Employment and unemployment — Paper 2 — IGCSE Economics 0455 topical questions

Question 1

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

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

Question 2

One way in which governments seek to reduce market failure is to introduce regulation. Governments also produce some goods and services by …

Accepted Answer

7(a) Define ‘regulation’. Rules/laws (1) set by a government or organisation (1) which place controls on the activities of economic agents/example such as price controls, ban on smoking (1). 2 7(b) Explain two causes of market failure. 1 mark each for each of two causes identified: • failure to take into account all costs and benefits/external costs and benefits • abuse of market failure/exploitation of monopoly power 1 mark each for each of two explanations of the causes: • not considering external costs and benefits will result in under-consumption/under-production and over-consumption/over-production. • Abuse of market power may result in higher price, restricted supply and lower quality. 4 Do not expect but reward references to merit goods, demerit goods, public goods and information failure. 7(c) Analyse the possible opportunity costs of an increase in government spending on higher education services. Opportunity cost is the (next) best alternative forgone (1). An increase in government spending on higher education would leave less funds available to spend on alternatives (1) examples e.g. healthcare/defence (2) effect of a fall in government spending on e.g. healthcare/defence (2). Opportunity cost may be lower in the long run (1) increase in spending on education may raise productivity/output (1) increase government revenue (1) more to spend on alternatives (1). An increase in government spending on higher education may result in increased taxation (1) this would leave households and firms with less income (1) creating an opportunity cost for taxpayers (1) fall in disposable income (1) lower purchasing power (1). 6 Question Answer Marks Guidance 7(d) Discuss whether government policy measures can reduce unemployment. Up to 5 marks for why they might: Cut income tax (1) increase disposable income (1) increase consumer spending (1) raise total demand (1) increase output (1) create job vacancies (1) reduce cyclical unemployment (1) raise reward from working (1) reduce voluntary unemployment (1). Cut interest rates (1) can increase borrowing (1) reduce saving (1) increase consumer spending (1) increase total demand (1) increase output (1) create job vacancies (1) reduce cyclical unemployment (1). Introduce supply-side policy measures (1) e.g. education (1) can raise productivity (1) increase labour productivity (1) reduce structural unemployment (1). Direct employment by the government (1). Up to 5 marks for why they might not: Consumers may lack confidence (1) so they will not spend more if income tax or interest rates are reduced (1). Firms may lack confidence (1) so will not expand output (1) and will not take on more workers (1). Firms may expand output without taking on more workers (1) due to employing more capital (1) getting existing workers to work overtime (1). Education may be in the wrong areas (1) privatisation may result in firms cutting employment to reduce costs (1). There may be external shocks (1) e.g. a global recession (1) which could offset government policy measures (1). 8

Question 3

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

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

Question 4

Between 2009 and 2014, Delaware was the only US state to experience a fall in earnings. In the same period, however, it had an unemployment…

Accepted Answer

5(a) Define a ‘trade union’. • An association/body/group/organisation (1) which represents its members/workers by protecting workers’ rights/seeks to improve workers’ pay and/or working conditions (1). 2 5(b) Explain two possible causes of a fall in a worker’s earnings. • A change to a lower paid job (1) a worker may decide that non-wage factors, e.g. working conditions, are more important than wages (1) • A reduction in the hours worked (1) a worker may decide to do less overtime or may decide to switch to part-time work (1) • A replacement of some earnings by fringe benefits (1) an employer may cut wages in return for increasing fringe benefits such as free housing (1) • A decrease in output produced (1) a worker paid by piece rates will be paid less if their productivity falls (1) • A reduction in demand for labour (1) caused by a fall in demand for the product/recession (1) • An increase in the supply of labour (1) caused by immigration (1) • Weaker trade unions (1) weaker trade unions will have less bargaining power to protect workers’ wages (1) • Inflation (1) real wages will fall if wages rise by less than the inflation rate (1) • Firms may want to cut costs of production (1) to increase or maintain profits (1) • A rise in (direct/income tax) taxation (1) reducing disposable/net earnings (1) 4 Maximum of 2 marks for a list of causes. 1 mark for each cause identified (×2) 1 mark for each associated explanation (×2) Question Answer Marks Guidance 5(c) Analyse the causes of unemployment. • A lack of total demand (1) low output (1) cyclical unemployment (1) • Lack of skills/qualifications/training (1) resulting in occupational immobility (1) • A lack of geographical mobility (1) caused by e.g. differences in house prices (1) resulting in regional unemployment (1) • Decline of domestic industries (1) resulting in structural unemployment (1) • Workers being replaced by machines (1) resulting in technological unemployment (1) • A time delay between workers changing jobs (1) lack of information about job vacancies (1) frictional unemployment (1) • High unemployment benefits discouraging people from seeking employment (1) voluntary unemployment (1) • Demand for labour may fall at certain times of the year (1) resulting in seasonal unemployment (1) example (1) 6 Maximum of 3 marks for a list- like approach. Question Answer Marks Guidance 5(d) Discuss whether an ageing population benefits an economy. Up to 5 marks for why it might: • A rise in the average age from a young age (1) may increase the size of the labour force (1) which may reduce dependency ratio (1). • Older workers may be more experienced/skilled (1) more reliable (1) leading to higher productivity/efficiency (1) resulting in higher economic growth/lower unit costs (1). • May indicate longer life expectancy/better health (1) higher living standards (1) raising the level of economic development (1). • The outcome will depend on the cause (1) may be the result of a fall in the birth rate (1) or a fall in the death rate (1). Up to 5 marks for why it might not: • May increase need for healthcare (1) tax revenue used to provide healthcare could have been used for another purpose/opportunity cost (1) example (1) • Increase cost of pensions (1) which may require higher taxation (1) which may place a burden on workers (1). • May increase dependency ratio (1) more non-workers will have to be supported by fewer workers (1). • Reduce mobility of the labour force (1) older workers may be less geographically/occupationally mobile (1). • Older workers may be less familiar with advances in technology (1) less productive (1). 8 An ageing population does not necessarily increase, it would have to be established why growth may occur. A response may develop a mixture of relevant points to achieve up to 5 marks on either side. Maximum of 2 marks on each side of the discussion for a list- like approach.

Question 5

Spain has had one of the highest unemployment rates in Europe. Moreover, 3.5 million of those unemployed had been out of work for at least …

Accepted Answer

7(a) Identify two problems that prevent a worker finding employment. • lack of information on jobs available • lack of vacancies/low demand for labour • lack of skills/qualifications /experience/occupational mobility • lack of geographical mobility • possible age/gender/race/disability discrimination 2 Do not accept sickness/idleness. 7(b) Explain two costs of long-term unemployment to those who are unemployed. 1 mark each for each of two costs identified: • loss of income • reduced ability to get a job • reduced confidence/self-worth • decline in health • reduced ability to educate children • loss of skills 1 mark each for each of two explanations given: • the unemployed may receive unemployment benefits which are usually lower than wages or may receive no income/may experience poverty • will lose out on training by not keeping up with advances in technology • unemployment reduces confidence which makes it harder for someone to get another job • unemployment can lead to mental health problems/may increase physical illness due to less nutritious diet and poor housing • lower income may mean children of the unemployed will receive less education which will reduce their chances of getting a job 4 Question Answer Marks Guidance 7(c) Analyse why price elasticity of supply can differ between products. • Products which can be produced quickly (1) will have elastic supply (1) • Products which can be stored/non-perishable (1) will have elastic supply (1) • Products which are made with raw materials in short supply (1) will have inelastic supply (1) • Products made by firms with spare capacity/mobile resources/have a low cost of altering production/low cost of attracting resources into the industry (1) may have elastic supply (1) 6 Vice versa is acceptable i.e. some products may have inelastic supply. Note: can accept low cost of production for the last bullet point. 7(d) Discuss whether increasing government spending will reduce poverty Up to 5 marks for why it may: • Increased government spending on benefits (1) will enable the poor to purchase basic necessities (1) • Increased government spending on education (1) will increase skills (1) increasing employment (1) raising wages (1) • Increased government spending may increase total demand (1) may raise GDP per head (1) • Increased government spending on healthcare (1) may keep people healthier (1) increasing their ability to earn income (1) • Increased government spending on infrastructure (1) will create jobs (1) increase income (1) Up to 5 marks for why it may not: • Increased government spending may cause inflation (1) reduce ability of poor to purchase basic necessities (1) • Increased government spending on benefits may increase reliance on benefits (1) which in the long term may reduce a person’s earning potential (1) • Increased government spending may be financed by higher taxation (1) not increasing total demand (1) • Increased government spending on education may not improve the quality of education (1) may be in wrong areas (1) 8 A response may develop a mixture of relevant points to achieve up to 5 marks on either side. Maximum of 2 marks on each side of the discussion for a list- like approach.

