the skills to gain another job (1) have no choice (1). There may be a high unemployment rate (1) a person will be grateful for any job (1). Night work may fit in with family circumstances (1) a person may have to look after children / older relatives during the day (1) The job may be well paid (1) compensating for the inconvenience (1). The job may offer fringe benefits (1) example e.g. longer holidays (1). A person may enjoy their job (1) example (1). A person may need to earn additional income (1) to supplement income from day job / to support their family (1). 4 6(c) Analyse how having some of its population working abroad may benefit an economy. The workers may send income home (1) helping to support dependents / raise living standards of dependents (1) saving on some government benefits having to be paid (1). They may gain skills abroad (1) if they return they will increase the productivity of the labour force (1) may raise output / cause economic growth (1) reduce firms costs of production (1). The money they sent back will be an inflow of foreign currency / remittance / primary income (1) improving the current account position on the balance of payments (1). May reduce unemployment (1) if the workers’ skills are not in demand at home (1). 6 Question Answer Marks Guidance 6(d) Discuss whether or not advances in technology benefit an economy. Up to 5 marks for why they might: Advances in technology will raise the quality / productivity of capital / labour (1) it will increase the output that can be made / cause economic growth / increase GDP (1) may raise income (1) Advances in technology can lower costs of production (1) reduce cost-push inflation (1) make domestic products more internationally competitive (1) improve the current account position of the balance of payments (1). May raise the quality of products produced (1) raise living standards (1) make domestic products more quality competitive (1) improve the position of the current account of the balance of payments (1). May attract MNCs (1). Provide employment for certain classes of worker (1) e.g. skilled (1). Up to 5 marks for why they might not: Advances in technology may result in capital equipment that can replace labour (1) result in unemployment (1). If workers do not have sufficient skills (1) they may not be able to get the most out of more advanced equipment (1). New capital equipment may worsen working conditions (1) e.g. workers may get eye strain by looking at a screen for long periods of time (1). May be an opportunity cost (in the short run) (1) as more resources may have to be devoted to capital goods / R&D (1). New capital equipment may be expensive (1) increase firm’ costs (1) may be an opportunity cost if provided by the government (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 7

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 8

Moldova is Europe’s poorest economy with many of its people living in poverty. It is mainly an agricultural economy with many small farms. …

Accepted Answer

5(a) Identify two supply-side policy measures. • a cut in income tax • a cut in corporation tax • a cut in unemployment benefit • education • training • privatisation • deregulation • subsidy • legislation to reduce trade union power 2 e.g. lower indirect taxes and reduced interest rate. 5(b) Explain two ways a government could reduce relative poverty. • progressive taxation / higher direct taxes (1) which takes a higher proportion of the income of the rich (1) • reduction of tax on basic foodstuffs / indirect taxes (1) benefiting mainly the poor (1) • state benefits given to the poor (1) increasing their purchasing power / living standards (1) • education and training of the poor (1) increasing their earning potential (1) • provision of healthcare to the poor (1) increasing productivity/reducing cost of medication (1) • provision of subsidies to firms (1) reducing unemployment / reducing prices (1) 4 Reward but do not expect reference to minimum wage and price controls. Question Answer Marks Guidance 5(c) Analyse the reasons why small shops may be easy to set up. They do not take much money to set up (1) costs initially will be low (1) low fixed costs (1) it may be possible to borrow the money (1) or use savings (1). There may be government subsidies (1) designed to encourage the growth of small firms/shops / lower costs of production (1). Running a small shop does not require significant management skills (1) people do not need a high level of education to run a small shop (1). May be less paperwork involved / regulations (1) reducing time and effort (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not firms will benefit from a fall in unemployment. Up to 5 marks for why they might: A fall in unemployment will increase incomes (1) this is likely to increase total (aggregate) demand (1) firms may sell more products (1) raise firms’ profits (1). Having more workers will enable firms to increase their output (1) can respond to rising demand (1). Lower unemployment may increase consumer confidence (1) encouraging them to spend more (1). Tax revenue will rise (1) spending on unemployment benefit will fall (1) government may spend more in ways that will benefit firms (1) e.g. spending on training (1). Up to 5 marks for why they might not: Firms may find it more difficult to recruit workers (1) they may not able to fill some jobs (1) this may mean that output will be restricted/order not filled (1). Competition for workers may drive up wages (1) increasing firms costs (1) lowering their profits (1). Trade unions may become more powerful (1) leading to more strikes (1). Less skilled workers may be employed (1) reducing productivity (1) raising costs (1). Shortage of workers may force firms to use more capital-intensive production methods (1) increasing their costs (in the short run) (1). Some firms may lose whilst others gain (1) example of a reason e.g. differences in what is being produced (1). 8

Question 9

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

Accepted Answer

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

Question 10

More agricultural markets come close to perfect competition than markets for manufactured goods and for services. The goals of business org…

Accepted Answer

7(a) Identify two characteristics of perfect competition. • many buyers • many sellers • no barriers to entry (and exit) • (firms are) price takers • Identical / homogeneous product • no attachment between buyers and sellers • perfect knowledge 2 7(b) Explain two goals a business organisation may have. Profit maximisation (1) making as much profit as possible / increasing the gap between revenue and cost / rewarding entrepreneurs (1). Growth / expansion (1) increasing the size of the firm by e.g. merging / seeking to gain market power (1) to take advantage of economies of scale (1). Survival (1) during difficult times such as recession / when a firm is first established the aim may just be to stay in the market (1). Profit satisficing (1) achieving enough profit to keep shareholders’ happy while following other objectives (1). Social welfare (1) business organisations operating in the public sector may e.g. be concerned about the environment / charging a low price to help the poor (1). 4 Question Answer Marks Guidance 7(c) Analyse the main reasons for the differences in the size of firms. Type of business organisation (1) state-owned enterprises and multinational companies operate on a larger scale than sole traders (1). Size of market (1) the market for some products is large / expanding (1) example (1) while others are declining (1) example (1). Some firms have more access to finance (1) public limited companies can sell shares (1) sole traders cannot (1). Some firms grow through merging (1) type of merger e.g. horizontal merger (1). Motives of owners (1) e.g. some prefer the firm to remain small so that they can retain control / ownership (1). Some firms may be subsidised (1) which may encourage them to produce a higher output (1). Some firms may be more profitable (1) can reinvest profits / internal growth (1). Length of time in the market (1) longer there, more time to grow (1). Some firms may be able to take advantage of economies of scale (1) example of an economy (1). Some firms may experience diseconomies of scale (1) example (1). Type of product / capital v. labour-intensive (1) e.g. aircraft have to be produced on a large scale (1). 6 Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 7(d) Discuss whether or not the use of supply-side policy measures by a government will reduce firms’ average costs of production. Up to 5 marks for why they might: Education and training (1) should increase labour productivity (1) this could reduce labour costs (1). A cut in income tax (1) may reduce upward pressure on wages (1). A cut in indirect taxes (1). Privatisation (1) may make firms more efficient (1) especially if there is competition in the market (1). Deregulation (1) may reduce the cost of complying with rules and regulations (1). Subsidies (1) may enable firms to buy more efficient machinery (1) train workers (1) may be able to take advantage of economies of scale (1). Remove tariffs (1) enable firms to get raw materials at lower prices (1). Spending on infrastructure (1) reducing transport costs (1). Up to 5 marks for why they might not: Education and training may not be in the areas in demand (1) may not increase workers’ skills (1) some workers who are educated / trained may emigrate (1). Wages of workers may rise by more than productivity (1) increasing labour costs (1). Privatised firms may become private sector monopolies (1) this will reduce pressure on them to keep costs down (1). Subsidies may be given to reduce unemployment / maintain employment (1) additional workers may be less productive (1) may experience diseconomies (1). There may be corruption (1). 8 Maximum of 5 marks if only one policy measure discussed.