Question 6

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…

Accepted Answer

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 7

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

Accepted Answer

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

Question 8

Banking and unemployment in Morocco Morocco’s banking industry has been described as one of the best in Africa. It has some of Africa’s lar…

Accepted Answer

1(a) Identify, using information from the extract, TWO functions of a commercial bank. Providing savings accounts (1) lending (1) setting interest rates on loans (1). 2 just look at the first three. 1(b) Explain, using information from the extract, TWO reasons why the banking market in Morocco is NOT an example of perfect competition. Three banks control more than two-thirds of the market (1) implies high % of market/dominance/not large number of small firms/ price maker (1). The banks use brand names (1) there is no advertising/no brand loyalty in perfect competition (1). Set own interest rates (1) in perfect competition, firms are price takers/prices determined by the market (1). Provide different services (1) the product is homogeneous in perfect competition (1). 4 1(c) Analyse why a commercial bank may prefer to sell its services in foreign countries rather than its home country. It may make more profit (1) demand for banking services may be higher (1) demand may be falling in home country but rising abroad (1) due to e.g. higher incomes/larger population (1) less competition (1). Costs of production may be lower abroad/efficiency higher (1) due to e.g. lower rents/lower wages (1). There may be a greater availability of skilled labour abroad (1) due to better education (1). Foreign governments may provide subsidies (1) have lower rates of tax (1). Unfavourable domestic policies (1) e.g. restrictions on the money supply (1) limits the bank’s ability to make profits domestically (1). Selling services abroad may help to reduce risks (1). 5 1(d)(i) Analyse whether the information in Fig.1 supports the view that: (i) countries with high population growth rates have a high unemployment rate Generally no (1) supporting evidence e.g. countries with the highest population growth rate, Uganda and Benin, had the lowest unemployment rates (1). 2 Accept any relevant country evidence. Question Answer Marks Guidance 1(d)(ii) Analyse whether the information in Fig.1 supports the view that: (ii) the youth unemployment rate is usually twice that of the overall unemployment rate. Generally yes (1) Supporting example (1) Egypt is the exception (youth unemployment rate almost four times as high) (1). Morocco is exactly twice (1) no other country is exactly twice (1). 2 1(e) Discuss whether or not older workers are always paid more than younger workers. Up to 3 marks for why older workers may be paid more: Older workers may have been with a firm for a long time (1) may have gained promotion (1) developed skills (1) gained experience (1) may have undertaken training (1) may be in managerial jobs (1) may be more productive (1). Up to 3 marks for why older workers may not be paid more: May be less productive (1) less fit for physical work (1) may be out of date with new technology (1) lack new ideas (1) may have had less education in the past (1). May be less occupationally mobile (1) less willing/able switch jobs (1). May be less geographically mobile (1) less willing/able to move in search of higher paid employment (1). 5 Accept skills or efficiency on either side. One mark if given on both sides. More marks can only be awarded if a reason for better skills is given. 1(f) Explain, using information from the extract, ONE reason why a relatively poor country may have a low unemployment rate. A large proportion of its population is employed in agriculture (1) in subsistence farming (will employ family members) (1) labour-intensive (1) would employ a high proportion of labour (1) relative to capital (1) Lack finance to invest in new (labour-saving) technology (1). No specific skills required for (subsistence) agriculture / low entry requirements for unskilled (1). 4 Question Answer Marks Guidance 1(g) Discuss whether or not commercial banks in Morocco would benefit from further mergers. Up to 4 marks for why they might: The merger would give the banks / firms more market power (1) a relatively quick way to grow (1) may be able to raise price (1) without losing too many customers (1). It could be a horizontal merger (1) which may enable greater advantage to be taken of economies of scale (1) example (1) lower (average) costs (1) lower prices / increased demand (1) higher profit (1). Up to 4 marks for why it might not: The reduction in competition may make the banks / firms complacent (1) may not try to keep costs down (1). The firms may experience diseconomies of scale (1) example (1) higher (average) costs (1) higher prices / reduced demand (1) lower profit (1). Costs of integrating firms such as redundancies/loss of morale (1). Large firms may lose customers due to lack of personal touch (1). 6 Accept profits and/or costs on either side. One mark if given on both sides. More marks can only be awarded if a reason for change in profits is given.

Question 9

In February 2016, share prices on stock exchanges fell throughout the world. There were a number of reasons for this; including concerns ab…

Accepted Answer

6(a) Define commercial bank. Two marks from: A financial institution (1) that offers services to people/households/firms (1) examples of services (1) that is profit orientated (1) (usually) in the private sector (1). 2 6(b) Explain how a stock exchange could encourage economic growth. A stock exchange enables firms to raise finance by issuing shares (1) by providing a market for shares / enables shares to be bought and sold (1) finance allows firms to invest (1) which increases their ability to produce more (1). A stock exchange helps firms merge (1) enabling firms to take greater advantage of economies of scale (1) reducing costs of production (1) increasing international competitiveness (1) capturing more market share (1). If stock exchange is doing well (1) wealth/dividends may rise (1) causing higher spending (1). Allows sales of government bonds/securities (1) money raised can be spent on e.g. infrastructure (1). 4 6(c) Analyse what can cause deflation. A fall in the price level could be caused by a fall in total (aggregate) demand (1). This may be due to a fall in consumer expenditure / rise in saving (1) a fall in borrowing (1) a fall in investment (1) due to e.g. a lack of confidence (1) spending may be delayed due to the expectation that prices may be lower in the future (1) deflationary demand-side policy measures (1) e.g. a rise in the rate of interest (1) rise in direct taxation (1). Exports may fall (1) due to e.g. fall in incomes abroad (1) a rise in exchange rate (1). A rise in total (aggregate) supply (1) due to e.g. advances in technology (1) increased investment (1) reduced costs of production (1) increase in productivity (1) supply-side policy measures (1) resulting from e.g. improvements in education and training (1). 6 6(d) Discuss whether or not government policy measures to reduce unemployment will cause inflation. Up to 5 marks for why they might: Increased government spending and/or lower taxes / expansionary fiscal policy (1) lower interest rates and/or increased money supply / expansionary monetary policy (1) will increase total (aggregate) demand/spending (1) may reduce cyclical unemployment / more workers may be employed to meet the higher demand (1) but may cause demand-pull inflation (1). Higher demand may also cause cost-push inflation (1) as demand for workers rises (1) firms may compete for workers (1) causing wage rates to rise (1). Up to 5 marks for why they might not: An increase in demand may not push up prices if unemployment is initially high (1) firms will be able to attract more workers by just offering jobs (1) they will not have to raise wages (1). The government may use supply side policy measures to reduce unemployment (1) e.g. improved education and training/privatisation/deregulation (1) such policy measures may reduce costs (1) may increase total (aggregate) supply by as much as total (aggregate) demand (1). The government may use price controls (1). 8

Question 10

In 2016, there were fears that the Singaporean economy could enter a recession because of falling demand from China, its biggest export mar…

Accepted Answer

7(a) Define recession. A fall in GDP / negative economic growth (1) for two successive quarters / 6 months or more (1) 2 7(b) Explain why a recession is likely to reduce consumer spending. Rise in unemployment (1) reduced income (1) reduced ability to spend (1). Consumers save more (1) for fear of future / increased pessimism (1). Likely to be associated with lower prices (1) consumers delay purchases (1). 4 7(c) Analyse the consequences of rising unemployment on a government’s spending and tax revenue. Pressure on the government budget will increase (1) as tax revenue will fall (1) from both direct (income) taxes (1) and indirect (spending) taxes (1). Expenditure on unemployment benefits will increase (1) spending in other areas will increase (1) e.g. healthcare (1) higher spending on benefits involves an opportunity cost (1) e.g. education (1). A government may increase spending and reduce taxes to increase total demand (1) to reduce cyclical unemployment (1). Taxes may have to rise (1) creating a disincentive to work and enterprise (1). 6 Question Answer Mark Guidance 7(d) Discuss whether or not an exchange rate depreciation will prevent an economy from experiencing a recession. Up to 5 marks for why it might: Depreciation means foreign consumers have to exchange less units of their currency for one unit of domestic currency (1), making exports cheaper (1) raising export demand (1) and imports more expensive (1) reducing demand for imports (1) as domestic consumers will find domestic goods and services relatively cheaper (1). Firms have more domestic and foreign demand (1) and will increase output to meet this demand (1) preventing a recession (1). Net exports will increase (1) increasing aggregate demand (1). Up to 5 marks for why it might not: Demand for imports may be inelastic (1) and a depreciation will not have a great effect (1). Demand for exports may be inelastic (1) so export demand will not boost output (1). If there is a recession in main export markets then demand for exports may still fall (1) even if they are now relatively cheaper (1). It may cause cost-push inflation (1) as domestic firms have to pay more for imported inputs (1). Depreciation may worsen investor confidence (1) reducing investment and causing a recession (1). 8

Question 11

During a recent recession in Europe, Spain had an unemployment rate of over 25%. This led to high levels of emigration from Spain into high…

Accepted Answer

7(a) Define unemployment. Unemployment is the condition where a person is able (1) and willing to work / actively looking for a job (1) but unable to find a job (1). 2 Question Answer Marks Guidance 7(b) Explain two reasons for wage differentials amongst different economies. Difference in demand for labour (1) difference in supply of labour (1). Whether or not an economy is in recession (1) economies in decline will have a low demand for labour / expanding economies will have a high demand (1). Difference in population affecting the supply of labour (1) net migration rates / birth rates / death rates (1) more supply would decrease wages / lower supply would increase wages (1). Difference in demand for goods and services (1) affecting the demand for workers as demand for workers are derived demand (1). Difference in government spending on e.g. education (1) affects wage of pubic sector (1). Difference in productivity affecting the demand (1) high productivity leads to higher output (1) leads to higher wages (1). Difference in trade union and collective bargaining power (1) countries with stronger trade unions will push wages up (1). Difference in living costs / inflation (1) e.g. food prices (1) wage demands increase (1). 4 Accept reasons linked to differences in wages between countries as well as differences in high-paid/low-paid gap within an economy. 7(c) Analyse how a recession in one country could cause unemployment in another country. Emigration to another country (1) may push that country’s workers out of a job (1). Income / GDP per head would have fallen (1) the country may buy fewer imports (1) demand for the country’s products may fall (1) firms in exporting countries may reduce output (1) lower output would reduce demand for workers (1). MNCs in the country may make less profit / make a loss (1) may reduce production in other countries (1). A recession in a large economy could create worldwide uncertainty (1) discourage investment / output of capital goods (1) reduce employment in the capital goods industries of another country (1). 6 Question Answer Marks Guidance 7(d) Discuss whether or not the economic advantages of immigration into countries such as the UK and Germany outweigh the economic disadvantages. Up to 5 marks for advantages: Immigration increases the size of the labour force of the country (1) the immigrants may be young working age people (1) this could increase the productivity of the economy (1) increasing the supply-side capacity of the economy (1) leading to economic growth. Immigrants may take jobs which locals are unwilling to take (1) where a shortage occurs (1) example (1) Immigrants may be willing to work for lower wages (1) production costs would fall (1) leading to lower prices (1) Immigration leads to increased competition for jobs (1) workers need to work harder (1) overall productivity increases (1) Immigrants may also bring in capital (1) to start their own business (1) creating even more jobs (1). Immigrants spend money in the economy / increasing domestic consumption (1) increasing total demand / causing economic growth (1) paying indirect taxes (1). Immigrants may also work and pay direct taxes / income tax (1) government revenue increases (1) enabling more government spending (1) such as health and education (1). Up to 5 marks for disadvantages: Immigrants may take jobs where locals could be employed (1) increasing unemployment in that country (1). Some immigrants have better qualifications and skills (1) taking jobs from less qualified and lower skilled local workers (1). Immigrants may be more willing to take up jobs with lower pay (1) locals will not feel that such low pay is appropriate (1) depressing wage growth (1). 8 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is to be rewarded. Question Answer Marks Guidance 7(d) Large supply of foreign workers so local businesses will be less willing to take on apprentices / train new workers (1) leaving the locals who are unemployed with low skills / unable to take up a job and learn appropriate skills (1). Increased demand for healthcare and education (1) increases demand on government resources (1). Immigrants may cause increased demand for houses (1) pushing house prices up (1) making housing less affordable to local residents (1).

Question 12

Rubber production in Liberia Liberia is a west African country that has faced a number of serious problems in recent years. These have incl…

Accepted Answer

1(a) Identify, from the extract, two goals of business organisations. Survival / growth / profit maximisation / diversification 2 1(b) Explain, using information from the extract, two reasons why the price of rubber fell between 2011 and 2016. Supply exceeding demand / diagram showing excess supply (1) the existence of unsold rubber will encourage rubber producers to lower price (1). Improved production methods (1) lowering costs of production / increasing supply (1). The imposition of import restrictions / diagram showing the effect of import reductions (1) lowering demand for rubber / rubber producers may reduce prices to ensure their rubber is still competitive (1). Government subsidies (1) lowering costs of production / increasing supply / diagram showing supply increasing (1). 4 1(c) Analyse how an increase in wages could cause inflation. Higher wages may increase consumer expenditure (1) increasing total (aggregate) demand / diagram showing total (aggregate) demand increasing (1) causing demand-pull inflation (1) if demand rises by more than money supply / the economy is at, or near, full capacity (1). Higher wages may increase costs of production (1) decrease total (aggregate) supply / diagram showing total (aggregate) supply decreasing (1) causes cost- push inflation (1) if wages rise by more than productivity / may cause a wage- price spiral (1). 5 Question Answer Marks Guidance 1(d) Analyse to what extent the information in Table 1 suggests that healthcare expenditure per head is an important influence on the infant mortality rate. Generally, yes, it would be expected that countries spending a higher amount would have a lower infant mortality rate (1) because e.g. they would be able to afford more midwives/doctors (1). Examples of supporting evidence e.g. Liberia spends the least and has the highest (1) UK spends the most and has the lowest (1). There is an exception, Cuba (1) spends the 4th lowest and has the 2nd lowest infant mortality rate (1). 4 Question Answer Marks Guidance 1(e) Discuss whether or not having more of its workers employed in the tertiary sector would benefit the Liberian economy. Up to 3 marks for why it might: Jobs in the tertiary sector tend to be better paid (1) may raise living standards (1) working conditions tend to be better (1) e.g. less dangerous (1) demand for services tend to increase more than demand for primary products (1) imports of services may be reduced (1) exports of services may increase (1) current account position may be improved (1). Productivity/skills may be higher in the tertiary sector (1) which may cause economic growth (1) may make the country more developed (1). A larger healthcare sector could reduce the infant mortality rate / increase life expectancy (1). May attract MNCs/FDI (1) increasing employment (1). Up to 3 marks for why it might not: The country may be better at producing primary or manufactured products (1) the country has a climate suited to agriculture (1) which may reduce economic growth (1). There may be an opportunity cost in terms of less resources being available in the primary and secondary sectors (1). Some jobs in the tertiary sector are low-paid (1) example (1) because they require fewer skills (1). Many tertiary industries are based in cities (1) this may lead to problems of rural-urban migration / overcrowding (1). Liberia’s resources are more suited to producing rubber (1) which can be exported and bring in foreign exchange (1). Imports of manufactured/primary products may increase (1). 5 For all ‘Discuss’ questions Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is to be rewarded. Generic example Mark Economic growth will increase 1 because of reason« e.g. demand for services is increasing globally 1 Economic growth will decrease (reverse of 1st argument) 0 because of a different reason / not a reverse argument e.g. a country’s resources may be more suited to producing primary products. 1 Reward but do not expect reference to comparative advantage as equivalent to better at producing. Question Answer Marks Guidance 1(f) Explain, using information from the extract, how the concept of opportunity cost affects all rubber farmers in Liberia. Opportunity cost is the (next) best alternative foregone (1). The US MNC could use its resources to produce rubber (1) or cocoa/coffee (1). The local farmers could sell rubber (1) or rubber wood / make furniture (1). The farmers could use the money to buy more land (1) example, e.g. diversify into other areas / education for their children (1). Subsidies to farmers (1) could be used to help them in other ways e.g. education (1). 4 Question Answer Marks Guidance 1(g) Discuss whether or not a high rate of unemployment would always cause emigration. Up to 4 marks for why it might: People may go to other countries in search of jobs (1). A high rate of unemployment is likely to mean wages are low in the country / there is poverty in the country (1) people may emigrate in search of higher wages (1). A high rate of unemployment may mean poor healthcare / education / other services in the country (1) people and governments not having the income to spend much on these services (1) people may emigrate to get a higher standard of living (1). People may have skills more appropriate to jobs in other countries / in greater demand in other countries (1). Up to 4 marks for why it might not: Jobs may not be available abroad (1) unemployment may be higher in other countries (1) there may be restrictions on immigration (1). People may lack the skills to take up any available jobs in other countries (1). People may have family ties (1) restricting their mobility (1). People may not be aware of jobs in other countries / lack of information (1). There may be generous unemployment benefits in the country (1). The costs of living may be low in the country (1) which may discourage e.g. the retired from emigrating (1). People may be deterred by cost of emigration (1). People may be deterred by cultural differences in other countries (1). Unemployment may be short term / believed to be short term / the unemployed may be optimistic about future economic prospects in the country (1) if seasonal or frictional unemployment (1). 6 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is expected.