Question 11

(a) Calculate the total number of people over 60 years old in Greece in 2015. [1] (b) Explain what is meant by an unemployment rate of 24%.…

Accepted Answer

Question Answer Marks 1(a) Calculate the total number of people over 60 years old in Greece in 1 2015. 27% × 10.8 million = 2.92 million 1(b) Explain what is meant by an unemployment rate of 24%. 2 Logical explanation which might include: 24% of the total labour force (1) is actively searching for jobs (willing and able to work) but cannot find work/job (1) 1(c) Identify two reasons for the recovery of the European economies, 2 other than Greece. successful supply-side policy measures (1) improving global economy (1) 1(d) Explain the two supply-side policy measures being used by the Greek 4 government. Logical explanation which might include: labour market reforms (1) making it easier to hire and fire workers / giving workers more skills to enable them to take various jobs / making it easier for workers to move from one place to another or one job to another (1) Privatisation (1) increasing efficiency due to the profit-maximising motive (1) 1(e) Analyse how two of Greece’s population trends may have affected its 4 economy. Coherent analysis which might include: The Greek population has been falling ever since 2010 (1) resulting in a smaller labour force (1). Ageing population (1) increase in dependency ratio (1). Emigration (1) loss of skilled workers (1). 1(f) Analyse the relationship between Greece’s GDP per head and its HDI 5 value. Coherent analysis which might include: Greece’s GDP per head has been falling from 2010–2015 (1) but HDI has been increasing (1) negative relationship (1) data for GDP per head (1) data for HDI value (1). This could be because of improving education (1) and healthcare (1). HDI consists of GDP per head / education / health (1) hence even though GDP per head is falling this is more than offset by rise in education / health (1). 1(g) Discuss whether or not having a strong foreign exchange rate is a 6 problem for Greece’s economy. 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. Up to 4 marks for why it might be a problem: Strong foreign exchange rate will lead to high price of exports (1) decreasing the quantity demanded for exports (1) decreasing value of exports (1) strong foreign exchange rate will lead to low price of imports (1) increasing the quantity demanded for import (1) increasing value of imports (1) decreasing net exports (1) decreasing total demand (1) decreasing economic growth (1) decreasing employment (1). Up to 4 marks for why it might not be a problem: Strong foreign exchange rate will lead to low price of imported raw materials, machines / capital, or semi manufactured goods (1) this could decrease cost of production (1) decreasing the price of domestically produced goods (1) increasing demand / consumption / exports (1) increasing total demand (1) increasing economic growth (1) increasing employment (1) 1(h) Discuss whether or not a market economic system improves living 6 standards. Up to 4 marks for why it does improve living standards: Economic freedom (1) consumers and producers can make their own decisions on what to consume and produce (1) no government intervention enables more efficient allocation of resources (1) firms react to the wants of consumers to gain profits for themselves then consumers are fairly likely to get what they want and gain high levels of satisfaction from their income (1) costs are lower and prices are lower (1) more affordable (1). Up to 4 marks for why it does not improve living standards: Instability and uncertainty (1) Unemployment especially when there is a recession (1) high inflation could decrease affordability (1) monopolies exploit consumers (1) workers paid low wages (1) pollution and other external costs (1) Unequal distribution of income and wealth (1) under provision of public goods (1).

Question 12

Free trade has allowed the Mexican economy to specialise in low-cost manufacturing. Unemployment nationally is relatively low, but approxim…

Accepted Answer

5(a) State the rewards for labour and capital. Wages (1) for labour Interest (1) for capital 2 5(b) Explain the two types of poverty. Logical explanation which might include: Absolute poverty (1) is when someone cannot afford the basic necessities of life (1) less than $1.90 per day at PPP (1). Relative poverty (1) is when someone earns less than is needed to participate in the normal activities of society (1) when there is inequality (1). 4 One mark for identifying absolute poverty and one mark for an explanation. One mark for identifying relative poverty and one mark for an explanation. 5(c) Analyse how firms can benefit from specialisation. Coherent analysis which might include: Improve skills of workers (1) save time (1) lead to invention of new technology (1) increase productivity (1) raise quality (1) decrease average cost of production (1) decrease prices (1) increase demand (1) enable advantage to be taken of economies of scale (1) increase profits (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not supply-side policy measures can reduce unemployment. In assessing each answer, use the table opposite. Why they can: • decrease corporation / profit tax, more profits, more investments, more demand for labour, reduction in cyclical unemployment • decrease interest rates, more borrowing, more investment, more demand for labour, reduction in cyclical unemployment • decrease income tax, increase disposable income, more spending / demand for goods and services, more production, increase demand for labour • government subsidies can encourage firms to expand and take on more workers, reduce cyclical unemployment • increase spending on education and training, increase skills / productivity of labour, increase demand for labour, decrease structural unemployment. • provide more information on jobs / job centres, easier for workers to find jobs, decrease frictional unemployment • reduce unemployment benefit to reduce the time workers are between jobs, decrease frictional unemployment. Why they cannot: • may be a time lag • more investments could lead to increased technological development, less demand for workers • education programmes not according to market needs 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 5(d) • privatisation could lead to firms cutting amount of workers • decrease in minimum wage could decrease incentive to work • may be a lack of total demand. Example of L2 answer: Supply-side measures such as training and education can help to reduce unemployment as they allow people to become more skilled and therefore increase their opportunities to become hired. Also, when a firm is subsidised by the government, it may have more money to invest in labour, and this would reduce unemployment. Privatisation can also cause a reduction in unemployment, as the private sector may be willing to invest more capital to labour to increase its output and this would reduce unemployment. On the other hand, supply-side measures may not reduce unemployment, because subsidies given to firms may increase its capital, but this may be used to become more capital-intensive rather than labour-intensive, which would not reduce unemployment. Also, if people are trained and educated, but gain skills that are not demanded, they may remain unemployed and therefore unemployment would not decrease. Privatisation may lead to firms becoming more capital-intensive rather than labour-intensive, and this would not reduce unemployment. Principal Examiner comment: Reasonable on both sides.