Question 13

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

Accepted Answer

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

Question 14

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

Accepted Answer

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

Question 15

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 16

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 17

Iceland’s Economic Structure The people of Iceland once depended on farming and fishing as their main source of income. By 2008, the Icelan…

Accepted Answer

1(a) Identify, using information from the extract, two industries that are in the primary sector of the Icelandic economy. • farming • fishing 2 1(b) Explain, using information from the extract, two reasons for government regulation of the fishing industry in Iceland. Protect domestic fishermen (1) to ensure they have a stable income (1) to ensure that jobs are preserved (1) can compete with foreign fishermen (1). Protect the stock of fish (1) to ensure sustainability of fish stocks (1) for future generations (1). 4 1(c) Explain, using information from the extract, two reasons, apart from changes in employment, for Iceland’s high growth rate from 2002–2007. • increased availability of bank loans (1) more borrowing (1) to fund consumption (1) and to fund investments (1). • increasing income of its major trading partners, including the European Union and Norway (1) Iceland can now export more to their trading partners (1) increase net exports / external demand / aggregate demand (1) 4 1(d) Calculate, using information from the extract, Iceland’s GDP in 2007. $18.53 billion (2) 18.53 or working e.g. $17bn × 0.09 = $1.53bn (1) 2 Question Answer Marks Guidance 1(e) Analyse, using Fig 1.1, the relationship between changes in the economic growth rate and the unemployment rate over the period shown. They both rose over the period (1) showing a positive relationship (1) unexpected (1) evidence from the data e.g. the unemployment rose from approx. 3.4 to 5% (1) the economic growth rate rose from 0.5 to 1.8% (1) Unemployment rate was relatively constant from 2002 to 2008 (1) while economic growth fluctuated (1). Unemployment was relatively stable from 2009 to 2014 (1). Between 2007 and 2009 the fall in the economic growth rate (1) to a negative value / recession (1) while there was a rise in the rate of unemployment (1). From 2009 to 2014 economic growth increased (1) and unemployment fell (1) the trends are moving in opposite directions (1) as would be expected (1) high economic growth rate should create more jobs (1). Between 2002 and 2004 there’s a significant increase in the economic growth rate (1) while there was only a slight fall in the unemployment rate (1). 5 No marks for a descriptive approach e.g. identifying the growth rate or the unemployment rate for specific years. 1(f) Explain, using information from the extract, whether the supply of Iceland’s fish is price-elastic or price-inelastic. It is price-inelastic (1) because the quantity of fish supplied tends to change by a smaller percentage than the change in its price (1). 2 Question Answer Marks Guidance 1(g) Discuss the advantages and disadvantages of the activities of commercial banks to an economy. Up to 3 marks for advantages to an economy: Lending (1) to consumers (1) enabling them to increase consumption (1) raising their living standards (1) and to firms (1) allowing them to invest (1) increase employment (1) increase output (1) expand into international markets (1) improve the current account of the balance of payments (1). Attract MNCs (1) by providing a range of services to these companies (1). Banks employ many people (1) keeping unemployment low (1) Up to 3 marks for disadvantages to an economy: May encourage saving (1) decreasing consumption/total demand (1) Banks may fail (1) losing customers’ money (1) risking damage to the economy / recession (1). May lend to risky businesses (1) which may cause fluctuations in output (1). May lend to individuals who cannot repay (1) pushing them into debt (1). May charge high interest rates (1) to gain high profits (1) which will increase firms’ costs of production (1) and make it difficult for individuals to repay (1). May lend for purchase of imports (1) worsening the current account (1) Risk of inflation (1) if banks lend too much (1). 5 Question Answer Marks Guidance 1(h) Discuss whether or not a growth in tourism is an advantage to a country such as Iceland. Up to 4 marks for why it might be: Tourism is an export of services (1) bringing in foreign currency (1) improving the current account balance (1). Tourism may increase government tax revenue (1) this could be spent on e.g. education (1). Tourism increases the demand for goods and services (1) creating employment/reducing unemployment (1) e.g. in hotels/restaurants/shops (1) increases output / contributes to economic growth (1). Tourism may attract MNCs/foreign investment (1) e.g. foreign hotel chains may set up in the country (1). More revenue from tourism may result in a rise in the exchange rate (1) this may reduce the price of imports (1) Less reliance on primary / secondary sector (1) benefits of diversification (1). Up to 4 marks for why it might not be: Tourism may create external costs (1) example e.g. pollution (1). Tourism may deplete resources (1) e.g. water (1). Tourism may place a strain on infrastructure, e.g. transport systems (1) Tourism jobs may be low-paid (1) low skilled (1) seasonal (1). Foreign firms may send profits home (1) foreign hotels may bring own employees (1). A high exchange rate may reduce exports / international competitiveness (1). Tourism may increase demand in the economy (1) pushing up the prices the local population have to pay / creating inflation (1). 6

Question 18

Germany’s economy is one of the best performing economies in the European Union (EU). Germany has low unemployment rates and a surplus on t…

Accepted Answer

2(a) Define a surplus on the current account of the balance of payments. When the revenue from trade in goods and trade in services exported exceeds the revenue from trade in goods and trade in services imported (2). When the inflow from primary income and secondary income is higher than the outflow of primary income and secondary income (2). Exports greater than imports (1). 2 2(b) Explain two possible causes of low unemployment. high levels of economic growth/GDP (1) output requires more workers (1) high levels of education and training (1) acquire skills needed for jobs (1) high levels of investment (1) high demand for workers (1) high levels of consumer spending (1) more production / more labour (1) high levels of exports (1) increasing demand for labour high government spending / low taxes (1) to stimulate economic growth (1) low interest rates (1) encouraging more consumption / investment (1) 4 2(c) Analyse how long-term unemployment can cause relative poverty. Relative poverty is when household income is low compared to the average (median) income in that country, e.g. less than 60% of average income (1) Long-term unemployed have very low incomes (1) cannot afford items which average households are able to (1) e.g. adequate housing, healthcare (1) may depend on government benefits (1) may be unable to provide children with good education (1) children may not be able to take up good jobs (1) productivity may be lower (1) compared to those who are better educated (1). Savings will be used up (1) reducing the ability to escape poverty (1) Health deteriorates (1) reducing the ability to find work (1) depression may occur (1) reducing the motivation to find work (1) 6 Question Answer Marks Guidance 2(d) Discuss whether or not an increase in a surplus on the current account of the balance of payments decreases unemployment. Up to 5 marks why it may: More exports (1) means more output is needed (1) more workers will be needed (1) as demand for labour is a derived demand (1). A surplus means more funds flowing into the economy (1) increasing total (aggregate) demand (1) which could generate jobs (1) Incomes increase (1) consumption may increase (1) increasing revenue of firms (1) which could then be reinvested (1) Up to 5 marks why it may not: Exports may be capital-intensive (1) using less labour to produce exports (1). A surplus in one country may create a deficit in another (1) other countries may not be able to continue buying exports (1) other countries may impose protectionist policies (1) to prevent future deficits (1). An increase in a surplus may raise the exchange rate (1) reducing net exports (1) increasing unemployment (1). 8

Question 19

Driverless cars and advances in technology It is predicted that driverless cars, powered by electricity, will be on the roads by 2030. Driv…

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1(a) Identify, from the extract, two pairs of substitutes. • Driverless cars and bus travel • Driverless cars and taxi travel • Bus travel and taxi travel • Machines / advanced technology and workers 2 1(b) Explain, using information form the extract, whether the market for driverless cars is expected to be in equilibrium in 2030. No (1) supply is expected to exceed demand (1). 2 1(c) Calculate, using information from the extract, the price elasticity of supply (PES) of driverless cars. 2.5 (2). Correct working: 20% / 8% OR 20 / 8 (1). 2 1(d) Explain, using information from the extract, two external costs that driverless cars could reduce. • accidents (1) people are injured and killed as a result of other people’s driving / accidents impose costs on hospitals and healthcare / less human error / driverless cars reduce the death rate / accidents can cause traffic congestion / fewer accidents may reduce cost of repairs (1) • pollution (1) cars emit carbon dioxide / pollution causes health problems / driverless cars are more environmentally friendly / use electricity which causes less pollution (1) • lower cost of insurance to (other) drivers (1) as a result of less accidents / lower cost of repairs (1) 4 Question Answer Marks Guidance 1(e) Analyse, using Table 1.1, the relationship between educational spending and the unemployment rate. Expected relationship – a country that spends more (a high proportion) of their GDP on education would have a low unemployment rate / a country with a higher unemployment rate is likely to spend less on education / it is an inverse relationship (1). Reasons for expected relationship – workers would be likely to be more skilled and productive / higher unemployment may result in less tax revenue to spend on education (1). Evidence in support of expected relationship – e.g. New Zealand or US (1) highest spenders and lowest unemployment rates (1). Evidence against expected relationship – e.g. Argentina or South Africa (1) Argentina spends a lower proportion than Ghana and Brazil but has a lower unemployment rate / South Africa spends more a higher proportion than Argentina and Brazil but has a higher unemployment rate (1). 5 A pattern of analysis is expected in response to this type of question. If there is no expected pattern of analysis, the following may be worthy of some reward, e.g.: • it is not a consistent relationship (1) • there are other influences on the unemployment rate (1) However, do not reward simple statements (repetition) of the figures given in the table. For example, USA spends 8.2% on education and has an unemployment rate of 4.7%, is not to be rewarded. Question Answer Marks Guidance 1(f) Discuss whether or not an increase in house building will benefit the people who live in the area. Up to 3 marks for why it might: House building may create jobs (1) lower unemployment (1) generate income / raise wages / raise living standards (1). House building will increase the supply of housing (1) the lower price of housing (1) makes houses more affordable (1) fewer homeless (1). May attract more firms to set up in the area (1) more services may be provided (1) due to more people living in the area / larger labour force (1). May save travel time for those working nearby (1) reduce pollution / congestion (1). Up to 3 marks for why it might not: House building may cause external costs (1) examples (2). More houses may reduce the value of people’s homes (1) reduce their wealth (1). There is an opportunity cost (1) the area used could have been used for e.g. school buildings (1). Demand for extra services may not be met (1). Jobs may only be temporary / seasonal unemployment (1). More housing may create overcrowding in the area. (1). 5 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) Explain, using information from the extract, two reasons why the power of trade unions may decline in the future. Fall in membership (1) lower funds / less bargaining power (1). Rise in unemployment / workers being replaced by machines (1) trade unions may be reluctant to take industrial action for fear that members will be replaced by unemployed / non-member workers (1). Government may reduce the power of trade unions (1) making it harder for trade unions to protect workers’ rights (1). Movement from primary to tertiary sector (1) which may be less unionised / better working conditions (1). 4 Some points may be interchangeable e.g. rise in unemployment (1) resulting in fall in membership (1). Question Answer Marks Guidance 1(h) Discuss whether or not a rise in unemployment is harmful. Up to 4 marks for why it is: Output is likely to fall (1) incomes will decline / poverty increase (1) living standards will fall (1) lower total (aggregate) demand (1). Tax revenue will fall (1) government may have to cut spending on e.g. education and healthcare (1). Government may increase tax rates (1) which may create disincentive effect (1). The government will have to spend more on unemployment benefit (1) this will involve an opportunity cost (1) may result in a budget deficit (1). Unemployed workers may lose skills / become out of date (1) may need retraining (1). May increase emigration (1) lose skilled workers (1). May cause social problems e.g. crime / mental health problems (1). Up to 4 marks for why it is not: Inflation may fall (1) due to lower total (aggregate) demand (1). Firms may find it easier to recruit new workers (1) this will make it easier to expand (1) at lower wage costs (1). Productivity may be higher (1) more skilled workers kept (1). Unemployment may give the unemployed time to search for a better job (1) eventually raises their incomes (1). Rise may only be temporary (1). May reduce demand for imports (1) improve current account of the balance of payments (1). May be less pollution with lower output (1). 6 Reward but do not expect reference to a downward multiplier effect and/or not reaching productive capacity.

Question 20

Between 2007 and 2017, the average wage in China tripled, while it fell in Brazil. The rise in average wage in China was particularly high …

Accepted Answer

2(a) Define tertiary sector and give an example of an industry operating in the tertiary sector. Services (1) e.g. banking (1). 2 2(b) Explain two reasons why farm workers may be low paid. • high supply / easily replaced / lower productivity / labour intensive / low value products (1) low skills/qualifications required (1). • low demand (1) can be replaced by capital equipment (1). • low bargaining strength (1) weak trade unions/low trade union membership (1) 4 2(c) Analyse how lower unemployment may cause inflation. • More people in work (1) incomes may rise (1) as more people are earning wages / higher purchasing power (1) this could increase spending (1) which may increase total (aggregate) demand (1) without a rise in output / supply (1) causing demand- pull inflation (1). • There may be a shortage of workers/increased competition for workers (1) wages may be raised (1) to attract workers (1) this increases the average cost of production (1) firms raise prices to maintain profit margins (1) causing cost-push inflation (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not a country with high wage rates will have a high unemployment rate. Up to 5 marks for why it might: • High wages may mean high cost of production (1) this may mean higher prices / inflation (1) international competitiveness may be low (1) exports may fall (1) imports may rise (1) net exports may fall (1) total (aggregate) demand may fall (1) causing cyclical unemployment / firms may lay off workers (1). • May encourage capital intensive production (1) particular industries may be driven out of business by foreign competition (1) causing structural unemployment (1). Up to 5 marks for why it might not: • High wages may motivate workers to work harder (1) making them feel appreciated (1) causing productivity to be high (1) resulting in high demand for labour (1). • Workers may be working with high value capital equipment (1) keeping cost per unit low (1). • High wages can mean high consumer spending (1) so total (aggregate) demand may be high (1) resulting in higher demand for workers (1). • Wages may rise above benefits (1) leading to less voluntary unemployment (1). • Higher tax revenue (1) allows government to increase spending on reducing unemployment e.g. training (1). 8

Question 21

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

Accepted Answer

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

Question 22

Australian firms have been praised for introducing new technology. The actions of some of these firms, however, cause market failure. The A…

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5(a) State two objectives of firms. 2 One mark each for two from: survival, social welfare, profit maximisation and growth. 5(b) Explain how a subsidy can correct market failure. 4 Logical explanation which might include: A payment to increase production (1) and lower price (1) can increase consumption of merit goods (1) products with positive externalities (1) which are under-consumed if left to market forces (1) can be paid to private sector firms to produce public goods (1) would not be produced if left to market forces (1). 5(c) Analyse, using a production possibility curve (PPC) diagram, the effect 6 of advances in technology on an economy. Up to 4 marks for the diagram: Axes correctly drawn (1). Initial curve drawn as a curve or a downward sloping line to the axes (1). New curve drawn as a curve or a downward sloping line to the axes (1). Shift to the right indicated by arrow or lettering (1). Up to 2 marks for logical analysis: Advances in technology raise the quality of capital (1) increase productive capacity (1). 5(d) Discuss whether or not an increase in government spending will 8 reduce unemployment. In assessing each answer, use the table below. Level Description Marks 3 A reasoned discussion which accurately examines both 6–8 sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other but, overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 2 A reasoned discussion which makes use of economic 3–5 information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using economic definitions 1–2 and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no creditable 0 content. Why it might: • may raise total (aggregate) demand, encouraging firms to hire more workers • may be spent on education which may increase people’s skills • may be spent on healthcare which may make people fitter and more employable • may be spent on subsidies to firms which will encourage them to increase output and take on more workers. Why it might not: • if spent on unemployment benefits, it may encourage some people to leave their jobs • if there is full employment, it will just cause inflation • spending on education may be ineffective e.g. develop the wrong skills • higher total (aggregate) demand may encourage firms to use more capital goods rather than labour.

Question 23

(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 24

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

Accepted Answer

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

Question 25

In 2018, the US had its lowest unemployment rate for 18 years. Cyclical unemployment was very low and so was the rate of inflation. The US …

Accepted Answer

3(a) Define cyclical unemployment. • Workers without jobs (1) • due to a lack or fall in total (aggregate) demand (1) • more people unemployed than there are job vacancies (1) • in a recession / economic downturn (1). 2 Nothing for a fall in demand for a product. 3(b) Explain two ways a firm could increase the productivity of its workers. Logical explanation which might include: • Raise wages / performance related pay / commissions (1) increase motivation of workers (1). • Provide training (1) increase workers’ skills / efficiency (1). • Division of labour by firm (1) enables greater specialisation (1) • Buy capital goods / invest (1) workers will be working with better equipment (1). • Reduce working hours (1) workers may feel fresher / more alert (1). • Improve working conditions (1) reduce stress (1). • Subsidise workers’ healthcare (1) making them fitter / fewer days lost through illness (1). • Working from home (1) reduce stress from travelling (1). 4 One mark each for each of two ways identified and one mark each for each of two explanations. Question Answer Marks Guidance 3(c) Analyse the advantages of a low rate of inflation. Coherent analysis which might include: • Low inflation means prices are still rising (1) but not a high rate (1). • May stop purchasing power being reduced too much / wages may keep pace with inflation (1). • May increase international price competitiveness (1) as may be below the inflation rate of other countries (1) increasing exports (1) reducing imports (1) improving the current account position (1). • May create greater certainty / stability (1) as costs may not be rising significantly (1) encouraging firms / MNCs to invest (1) increasing output / GDP (1) increasing employment / lowering unemployment (1). • May encourage saving (1) as real value may be maintained (1) provide funds for investment (1). • It may raise profit (1) if demand-pull (1) encouraging firms to expand (1) increasing employment / lowering unemployment (1). • May stop a random redistribution of income (1) protecting savers (1). • Low menu costs (1) reduce pressure on firms’ costs of production (1). 6 ‘Increasing employment / lowering unemployment’ can only be credited once. Question Answer Marks Guidance 3(d) Discuss whether or not a fall in a country’s unemployment rate will reduce poverty in that country. In assessing each answer, use the table opposite. Why it might: • increase the income of those who gain jobs • absolute poverty may be reduced with more people being able to buy basic necessities • tax revenue may rise • the government could spend more on benefits for the poor • the government could spend more on education, reducing future poverty Why it might not: • jobs may be part-time, low-paid, at national minimum wage • jobs may be seasonal • relative poverty may increase if extra jobs are gained by the well-paid • the unemployment rate may fall but unemployment may rise if there are more people in the labour force • may be more retired people living in poverty • sick and disabled people may not be able to get out of poverty • unemployment is only one of a number of factors affecting poverty • absolute poverty may remain 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Marks Guidance 3(d) Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 26