Question 13

The use of supply-side policy measures, including deregulation, is moving China closer to a market economic system. Some supply-side policy…

Accepted Answer

4(a) Define deregulation. The removal of rules/regulation (2). Less government intervention (1) to encourage competition (1). Actions making it easier for businesses to enter / operate in an industry (1). Supply-side policy (1) to increase competition (1). Question Answer Marks Guidance 4(b) Explain two benefits consumers may gain from a market economic system. Logical explanation which might include: Sovereignty (1) consumers decide what will be produced (1). Choice (1) there may be a number of firms producing a product (1). Low prices (1) competition may mean that firms have to charge low prices to keep their customers (1). High quality (1) the profit incentive may encourage firms to raise quality to attract more consumers (1). 4 One mark for each of two benefits identified and one mark for each of two explanations. 4(c) Analyse how education and subsidies can increase a country’s economic growth rate. Coherent analysis which might include: Education/training may increase qualifications/skills (1) raising the productivity of workers (1) increasing the mobility of workers (1) attracts MNCs (1) reduces unemployment (1) raising the quality (1) and quantity of output (1). Subsidies will lower firms’ costs of production (1) encouraging firms to increase their production (1) increasing supply (1) lowering price (1) a higher output is likely to be bought and sold (1). Subsidies for consumers e.g. education/health (1) may help in gaining skills/jobs and being more productive (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not a reduction in a country’s trade protection will reduce its current account surplus. In assessing each answer, use the table opposite. Why it might: • lower tariffs will reduce price of imports • removal of quotas may result in more imports being purchased • removal of a ban/embargo will permit imports of the product to enter the country • import expenditure may rise • higher import expenditure may reduce the gap between export revenue and import expenditure Why it might not: • foreign firms may not have the capacity to supply more products • demand for imports may be price inelastic • the quality of imports may have fallen • other countries may also reduce their trade restrictions • the exchange rate may fall, raising exports and reducing imports • export revenue may rise to match the higher import expenditure • may have large surplus on invisibles Example of Level 2 answer: The removal of quotas and tariffs on imports will make it relatively cheaper to import into the country. More imports will come into the country reducing its current account surplus. However, a reduction in a country’s trade protection will show the country’s willingness to have trading partners. 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 4(d) As such, domestic firms will allocate more resources into producing exports at relatively lower costs and better quality so that they will be more competitive in the global economy. Other countries may be attracted to these exports and the demand for them will increase. Thus, the demand for local currency will increase, causing the current account surplus to increase. Thus, the current account surplus may increase or decrease depending on the extent of the fall in import prices and the rise in demand for exports. Principal Examiner comment: There is limited coverage of both sides.

Question 14

(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 15

(a) Calculate, in $, the total exports of Laos to China in 2017. [1] (b) Identify two roles of commercial banks. [2] (c) Explain how access…

Accepted Answer

1(a) Calculate, in $, the total exports of Laos to China in 2017. 1.1832 billion / 1 183 200 000. 1 Accept 1.18 or 1.2 billion. 1(b) Identify two roles of commercial banks. Helps local entrepreneurs to borrow money (1). Encourages households to save / enables households to save (1). 2 Accept loan / lending 1(c) Explain how access to seaports may benefit an economy. Enables an economy to take full advantage of international trade / take greater advantage of international trading opportunities (1) enables immigration of skilled workers (1) Can export and import goods (1) goods can be transported more cheaply (than by rail or air / over longer distances) / may encourage specialisation (1) increases consumer choice (1). May encourage investment (1) attract MNCs (1) create economic growth (1) 2 1(d) Explain two benefits of the free market reforms introduced by the government of Laos. The free market reforms have enabled Laos to sell their abundant raw materials internationally (1) increases export revenue / improves current account balance / creates employment / encourages firms to expand / increases GDP (1). Encourages foreign investment (1) may lower costs of production / increases total demand / improves current account balance / creates employment / increase tax revenue (1). 4 One mark each for each of two benefits identified and one mark each for each of two explanations. Accept improved infrastructure. Question Answer Marks Guidance 1(e) Analyse the impact of improved education on the economy of Laos. Increased adult literacy rate (1) better skills/qualifications (1) increase productivity (1) / increase productive capacity / total supply (1) increase demand for labour (1) reduce unemployment / raise employment (1) raise wages (1) reduce poverty (1). More attractive for entrepreneurs / new businesses / investment (1) increase output / GDP (1) leading to higher living standards (1). Improvements in technology (1) due to workers having higher IT skills (1) Increase the consumption of merit goods / decrease the consumption of demerit goods (1) 4 1(f) Analyse the relationship between a country’s Ease of Doing Business ranking and its GDP per head. Expected relationship: Positive / direct (1) if ease of doing business (EDB) rank is high, GDP per capita is high (1). Supporting evidence: Singapore has the highest EDB rank and GDP per capita is highest (1) Timor-Leste has the lowest EDB rank and GDP per capita is the lowest (1). Exception: Brunei / Malaysia (1) has lower EDB rank than Malaysia but higher GDP per head (1). Alternatively South Korea / Brunei (1) Brunel has lower EDB rank but higher GDP per head (1). Analysis: The greater the ease of doing business, the more investment there is likely to be (1) higher investment is likely to increase GDP (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not strict rules and regulations benefit an economy. Award up to 4 marks for logical reasons why they might, which could include: • Environmental rules (1) e.g. cap on carbon emission, tax on polluting industries (1) reduce market failure (1) reduce external costs (1) e.g. could decrease pollution / protect natural resources (1) less health problems for the society (1) better standards of living (1). • Anti-competition rules (1) e.g. restrictions on monopoly power (1) improved consumer choice / lower prices / better quality (1) foreign companies will not dominate the market (1) opportunities for domestic firms to develop (1) increased future economic growth (1). • Restrictions on imports (1) may protect domestic industries / allow growth of domestic industries (1). • Bans e.g. prohibiting smoking in public places (1) may reduce market failure / reduce external costs (1). • Labour market legislation (1) protecting workers’ rights (1). Award up to 4 marks for logical reasons why they might not, which could include: • Strict regulation discourages business (1) Laos ranks one of the lowest in the World Bank’s Ease of Doing Business index (1) lack of investment / MNCs discouraged (1) lower productivity (1) lack of competition (1) lack of employment opportunities (1) decreased total demand (1) decreased economic growth / lower GDP (1) lower standards of living (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) • Bureaucracy / red tape increases the time and effort of doing business (1) increases cost of production (1) lowers profit (1). • Rules and regulations may lack clarity (1) causing them to be implemented incorrectly (1) • Takes time for the government to administer rules and regulations (1) opportunity cost of government spending (1). • Import restrictions reduce competition (1) may result in higher prices (1) lower quality (1) 1(h) Discuss whether or not a slowdown of China’s economy will be harmful to the economy of Laos. Award up to 4 marks for logical reasons why it might, which might include: • China is Laos’s largest trading partner / 58% of Laos’s exports are sold to China (1) China slowing down will lead to less demand for Laos’s exports (1) less export revenue / worsen current account (1) less total demand (1) less economic growth (1) may not be able to buy more, irreplaceable imports (1). • China is the largest source of foreign investment into Laos (1) less foreign investments will lead to less job creation (1) less employment / higher unemployment (1) lower standards of living (1). Award up to 4 marks for logical reasons why it might not, which might include: • Reduce dependence on China (1) find new markets and investors (1) other countries’ economies could be expanding (1) which could generate more exports (1) and jobs (1). • May lead to fewer environmental problems (1) less pollution (1) higher standard of living (1). • Domestic investors and firms could fill the gap (1) more employment (1) higher GDP (1). 6