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

Accepted Answer

2(a) Identify two basic necessities, other than housing. Two from e.g.: Food, water, clothing, healthcare and education. 2 Accept any relevant basic necessity e.g. heating or electricty. If more than two examples given, only consider the first three. 2(b) Explain how frictional unemployment differs from cyclical unemployment. Logical explanation which might include: Frictional unemployment arises from people being in between jobs (1) may be waiting for a better paid job / may be seasonally unemployed / may have worked on a short-term contract / may lack information about vacancies (1) may exist even when there is full employment / may be self-correcting (1). Cyclical unemployment is caused by a lack of total (aggregate) demand (1) more people unemployed than there are job vacancies (1) may arise from a recession / economic downturn (1) may need government action to reduce it (1). Frictional unemployment would be reduced by a rise in labour mobility (1) cyclical unemployment would not be (1). Frictional unemployment may be short term (1) cyclical unemployment may be long term (1). 4 Up to 2 marks for each type of unemployment. Question Answer Marks Guidance 2(c) Analyse why the children of the rich tend to become rich adults. Coherent analysis which might include: The children of the rich tend to receive a good education (1) may not have to take part-time jobs / not have to help in family business when studying / not have to leave school early (1) become well qualified / well educated / gain high level of knowledge (1) become highly skilled / productive / efficient (1) find it is relatively easy to find employment / get a good job (1) well-paid (1). The children of the rich tend to receive good health care (1) good nutrition (1) have good housing (1) unlikely to miss time at school (1) unlikely to miss time at work (1) income will be high (1). The children of the rich tend to have high expectations (1) apply for better jobs (1). The children of the rich may inherit e.g. property (1) may gain income from e.g. inherited property / business / savings (1). Rich parents may have connections with e.g. bosses of major employers (1) more likely to gain high paid work (1). 6 Note the focus here is on the children of the rich so no marks for e.g. the children of the poor may lack education. Reference to highly skilled / productive or efficient may be linked to education, healthcare or nutrition but can only be credited once. Question Answer Marks Guidance 2(d) Discuss whether a government should provide subsidies to families to spend on housing. In assessing each answer, use the table opposite. Why it might: • will increase the spending power of families who receive it • may increase quantity supplied • may give low-income families access to a basic necessity, reducing poverty • may enable families to spend more on e.g. education • may increase employment / reduce unemployment, creating jobs building housing / increase labour mobility • may increase quality of housing and so improve health Why it might not: • rich can already afford housing • some families may not spend it on housing • may be inflationary, demand increasing for housing and e.g. furniture, carpets • opportunity cost • taxes may be raised to finance subsidy • building more houses may result in environmental damage 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sided of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at u sing economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 27

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

Accepted Answer

3(a) Define structural unemployment. Workers without jobs (1) Unemployment due to a change in the structure of the economy / change in demand and supply conditions / decline of some industries (2) lack of the appropriate skills (1) lack of labour mobility (1). 3(b) Explain two causes of low productivity. Logical explanation which might include: Poor education and training (1) leading to lack of skills / qualifications (1). Poor technology (1) slower or less output per capital / labour input (1). Poor management (1) waste of resources (1). Lack of investment (1) capital older/slower/out-of-date (1). Emigration of skilled workers (1) output of unskilled workers who are left is lower (1). Poor working conditions (1) making it difficult for workers to do their jobs efficiently (1). Low pay (1) which may demotivate workers (1). Long working hours (1) making workers tired (1). 4 One mark for each cause identified and one mark for each explanation. Lack of specialisation is too vague. Question Answer Mark Guidance 3(c) Analyse how higher government spending and tax cuts can lead to a fall in cyclical unemployment. Coherent analysis which might include: Higher spending on e.g. unemployment benefits / education / infrastructure / healthcare (1) could lead to higher demand for goods and services (1) increased demand for goods and services leads to higher revenues/profits for firms (1) increased investments (1) increasing output (1) increased demand for workers to produce the output (1). Tax cuts such as income tax cuts (1) increased disposable income (1) increase consumer expenditure (1) increased demand for goods and services (1) higher revenues/profits for firms (1) increased investments (1) increasing output (1). Tax cuts such as corporation tax cuts (1) increased after tax profits (1) increased investments (1) increasing output (1). Tax cuts such as indirect tax cuts (1) decrease cost of production (1) increased supply / output (1). 6 Maximum of 4 marks for only higher spending OR tax cuts Question Answer Mark Guidance 3(d) Discuss whether or not competition between firms in the same industry is always a disadvantage to workers. In assessing each answer, use the table opposite. Why it might be a disadvantage • more competition between firms means firms try to be more efficient, which could lead to lower job opportunities / greater instability of employment • there may be greater use of short-term employment contracts • more competition between firms could push down the wages of the workers. • more competition between firms could lead to workers being exploited e.g. overtime work, worse working conditions. Why it might be an advantage • more competition between firms would lead to firms training workers to be more productive • increased productivity leads to higher wages • increased productivity could lead to more investments – leading to more demand for workers • more competition between firms could lead to lower prices, which benefits workers who are also consumers • lower prices could lead to more demand, which increases the demand for workers as well • greater efficiency could result in higher revenue some of which may be spent improving working conditions • more competition between firms could lead to them raising wages and / or improving working conditions to attract the best workers • more competition between firms gives more opportunities for workers to switch jobs. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Mark Guidance 3(d) Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 28

In 2018, 54% of Russia’s population was female and the government announced plans to raise the state retirement age. In Russia, the role of…

Accepted Answer

2(a) Identify two reasons why a country may have more women than men in its population. Two from: • women living longer • more girls being born • fewer female emigrants or male immigrants • more female immigrants or male emigrants • more men killed in wars 2 2(b) Explain two advantages of raising the retirement age. Logical explanation which might include: Reduction in pensions paid (1) money could be spent for other purposes e.g. infrastructure (1). Increase in size of the labour force/(1) increase in output/productive potential/GDP/reduction in firms’ wage costs (1). Reduction in size of dependency ratio (1) less burden on working population (1). Rise in tax revenue/improve budget position (1) government can spend more on e.g. public sector wages (1). May increase health of the old (1) work may be mentally challenging (1). People can work longer (1) and earn more income/enjoy higher living standards (1). Older people have greater skills/more years of training (1) can raise productivity/pass on skills to younger workers (1). 4 One mark each for each of two advantages identified and one mark each for each of two explanations. Question Answer Marks Guidance 2(c) Analyse how the price mechanism answers the three key resource allocation questions. Coherent analysis which might include: Definition of price mechanism e.g. where forces of demand and supply determine the prices of goods and services (1) in a market economy (1). What to produce (1) the price mechanism acts a signal/the price mechanism acts as an incentive on what to produce (1) rations goods and services (1) price will rise for products in higher demand (1) encouraging more to be made (1). How to produce (1) e.g. more labour-intensive/more capital- intensive methods of production will be used (1) if wages fall/if cost of capital goods fall (1). Who to produce for (1) those whose services are most in demand will have the highest income (1) will be able to buy the most (1) 6 Question Answer Marks Guidance 2(d) Discuss whether or not indirect taxation can reduce market failure. In assessing each answer, use the table opposite. Why it might: • demerit goods are overconsumed and cause external costs • demerit goods and other products causing external costs can be taxed • indirect taxation on demerit goods can discourage their consumption • merit goods are under-consumed and create external benefits • indirect tax revenue can be used to subsidise or produce merit goods • public goods would not be produced by the private sector as they have the characteristics of non-rival and non- excludable • indirect tax revenue can be used to finance the production of public goods Why it might not: • difficult to measure external costs • demerit goods may be overtaxed, changing from being overconsumed to being under-consumed • demand for some demerit goods is price inelastic • indirect taxes may fall more heavily on the poor • demand may just shift to imports if other countries do not impose indirect tax or have lower tax rates • tax revenue may not be used to promote the consumption of merit and public goods 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Marks Guidance 2(d) Level Description Marks 1 There is a simple attempt at u sing economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 29

South Africa has a high number of unemployed workers. South Africa’s inflation rate has been stable in recent years, partly due to relative…

Accepted Answer

3(a) Identify two ways unemployment is measured. • claimant count/claiming benefits • labour force survey/ILO measure/without a job and seeking work • formula for the unemployment rate/number of unemployed divided by labour force × 100/through the unemployment rate • total labour force minus those currently employed 2 3(b) Explain two ways an increase in wages can cause inflation. Logical explanation which might include: Increase in wages may increase total (aggregate) demand/consumption (1) causing demand-pull inflation (1). Increase in wages may increase costs of production (1) causing cost-push inflation (1). 4 One mark each for each of two ways identified and one mark each for each of two explanations. Allow 1 mark if refer to prices rise but no mention of demand-pull or cost-push inflation Question Answer Marks Guidance 3(c) Analyse, using a production possibility curve (PPC), the opportunity cost to an economy of producing more consumer goods. Up to 4 marks for the diagram: Axes correctly labelled with capital/consumer goods (1). Curve drawn as a curve/line sloping downward to the axes (1). Movement along the curve/along the axes (1). Reduction in capital goods/increase in consumer goods shown by numbers or letters or arrows (1). Up to 2 marks for coherent analysis which might include: Opportunity cost is the (next) best alternative forgone (1) resources used to produce consumer goods cannot be used to produce capital goods (1). Producing more consumer goods now may mean fewer consumer goods in the future (1) as there may be fewer capital goods to make them (1). 6 Question Answer Marks Guidance 3(d) Discuss whether or not an increase in foreign MNCs will reduce a deficit on the current account of the balance of payments of a host country. In assessing each answer, use the table opposite. Why it might: • MNCs tend to export a relatively high proportion of their output • may produce at a low cost of production/be efficient • may be internationally competitive • may produce products that were previously imported • may bring in new technology Why it might not: • may buy raw materials and capital goods from their home countries • MNC may send profits back to home country • workers/managers may send remittances back to home country • may eliminate firms in the host country that had a good export record • may deplete non-renewable resources reducing the ability to export in the long run 8 For level 3, an answer must look at both sides of whether a deficit on the current account would be reduced. 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 3(d) Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 30

(a) Calculate the number of Bermudian workers who were unemployed in 2018. [1] (b) Identify two reasons why demand for holidays in Bermuda …

Accepted Answer

1(a) Calculate the number of Bermudian workers who were unemployed in 2018. 2345 (1). 1 1(b) Identify two reasons why demand for holidays in Bermuda may be price-elastic. Luxury (not a necessity) (1) expensive / high price (1). 2 If more than two reasons are given, consider the first three, 1(c) State two reasons why a foreign MNC may want to operate in Bermuda. Any two from: Tax haven / no corporation tax (1) High GDP per head (1) High import tariffs (1) High literacy rate / skilled workers / educated workers (1) Low inflation (1). 2 If more than two reasons are given, consider the first three, Question Answer Marks Guidance 1(d) Explain two reasons why Bermuda has higher level of economic development than many other countries. Logical explanation which might include: Large tertiary sector (1) jobs in the tertiary sector tend to be better paid / have better working conditions (1). High literacy rate (1) a higher literacy rate will tend to increase employability / provide more choices / increase quality of jobs obtained / increase pay / increase skills / produce better quality products / may suggest a good level of education / raise productivity / increase output (1). Low population growth (1) a lower population growth may mean that dependency ratio may be low / less stress on resources / more resources can be devoted to e.g. investment (1). High GDP per head (1) a higher GDP per head can increase living standards / result in high consumer expenditure (1). High life expectancy (1) which can reflect good health care / may mean high quality labour (1). 4 One mark each for each of two reasons identified and one mark for each of two explanations. If more than two relevant reasons are identified, consider the first three and take the two which gain the highest marks. Note: no mark for high GDP, low unemployment or just e.g. population growth. 1(e) Analyse the role of the Bermudian Monetary Authority (BMA). Coherent analysis which might include: Carries out (most) of the functions of a central bank (1). Acts as banker to the government (1) receives tax payments / enables government to make payments / manages national debt / allows government to borrow and lend (1). Holds the country’s reserves of foreign currency (1) may use reserves to influence the value of Bermuda’s currency / buy / sell currency (1). Carries out the government’s monetary policy / keeps inflation low (1) by changing interest rate / money supply (1). 4 Maximum of 2 marks for recognising functions (including carrying out the functions of a central bank) from the source material. Question Answer Marks Guidance 1(f) Analyse the relationship between GDP per head and life expectancy. Coherent analysis which might include: Overview Generally, a positive relationship / the higher the GDP per head, the longer the life expectancy (1). Supporting evidence Evidence in terms of an individual country or group of countries e.g. Monaco has the highest GDP per head and the longest life expectancy or e.g. the three countries with the highest GDP per head have the longest life expectancy (1) evidence in terms of another country or group of countries e.g. Eswatini has the lowest GDP per head and the lowest life expectancy or e.g. Argentina, Bahamas and Eswatini have the lowest GDP per head and the lowest life expectancy (1). Exception Argentina or Bahamas (1) not in same order / reason for why difference may exist (1). Comments Higher income allows more to be spent on healthcare (1) better healthcare reduces illness / reduces death rate (1). 5 No marks for just stating the figures e.g. Monaco has a GDP per head of approximately $185 000 and a life expectancy of 90 years and Eswatini has a GDP per head of approximately $4000 and a life expectancy of 58. Question Answer Marks Guidance 1(g) Discuss whether or not Bermudian government policy measures designed to reduce unemployment would increase the inflation rate. Award up to 4 marks for logical reasons why they might, which may include: Expansionary fiscal and/or monetary policy measures (1) example of a measure (1) could increase total demand / increase spending (1) higher total demand could cause demand-pull inflation (1) if total (aggregate) demand exceeds total (aggregate) supply / there is limited or no spare capacity (1). Shortage of unemployed workers / lower unemployment could push up wage rates / incomes (1) higher output could push up costs of raw materials (1) and cost of capital goods (1) higher costs of production (1) could cause cost-push inflation (1). Award up to 4 marks for logical reasons why they might not, which may include: Supply-side policy measures (1) could raise productivity (1) example of a measure (1) higher productivity could reduce costs of production (1) total supply could increase to match higher total demand / productive potential/capacity could increase (1) avoid / reduce cost-push inflation (1). Expectations of future inflation could be low (1) resulting in e.g. lower wage claims (1). Unemployment rate is at 7% (1) not at full employment (1) unemployed workers may be willing to work at existing wage rates (1) there is some spare capacity (1). Inflation rate is low (1) and so expectations of inflation may be low (1). Expansionary demand-side policy measures may just result in higher savings (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(h) Discuss whether or not higher indirect taxes can reduce the market failure caused by demerit goods. Award up to 4 marks for logical reasons why they might, which may include: Demerit goods are more harmful than consumers realise / are harmful / consuming less would make people healthier (1) they usually have negative external costs (1) examples include fast food, alcohol and tobacco (1). Demerit goods are overconsumed (1) and overproduced (1) higher indirect taxes will impose an extra cost / raise cost of production (1) which may lower output / supply (1) be likely to raise price (1) which is likely to reduce consumption (1) lower consumption/lower output/lower supply may move output to a point where social costs equal social benefits (1). May raise tax revenue (1) which can be spent on campaigns to reduce e.g. smoking (1). Award up to 4 marks for logical reasons why it might not, which may include: It may be difficult to change consumers’ behaviour / spending patterns (1) some demerit goods are addictive (1) those with high incomes may not be affected by a rise in price (1) demand for demerit goods may be inelastic (1). Producers may not pass on price rise to consumers / products may be sold on an illegal market (1) to avoid fall in demand (1). It can be difficult to determine the output of demerit goods which will avoid market failure. (1) the output where social cost will equal social benefit (1). 6 Examples of demerit goods may be rewarded in why might or why might not.

Question 31

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

Accepted Answer

2(a) Define frictional unemployment. Workers in between jobs / caused by a delay between workers moving from one job to another job (1) temporary / short term unemployment (1) Seasonal / casual / search / voluntary unemployment (1) Unemployment that exists when there is full employment (1). 2 2(b) Explain why an infant industry may need protection. Logical explanation which might include: New industries (1) need time/potential to grow / to survive / to establish themselves / to build up a reputation / lack resources (1) need time to take advantage of economies of scale / may be competing with foreign firms which are more able to take advantage of economies of scale (1) economies of scale lower costs / foreign firms may have lower costs (1). Lower costs may reduce price the infant industry can charge (1) make the infant industry more competitive / be able to compete / foreign firms may be more competitive / foreign firms may drive the infant industry out of business (1). The growth of infant industry may increase employment / elimination may increase unemployment (1) growth of infant industry may reduce imports/increase exports/promote domestic products / elimination of infant industry may increase imports/reduce exports (1) growth of infant industry may increase economic growth / elimination of infant industry may reduce economic growth (1). 4 Question Answer Marks Guidance 2(c) Analyse how a fall in a country’s foreign exchange rate could reduce a deficit on the current account of its balance of payments. Coherent analysis which might include: Deficit occurs when debit items including imports on the current account of the balance of payments exceed credit items including exports (1). Fall in the exchange rate would reduce price/value of the currency / depreciation/devaluation has occurred (1) this would reduce the price of exports (1) increase price of imports (1) make exports more competitive / imports less competitive (1) demand for exports is likely to rise / exports increase (1) increase export revenue / money flowing into the country (1) demand for imports is likely to fall / imports reduce / switch from imports to domestically produced products (1) reduce import expenditure / reduce money flowing out of the country (1) increase net exports (1) if demand is price-elastic (1). Value of remittances/money sent home may rise (1) increasing secondary income (1). 6 Accept imports exceed exports for understanding of a deficit on the current account of the balance of payments for the first mark. Question Answer Marks Guidance 2(d) Discuss whether or not a reduction in income tax will end a recession. In assessing each answer, use the table opposite. Why it might: • increase disposable income • increase consumer expenditure • increase investment (spending on capital goods) • increase total (aggregate) demand • increase employment • raise GDP. Why it might not: • lack of confidence • people save more • more could be sold from stocks / inventory • workers may work fewer hours keeping disposable income unchanged • people may spend more on imports • people may still delay spending if prices are falling • may reduce tax revenue and government spending on e.g. education. 8 Accept a discussion of a cut in personal income tax and/or corporate income tax. Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 Question Answer Marks Guidance 2(d) Level Description Marks 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 32