Question 16

In 2019, the government of France proposed a 3% tax on the revenue of large firms that advertise and sell products online. This tax may lea…

Accepted Answer

2(a) Define redistribution of income. Transfer of income from some individuals (1) to others (1). Tax taken from the rich (1) is spent on the poor (1). Progressive / regressive taxation (1) 2 2(b) Explain two reasons why governments redistribute income. Logical explanation which might include: • Reduce poverty (1) higher purchasing power (1) afford basic necessities (1) e.g. healthcare / education / proper housing (1). • Reduction in poverty reduces social problems / waste of resources (1) as poverty may create e.g. poor health / reduce productivity (1). • To promote equity / greater equality of income (1) reducing the gap between rich and poor (1) • To increase incentives if redistribute from poor to rich (1) may increase effort / enterprise (1) 4 One mark each for each of two reasons identified and one mark each for each of two explanations. 2(c) Analyse the economic effects of a reduction in a country’s export of services. Coherent analysis which might include: As export of services decreases, total exports will decrease (1) total demand decreases (1) less inflation (1) lower economic growth / lower GDP (1). Less export of services, less demand for service workers (1) less job opportunities / higher unemployment (1). Higher current account deficit / less current account surplus (1) reduces ability to buy imports (1) lower standards of living (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not supply-side policy measures encourage firms to operate in an economy. In assessing each answer, use the table opposite. Why they might encourage firms: • Makes it easier to hire and fire workers might lower costs of employing workers to firms. • Better skills could increase productivity. • Encouraging more workers into the labour market could increase the supply of workers. • Reduction in trade union power can reduce cost / make it easier to start a business. • Lower direct taxes will encourage more firms to start up. • Deregulation will reduce barriers to operate in an economy. • Privatisation will allow private firms to invest in the economy. • Subsidies will give firms an incentive to stay in the country. Why they might not encourage firms: • Less job security could decrease productivity, increasing cost of production for firms. • Costs of hiring workers might still be lower elsewhere. • Supply side measures (e.g. labour market reforms) may take a long time before the effects on the economy are apparent • Lower direct taxes may reduce the government’s ability to spend on education / training which will increase firms’ cost of production • Deregulation may enable other firms to engage in unfair practices • There may be a fear that subsidies might be withdrawn and if there is a fall in demand MNCs will not want to stay in the country anyway • Other governments may be giving larger subsidies 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 Question Answer Marks Guidance 2(d) 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 17

The US operates a mainly market economic system. Life expectancy in the US fell in 2017, for the third year in a row. Although the US has a…

Accepted Answer

5(a) Identify two ways a government could reduce income inequality. Two from: • progressive taxation • state benefits • spending on state education / training • spending on state healthcare • equal pay legislation • minimum wage 2 Accept higher taxes on high incomes and lower taxes on low incomes but do not accept increasing taxes on incomes as this is TV. Redistributing income is TV – could be redistributing from the poor to the rich. 5(b) Explain two advantages of a market economic system. Logical explanation which might include: Consumer sovereignty (1) with consumers deciding what goods and services are produced (1). Low prices (1) due to competition (1). High quality (1) due to innovation (1). Consumer choice (1) variety of products produced (1). Greater efficiency (1) due to the profit motive (1). Automatic adjustment to changes in demand and supply / quick response to changes in demand and supply (1) via changes in price / with use of the price mechanism / increase consumer satisfaction (1). 4 One mark each for each of two advantages identified and one mark each for each of two explanations. Nothing for no taxes. Question Answer Marks Guidance 5(c) Analyse why life expectancy may decrease. Coherent analysis which might include: Incomes may fall (1) lowering living standards / reducing access to basic necessities (1). Reduction in healthcare (1) e.g limited access to medication (1). Reduction in education (1) people may lead less healthy lives (1) more smoking (1) more ‘junk food’ (1) less exercise (1). Rise in poor nutrition / malnutrition (1) eating more low-quality food / people not having enough food (1). More pollution (1) making people more susceptible to diseases (1). May be spread of new diseases / pandemics (1) wars / civil unrest (1). Climate change (1) may result in more natural disasters (1). More people employed in jobs with poor working conditions / more dangerous jobs (1) resulting in more sickness / accidents (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not supply-side policy measures can reduce inflation. In assessing each answer, use the table opposite. Why they might: • they may increase total (aggregate) supply, reducing cost-push inflation • they can allow total (aggregate) demand to increase without causing inflation • education and training can increase labour productivity, reducing labour costs • a cut in direct taxes may increase the incentive to be more productive and more innovative • labour market reforms may reduce power of trade unions and reduce rise in wages • subsidies can lower costs of production Why they might not: • privatisation does not always increase competition and so does not always lower prices • education and training can be expensive, may be in areas that are not in demand and will have a time lag • cuts in income tax may increase total (aggregate) demand as well as total (aggregate) supply • resource limitations / unable to increase productive capacity due to e.g. limited land available • inflation may be caused by rise in price of raw materials which have no domestic substitute e.g. oil 8 Only accept lower interest rates, if linked to increasing total supply. Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Marks Guidance 5(d) Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 18

Uganda specialises in agricultural products and has a relatively small secondary sector. In the 1990s, the Ugandan government privatised mo…

Accepted Answer

4(d) Explain the difference between absolute and relative poverty. Logical explanation which might include: Absolute poverty is a lack of basic necessities (1) e.g., food, clothing or housing / e.g. $1.90 a day (1).  Relative poverty is being poor in comparison to other people (in their country) (1) example of a measure such as less than 60 of average income / not able to participate fully in normal activities in their country (1). their basic needs but not their wants. 4(d) Analyse how specialisation can benefit firms. Coherent analysis which might include: Understanding of specialisation of a firm / workers become skilled at producing a particular product (1) lower cost of production (1) gain a good reputation / high quality of good or service (1) increase demand (1) increase output (1) raise revenue (1) increase profit (1). May enable firms to gain advantage of economies of scale (1) example (1) become (internationally) competitive (1). Easier to mechanise / improve technology (1) speeds up / faster production / become more efficient (1). 6 Maximum of one mark for any number of examples of economies of scale. Note that some students only write about division of labour which is not the question but some of the features also apply to specialisation of firms.

Question 19

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

Accepted Answer

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

Question 20

More government spending creates opportunity costs. This was one of the problems that the president of France faced in 2017. Since he came …

Accepted Answer

5(a) Define monetary policy. Supply of money (1) interest rates / foreign exchange rates (1) affecting total demand / inflation (1) 5(b) Explain, using an example, the influence of opportunity cost on government decision-making. Logical explanation which might include: Opportunity cost is the (next) best alternative (1) forgone / given up / sacrificed (1) Governments (always) consider opportunity cost when making a decision on spending money (1) to maximise the welfare of society (1). Governments have to make a choice as they have a limited income/budget (1). For example, if the government spends on building a new hospital (1) the opportunity cost may be a new school (1) as the government thinks that the opportunity cost of building a new a new hospital is lower than building a new school (1). 4 Don't reward examples using personal consumption e.g. tea / coffee Question Answer Marks Guidance 5(c) Analyse the reasons why trade union membership has reduced in some countries. Coherent analysis which might include: Improved working conditions (1) improved wages (1) in a country may have reduced the need for trade unions to negotiate them / have made unions more reluctant to take industrial action (1). High unemployment (1) fear of losing jobs (1). Capital intensive production (1) fewer workers available to join trade unions (1) Government measures against trade unions (1) have reduced the ability of trade unions (1) to influence wages (1) and working conditions (1). Changes in the pattern of employment (1) more self-employed / part-time employed / gig economy / zero hours contract (1) more people working in the private sector (1) where trade union membership has traditionally been low (1). Globalisation (1) and growth of MNCs (1) has increase competition amongst labour (1). Dissatisfaction over trade unions (1) the high fees for joining trade unions (1) not wanting to take strike action (1) different political views (1) disincentivises people from joining (1). Government introduction of health and safety regulations (1) and minimum wages (1) reduced the key reasons for the existence of trade unions (1). Removal of mandatory trade union membership (closed shops) (1) means that membership is reduced because it is now voluntary (1) 6 Question Answer Marks Guidance 5(d) Discuss whether or not supply-side policy measures always promote economic growth In assessing each answer, use the table opposite. Why supply-side policy measures are effective in promoting economic growth:  education and training – increase productivity of labour  lower direct taxes – increase incentive to work (reduction in income tax) and increase incentive to invest (reduction in corporation tax)  subsidies - reduce business costs and encourage investment  deregulation – reducing red tape / barriers to entry which could lead to an increase in number of firms and increase competition  privatisation – put in profit-maximisation incentive for private firms to invest and innovate and be more productive  reducing trade union power – increases incentive to work harder. Why supply-side policy measures are not effective in promoting economic growth:  takes a long time for it to have an impact on the economy  reduces the revenues for government (e.g. cutting taxes)  opportunity cost for government  subsidies can lead to over-reliance on them  could lower the quality of goods and services (race to the bottom) and welfare of society  lack of total demand. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 Question Answer Marks Guidance 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 21

(a) Calculate the price elasticity of supply of Ecuador’s oil. [1] (b) Identify two key resource allocation questions. [2] (c) State why su…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the price elasticity of supply of Ecuador’s oil. 1 Do not accept 16% 0.16 (1). 1(b) Identify two key resource allocation questions. 2 Do not accept: How much to produce or for whom to produce What to produce / produce less of one product and more of another product / less oil and more textiles (1). How to produce it / how products are made / using fewer capital goods (1). 1(c) State why sunshine has no opportunity cost. 2 It is a free good (1). In unlimited supply / not scarce / a renewable source of energy (1). Does not take resources to produce it / nothing needs to be sacrificed to use it / no alternative / substitute so no opportunity cost (1). It is there naturally (1). 1(d) Explain two reasons why Ecuador experienced a 4 One mark for each of two reasons identified and one mark recession between 2014 and 2016. for each explanation. Logical explanation which might include: Fall in demand for exports [of oil] (1) lower export revenue / increase current account deficit / lower output of oil / lower total demand / lower GDP (1). Decrease in government spending (1) lower employment / lower output / lower income from benefits / lower total demand / lower GDP (1). 1(e) Analyse how building more roads can increase a 4 country’s economic growth rate. Building more roads would increase employment )1) lower unemployment (1) increase demand for road building materials (1) increase in government spending on roads (1) increase incomes (1) leading to higher demand / expenditure on goods and services e.g. education / cars (1). Less congestion (1) easier to transport goods / better infrastructure (1) quicker to work / increases labour mobility / longer working hours / more productive / efficient workforce (1) output rises (1). Lower transport costs (1) encourage firms to increase output / attract MNCs / foreign investment (1). Lower costs may increase international competitiveness (1) increase demand for country’s exports (1). 1(f) Analyse the relationship between GDP per head and car 5 There must be a comparison between countries and/or GDP ownership. per head and car ownership. Merely describing the data gets no marks as it is not analysis. Coherent analysis which might include: A direct comparison between two countries e.g. GDP per Overview head is higher in Switzerland than Senegal and car Generally, a direct relationship / the higher the income, the ownership is higher in Switzerland than Senegal is worth the higher the car ownership / the lower the income, the lower 2 marks. the car ownership (1). Supporting evidence – two comparison examples Senegal has the lowest GDP per head and the lowest car ownership (1). Ecuador has the second lowest GDP per head and the second lowest car ownership / Spain has higher GDP per head and car ownership than Uruguay (1) Exception New Zealand / Switzerland (1) Switzerland has a higher GDP per head but lower car ownership than New Zealand (1). OR Switzerland has highest GDP per head but only second highest car ownership (1) OR New Zealand has second highest GDP per head but highest car ownership (1). Comments Higher income would increase ability to purchase cars / high income countries often have more than one car per household (1) For exception other influences on demand e.g. cost of public transport / road space / congestions (1). 1(g) Discuss whether or not the profits of Ecuador’s textile 6 Apply this example to all questions with the command firms are likely to have increased between 2016 and word DISCUSS 2019. (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why they Each point may be credited only once, on either side of an might, which may include: argument, but separate development as to how/why the Incomes / household spending increased in Ecuador (1) outcome may differ is rewarded. increasing demand for textiles (1) revenue increases (1). Generic example Mark Costs of production may have fallen (1) due to lower transport costs (1)’. Tax revenue may decrease… 1 Increase in scale of production (1) increased ability to take ...because of reason e.g. incomes may be lower. 1 advantage of economies of scale (1) average cost falls (1) profits may rise if prices unchanged but costs fall / profit is Tax revenue may increase because incomes 0 revenue – costs (1). may be higher i.e. reverse of a previous argument. Low increase in wage costs (1) revenue may have increased by more than costs (1). Tax revenue may increase because of a 1 different reason i.e. not the reverse of a previous Incomes abroad may have increased (1) increasing demand argument e.g. government spending on for Ecuadorean textiles (1) especially of luxury textiles (1). subsidies may stimulate the economy more than spending on education. Award up to 4 marks for logical reasons why they might not, which may include: The firms may have lost skilled workers abroad (1) which could have reduced productivity (1) increased costs / production falls (1). Strong competition from abroad (1) they may have lost sales to competitors (1) reducing revenue and or prices (1). Low wage increase (1) workers may leave industry / lower productivity (1) trade unions / workers may take action (1) may strike / disrupting the firms’ supply/ lead to higher costs (1). 1(h) Discuss whether or not Ecuador benefits from the 6 emigration of some of its workers. Award up to 4 marks for logical reasons why it might, which may include: Some may be unskilled (1), may have been unemployed (1) others leaving jobs create vacancies to be filled by unemployed (1) and so the government would spend less on unemployment benefit / more for other public spending (1) less poverty as a result (1). Some may be trained abroad (1) and may bring back skills and ideas into the country (1) increasing output (1). Some may send money home (1) improve the current account balance (1) will increase spending / total demand (1) leading to economic growth (1). Net emigration results in lower population / reduces overpopulation (1) less depletion of resources / pollution / shortage of resources e.g. housing (1). Award up to 4 marks for logical reasons why it might not, which may include: May lose skilled workers (1) lower productivity (1) low quality products / reduce output / economic growth (1) a relatively high proportion of people lost (1) makes it more difficult to attract MNCs (1). If some will not support families at home (1) dependency ratio will rise (1) place more burden on the government (1). Large proportion / 3 million already working abroad (1) shortage of workers / large reduction in size of labour force / increase (unit) wage costs (1) less income (1) less government tax revenue (1) less government spending e.g. education, health (1). Younger workers emigrating (1) leads to an ageing population (1).

Question 22

After the recession that struck Albania in 2013, the country experienced a significant rise in emigration. Albanian workers and students in…

Accepted Answer

4(a) Define emigration. Emigration is when people exit / leave (1) a country (1) to live in another country (1). 2 4(b) Explain two causes of a recession. Logical explanation which might include: Fall in total demand / low economic activity (1) due to lower consumer confidence / falling consumption / falling government spending / falling exports / increase imports (1) Fall in investment (1) leading to fall in productive capacity (1) Fall in population (1) e.g. due to emigration (1) leading to a fall in number of workers (1) Wars / natural disasters (1) causing destruction of factors of production (1) Higher interest rates (1) leading to lower borrowing / consumption / investments (1) Decreased consumer / investor confidence (1) decreasing consumption / capital flight (1) Higher income / corporation taxes (1) leading to falling disposable income for consumption / falling after tax profits leading to lower investments (1) Lower productivity (1) reducing demand for the country’s output (1). 4 If more than two causes given, consider the first three. Question Answer Mark Guidance 4(c) Analyse policy measures a government could use to attract workers to return to their home country. Coherent analysis which might include: Increase national minimum wage (1) attract more unskilled / low−paid workers to return (1). Expansionary fiscal policy / expansionary monetary policy (1) to increase job opportunities (1). Improved education / healthcare / housing (1) higher pensions (1) to raise living standards (1). Better working conditions / quality of life (1) regulations to protect workers from poor treatment (1) better fringe benefits e.g. holiday entitlement Greater security in the country (1) e.g. gun controls (1) Labour market reforms (1) making it easier for firms to hire (1) more job opportunities (1) people return to take up a job (1). Lower direct taxes (1) increase after−tax income / disposable income (1) could encourage more people to work (1) and return to the country to earn income (1). Deregulation (1) encourages more firms to start up (1) more entrepreneurs will want to start a business (1) encouraging more people to return to start their own business (1). Improving incentives to work and invest (1) more investments (1) more demand for workers (1) more job opportunities (1). Measures to reduce inflation (1) making lower cost of living attractive (1) 6 Question Answer Mark Guidance 4(d) Discuss whether or not an economy benefits from many of its students studying abroad. In assessing each answer, use the table opposite. Why it might:  other countries may have better education system enabling students to gain better skills / experiences  when students return to the country, there will be higher productivity i.e. quality of factors of production increases  learn about new technologies which could help the domestic economy in the future  make connections abroad which could help establish future business contacts  new ideas / products which could be brought back for the domestic economy  decrease poverty  leads to further economic development.  less spent on education by government Why it might not:  students studying abroad might not return and stay in the country they studied in (brain drain)  studying abroad is very expensive and lots of money is spent abroad instead of in the domestic economy (money outflow)  only a small proportion of the society can afford studying abroad increasing inequality  Lack of development of higher / university education in the country due to lack of demand.  If inflow of students from abroad is larger than outflow of students, then there may not be a problem.  loss of potential consumption / growth in home country  unemployment of teachers / lecturers in the country, costs to government in benefits 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 23

In 2020, some firms in Suriname, a South American country, stopped production. This was because the firms could not cover their variable co…

Accepted Answer

3(a) Define, with an example, a fixed cost. 2 Not sufficient to state a cost that does not change. A cost that does not change with output / a cost that has to Accepting electricity / electricity bills and wages. be paid even when output is zero (1) e.g. rent (1). 3(b) Explain two types of unemployment. 4 Allow explanation of two types of frictional unemployment i.e. search, casual or seasonal and two types of structural Logical explanation which might include: unemployment i.e. regional and technological. Also allow • frictional unemployment (1) workers in between jobs voluntary and involuntary. (1) • structural unemployment (1) changes in demand and One mark each for each of two types identified and one supply conditions / skills not matching vacancies / mark each for each of two explanations. lack of labour mobility (1) • cyclical / demand-deficient unemployment (1) lack of total demand / occurs during a recession (1) 3(c) Analyse how supply-side policy measures could reduce 6 Reward the same point e.g. ‘raise productivity’ only once. unemployment. Coherent analysis which might include: Accept lower interest rate if linked to encouraging investment. Education (1) can increase qualifications / literacy rate (1) training (1) can increase skills / productivity / quality of labour (1) raise mobility / increase job opportunities (1) reduce structural unemployment (1). Lower income tax (1) reduce unemployment benefit (1) increases the incentive for the unemployed to find work quickly (1) reduce frictional unemployment (1). Lower corporation tax / tax incentives (1) encourage firms to invest / expand output (1). Privatisation (1) deregulation (1) can increase efficiency (1) reduce firms’ costs (1) enabling firms to afford more workers (1). Reform of trade unions / labour market reforms (1) Deregulation / removing labour regulations (1) making it easier to hire and fire workers (1). Government spending on infrastructure (1) can reduce firms’ costs of production / reduce transport costs (1) encouraging firms to expand (1) increase labour mobility (1). Minimum wage legislation (1) reducing may encourage employer to employ more workers / increasing may encourage the unemployed to search more actively for work (1). Subsidies (1) encouraging firms to expand / prevent firms going out of business (1). Better/more healthcare (1) can increase productivity / reduce working time lost (1). 3(d) Discuss whether or not having fewer firms in a market 8 will benefit consumers. Level Description Marks In assessing each answer, use the table opposite. 3 A reasoned discussion which 6–8 accurately examines both sides of Why it might: the economic argument, making • firms may be larger, may be able to benefit from use of economic information and economies of scale clear and logical analysis to • economies of scale may include e.g. financial, evaluate economic issues and managerial, technical situations. One side of the • lower costs may result in lower prices argument may have more depth • firms may have more market power - firms may make than the other, but overall, both more profit and may reinvest which can improve quality sides of the argument are • firms may have moved to another market in response to considered and developed. There changes in consumer demand is thoughtful evaluation of • firms that were creating pollution and other external economic concepts, terminology, costs may close down information and/or data appropriate • may reduce the time consumers spend shopping to the question. The discussion around may also point out the possible uncertainties of alternative decisions and outcomes. Why it might not: • firms may experience diseconomies of scale 2 A reasoned discussion which 3–5 • diseconomies of scale may include e.g. communication makes use of economic information problems, control problems and poor industrial relations and clear analysis to evaluate • less choice economic issues and situations. • lack of competition / move towards monopoly resulting The answer may lack some depth and development may be one- in lower quality and higher prices sided. There is relevant use of • lower availability. economic concepts, terminology, information and data appropriate to the question. 3(d) 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded 0 for no creditable content.

Question 24

Finland is a high-income country that usually has a higher value of exports than imports. It has a strong commercial banking sector which h…

Accepted Answer

5(a) Identify a difference between an export and an import. 2 Export is a good or service that leaves the country / sold to another country (1), import is a good or service that enters the country / bought from another country (1). Export is a credit item in the current account of the balance of payments (1) imports are a debit item (1). Foreigners spend on exports (1) the home country’s population spend on imports (1). Exports lead to money coming into an economy (1), while imports lead to money going out of an economy (1). 5(b) Explain why commercial banks may increase their lending. 4 Reward but do not expect reference to reduced required liquidity ratio and quantitative easing. Logical explanation which might include: To increase profits / revenue (1) earn more interest / high interest rates (1) as most commercial banks are in the private sector (1) main aim is likely to be profit maximisation (1). Increase in demand for loans (1) due to low interest rates (1) increase One mark in total for either high or low interest optimism about the future (1) higher demand for bank loans may increase rates but explanation marks can be given. profits (1). Increased confidence loans will be repaid (1) due to e.g. rise in incomes (1). Increase in bank deposits (1) more money to lend (1). Take advantage of economies of scale (1) lower average costs (1). Central bank / government encouragement / (expansionary) monetary policy / instructions (1) to increase total demand / increase consumer spending / increase investment (1). To promote social welfare (1) by reducing poverty (1). To keep up with competitors (1) attract more customers / gain more market share (1). 5(c) Analyse how an ageing population may affect a country’s economic 6 1 mark for either increase and / or decrease growth rate. economic growth. Similarly, 1 mark for either more productive and Coherent analysis which might include: / or less productive labour force, more or less • May increase economic growth / GDP / output (1) as an ageing saving etc. population may have experience (1) more productive / more efficient / more skilled (1). Not crediting comments on the change in the • May have more spending power (1) increase total demand (1). pattern of consumer spending e.g. spending • May train young workers to be more reliable / older workers may be less on toys and more on teeth implants. more reliable (1). • May reduce economic growth / GDP / output (1) as may have out-of- date skills / not able to operate new technology (1) lack mobility (1). • More retired people / more economically inactive people (1) may mean a decrease in size of the labour force (1) increase dependency ratio / more dependents (1). • May save more (1) reducing total demand (1). • May be less healthy workers (1) more days absent from work due to sickness (1). • The government may have to spend more on state benefits / pensions / healthcare (1) lower tax revenue (1) reducing spending on items that could increase economic growth e.g. education, infrastructure / opportunity cost (1). 5(d) Discuss whether supply-side policy measures will reduce a 8 Only accept a lower interest rate if linked to government’s budget deficit. encouraging a rise in investment. In assessing each answer, use the table opposite. Answers that show an awareness of supply- side policy measures but which confuse a Why they might: budget deficit with a bop deficit will not be • education and training may raise productivity analysing the question, so will be in Level 1. • increase economic growth and employment • raise direct and indirect tax revenue Level Description Marks • privatisation may reduce government spending to support state- owned firms 3 A reasoned discussion 6–8 • revenue will be raised from the sale of privatised firms which accurately • privatised firms may earn high profits which may raise tax revenue examines both sides of the • subsidies may encourage firms to expand and earn higher profits economic argument, • unemployment benefit may be cut to increase incentive to work. making use of economic • budget deficit may be increased in short term but reduced in the long information and clear and term. logical analysis to evaluate economic issues and Why they might not: situations. One side of the • education and training will increase government spending and may argument may have more not be successful depth than the other, but • lower tax rates may reduce tax revenue overall both sided of the • regulation will involve costs to enforce argument are considered and developed. There is • spending on infrastructure projects may involve high government thoughtful evaluation of spending. economic concepts, • sale of profitable government-owned firms to the private sector may terminology, information reduce government revenue from profits 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 discussion 3–5 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 attempt 1–2 at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be 0 awarded for no creditable content.

Question 25

One of the world’s more expensive roads opened in Montenegro in 2022. To build the road, the Montenegro Government was helped by a foreign …

Accepted Answer

2(a) Define international trade. 2 Movement / exchange of goods and services / products (1) between countries (1). Exports and imports (1) of goods and services / products (1). 2(b) Explain the importance of commercial banks to 4 Accept the role of commercial banks in helping implement governments. monetary policy (1) they are likely to change their interest rates in line with that of the central bank (1). Logical explanation which might include: • facilitating transactions for the government (1) e.g. managing government payments to suppliers / workers / receive tax payments (1) • financing government borrowing (1) commercial banks may also lend money to the government / buy bonds from government (1) • lending to the private sector (1) enables investment (1) facilitating economic growth (1) may increase employment (1) • may help to maintain financial stability (1) by helping other commercial banks in trouble (1) • they influence the money supply (1) by lending / creating credit (1). 2(c) Analyse how building roads can help a government 6 achieve its macroeconomic aims. Coherent analysis which might include: Building roads may involve government spending (1) creates jobs / requires labour (1) such as road builders (1) reducing unemployment (1) increase income (1) increase consumption (1) support other industries (1) such as raw material suppliers / private contractors (1) which increases total demand in the economy (1). Building roads may lead to reduced transport costs / cheaper transport (1) due to greater efficiency / productivity / time saving (1) reducing overall costs of production (1) increasing investment / attracting MNCs (1) causing economic growth (1) increased exports (1) improving the current account balance (1) reducing cost-push inflation (1). Building roads could lead to better quality transportation / easier access to places of work (1) reducing unemployment (1) may reduce poverty (1). 2(d) Discuss whether or not multinational corporations 8 Level Description Marks (MNCs) benefit host countries. 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 MNCs might benefit host countries: economic information and clear and • bring in new capital and technology logical analysis to evaluate economic • bring in investment issues and situations. One side of the • create jobs argument may have more depth than • may provide high quality training the other, but overall both sides of the • pay taxes argument are considered and • may increase competition developed. There is thoughtful • may buy raw materials from the country evaluation of economic concepts, terminology, information and/or data Why MNCs might not benefit host countries: appropriate to the question. The • may exploit domestic labour by poor work conditions discussion may also point out the • may take profits out of the country and not reinvest possible uncertainties of alternative domestically decisions and outcomes. • may avoid taxes • may dominate domestic market and drive local firms out 2 A reasoned discussion which makes 3–5 use of economic information and clear of the market • are footloose and may leave anytime – more instability analysis to evaluate economic issues and situations. The answer may lack • may deplete natural resources some depth and development may be • may damage the environment one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 2(d) 8 Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

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

Supply-side policy — Paper 2 · IGCSE Economics 0455

Questions8 pages

Mark scheme25 answers

Another paper, or another topic

Questions as text

Q1 · In 2015 the world saw many changes in demand and advances in technology 0455/22 May/June 2017

Q2 · In 2008, Zimbabwe reached a record high rate of inflation of 500 trillion per cent 0455/21 Oct/Nov 2017

Q3 · The government of Slovenia has introduced a range of supply-side policy measures to… 0455/21 May/June 2018

Q4 · In early 2016, the central bank of the Republic of Turkey cut interest rates five times 0455/23 May/June 2018

Q5 · In 2016, the Indonesian government increased its spending on healthcare and education and… 0455/22 Oct/Nov 2018

Q6 · A relatively high proportion of people from the Philippines either work in call centres… 0455/22 Oct/Nov 2018

Q7 · It was predicted that global unemployment would rise by over two million in 2017 0455/21 May/June 2019

Q8 · Moldova is Europe’s poorest economy with many of its people living in poverty 0455/22 May/June 2019

Q9 · Confidence in the government’s reform agenda led to very strong growth of India’s stock… 0455/23 May/June 2019

Q10 · More agricultural markets come close to perfect competition than markets for manufactured… 0455/22 Oct/Nov 2019

Q11 · Calculate the total number of people over 60 years old in Greece in 2015 0455/23 May/June 2020

Q12 · Free trade has allowed the Mexican economy to specialise in low-cost manufacturing 0455/21 Oct/Nov 2020

Q13 · The use of supply-side policy measures, including deregulation, is moving China closer to… 0455/23 Oct/Nov 2020

Q14 · Calculate the value of Nigeria’s exports of goods in 2017 0455/21 May/June 2021

Q15 · Calculate, in $, the total exports of Laos to China in 2017 0455/21 Oct/Nov 2021

Q16 · In 2019, the government of France proposed a 3% tax on the revenue of large firms that… 0455/21 Oct/Nov 2021

Q17 · The US operates a mainly market economic system 0455/22 Oct/Nov 2021

Q18 · Uganda specialises in agricultural products and has a relatively small secondary sector 0455/21 May/June 2022

Q19 · Calculate Europe’s percentage contribution to the global total eSports revenue in 2019 0455/23 May/June 2022

Q20 · More government spending creates opportunity costs 0455/23 May/June 2022

Q21 · Calculate the price elasticity of supply of Ecuador’s oil 0455/23 Oct/Nov 2022

Q22 · After the recession that struck Albania in 2013, the country experienced a significant… 0455/23 May/June 2023

Q23 · In 2020, some firms in Suriname, a South American country, stopped production 0455/22 Oct/Nov 2023

Q24 · Finland is a high-income country that usually has a higher value of exports than imports 0455/22 Feb/March 2025

Q25 · One of the world’s more expensive roads opened in Montenegro in 2022 0455/23 May/June 2025