Botswana’s net migration varies. In 2019, Botswana had net immigration. Since 2010, its unemployment rate has averaged 18%. Between 2010 an…

Accepted Answer

4(a) Identify two reasons why immigration may increase. Two from: • higher income / better living standards (in the country) / lower income abroad • more job opportunities (in the country) / fewer job opportunities abroad • better working conditions (in the country) / worse working conditions abroad • better education (in the country) / worse education abroad • better healthcare (in the country) / worse health care abroad • lower cost of living / higher cost of living abroad • lower taxes / higher taxes abroad • lower immigration controls • wars / famine / political unrest / natural disasters abroad. 2 Accept e.g. higher income on its own. If mention e.g. lower income must link to other countries /abroad. Question Answer Marks Guidance 4(b) Explain two consequences of unemployment. Logical explanation which might include: Lower output / lower GDP / lower economic growth / producing below full capacity (1) inefficient use of resources / unused resources / lower exports (1). Lower income / lower wages / lower GDP per head (1) causing a rise in poverty / reduction in ability to buy basic necessities / fall in living standards / lower development (1). Lower total (aggregate) demand (1) lower inflation / deflation (1). Lower tax revenue (1) from (direct and indirect taxes) due to lower income / reduction in government spending (1). Increased government spending on unemployment benefits (1) opportunity cost / spending less on e.g. healthcare (1). Reduction in household spending on education / healthcare (1) reduce living standards / life expectancy (1). Unemployed workers may lose skills / become out of date with new technology (1) make it more difficult to gain employment (1). Unemployed workers may experience depression / low self-worth (1) worsen health (1). Possibility of a rise in crime (1) government may have to spend more on reducing crime / crime lowers people’s quality of life (1). 4 One mark for each of two consequences identified and one mark for each explanation. Question Answer Marks Guidance 4(c) Analyse why more women may join a country’s labour force. Coherent analysis which might include: Rise in pay (1) better job opportunities (1) due to a fall in discrimination (1) change in social attitudes (1). Improvements in education for girls (1) more female graduates / higher literacy (1) higher productivity / skills (1) higher demand for women workers (1). Rise in tertiary sector employment (1) higher proportion of women employed in the tertiary sector (1). Fall in birth rate (1) reduction in dependents / dependency ratio (1) rise in availability of childcare (1) making it easier to combine work and parenthood (1). Increase in population size (1) more women available to seek work (1). Reduction in male workers (1) due to e.g. emigration of male workers (1). Rise in part-time employment / increase in holidays / rise in flexible hours / increase in opportunity to work from home (1) allowing women to combine work with bringing up a family (1). More women may need / want to support their families financially (1) due to e.g. rise in cost of living / male workers losing their jobs / increase in divorce 1). May be government measures to encourage women to join the labour force (1). Rise in job security (1) improvement in working conditions / fringe benefits (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not a government should encourage an increase in saving. In assessing each answer, use the table opposite. Why it should: • will reduce spending which can reduce demand-pull inflation • lower spending may reduce imports, improving the current account balance • will provide finance for investment • will provide a ‘safety net’ for households and firms • may be used to finance children’s education and/or family’s healthcare • may provide income when retired. Why it should not: • may result in a recession • will reduce total demand which can decrease economic growth • may cause (cyclical) unemployment • incomes may be too low for people to be able to save • may reduce tax revenue from indirect taxes. 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 4(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 33

Medan is the third largest city in Indonesia by population. It is sometimes known as the city of a million shop-houses as many people start…

Accepted Answer

2(a) Identify the difference between individual supply and market supply. 2 Individual supply is the amount that a single firm is willing and able to supply at a specific price (1) while market supply is the total of all individual supply / the amount that all the firms in the market is willing and able to supply at a specific price (1). 2(b) Explain two influences on the mobility of labour. 4 Also accept answers based on influences for low mobility of labour. Logical explanation which might include: Good transport links (1) such as public transport / highways (1) ease of workers moving from one place to another to take up a job (1). Cheap cost of living / relocation (1) such as good access to affordable homes in different places (1). Similar culture (1) such as similar languages / work culture (1). Ease of workers moving from one job to another job (1) lots of re-training opportunities (1) good quality education (1) skills/qualification needed between different jobs are similar (1). 2(c) Analyse the reasons for the existence of small firms 6 Coherent analysis which might include: Barriers to entry may be low (1) easy for firms to enter (1) e.g. low capital start-up cost / low government regulations (1). Small firms can be monopolist (1) small / niche market (1). Lots of government support for small firms (1) e.g. subsidies to SME (1) to maintain competition (1). Firms desire to remain small (1) keep it within family members (1) easy to control (1) satisfied with amount of profit (1). Difficult for firm to grow (1) as there are dominant firms in the market (1) or difficult to get enough capital to grow large (1). Economies of scale may be very small (1) low long average costs at low levels of output (1) e.g. not much bulk discount, not much expensive equipment (1). Diseconomies of scale may be achieved at low levels of output (1) due to the productive inefficiency (1). 2(d) Discuss whether or not a reduction in the unemployment rate benefits 8 Level Description Marks an economy. 3 A reasoned 6–8 In assessing each answer, use the table opposite. discussion which accurately examines Why it might be beneficial: both sides of the • increase in output, increase economic growth / GDP economic argument, • increase in tax revenue making use of • decrease cost of unemployment benefits economic • increase income for individuals information and • decrease inequality clear and logical • decrease crime rates analysis to evaluate • decrease stress level, decrease occurrence of homelessness and economic issues family breakdown and situations. One • decrease indebtedness. side of the argument may have more Why it might not be beneficial: depth than the other, • wages increasing, higher cost of production, increase cost-push but overall both inflation sides of the • increase consumption, increased total demand, increase demand-pull argument are inflation considered and • decrease competitiveness of exports developed. There is • decrease attractiveness to foreign investors. thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 2(d) Level Description Marks 1 There is a simple 1–2 attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero 0 should be awarded for no creditable content.

Question 34

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

Accepted Answer

3(a) Define full employment. 2 One mark for idea of full employment of resources e.g. all workers in employment. The lowest unemployment possible (very low percentage) / job vacancies matching the number unemployed (2). Low unemployment (1). May still be some workers in between jobs / some frictional unemployment (1). Zero unemployment (1). 3(b) Explain the difference between a proportional income 4 Three marks maximum for proportional income tax system tax system and a progressive income tax system. and three marks maximum for progressive income tax system. Logical explanation which might include: Proportional income tax system takes the same percentage / proportion of income (1) from all income groups (1). In a proportional income tax rate system, the tax rate does not change (1) as income changes (1) has no effect on the distribution of income (1). Progressive income tax system takes a larger percentage / smaller percentage (1) of the income of the rich / the poor / places a larger burden on the rich (1) helps redistribute income from the rich to the poor / reduces the gap between rich and poor / may be used to promote equity (1). In a progressive income tax rate system, the tax rate increases (1) as income increases (1). 3(c) Analyse why a cut in government spending might 6 increase poverty. Coherent analysis which might include: A cut in government spending might reduce total demand (1) increasing unemployment (1) reducing incomes (1). Government spending on subsidies to firms might be reduced (1) which may raise prices (1). Government spending on education might be reduced (1) this might cause a decrease in skills (1) reducing wages (1) may lead to vicious cycle of poverty (1). Government spending on healthcare might be reduced (1) lowering productivity and wages (1). Government spending on state / unemployment benefits might be reduced (1) reducing goods and services that can be bought (1). Government spending on state pensions might be reduced (1) the old may not be able to buy basic necessities (1). 3(d) Discuss whether or not a fall in a country’s 8 Level Description Marks unemployment rate always benefits workers. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making use of Why it might be: economic information and clear and • increase choice of jobs logical analysis to evaluate economic • increase wages issues and situations. One side of the argument may have more depth than • raise living standards the other, but overall both sided of the • increase job security argument are considered and • competition for workers may raise working conditions developed. There is thoughtful • more may be spent on training. evaluation of economic concepts, terminology, information and/or data Why it might not be: appropriate to the question. The • may be result of workers leaving the labour force e.g. discussion may also point out the emigrating possible uncertainties of alternative • may not benefit all workers as some may still be decisions and outcomes. unemployed • may not be high quality jobs 2 A reasoned discussion which makes 3–5 • may be low-paid jobs use of economic information and clear • may be temporary jobs analysis to evaluate economic issues and situations. The answer may lack • may cause inflation reducing real wages. some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

Question 35

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

Accepted Answer

3(a) Define, with an example, an indirect tax. 2 Allow an example of a product that is taxed for the example mark e.g. motor cars. A tax on goods and services / tax on sales / purchases / consumer spending (1) Allow an answer that explains that the tax is levied on a VAT / GST / import tariff (1). producer but passed onto consumers to pay. Do not reward answers that refer to a tax levied on a third party. 3(b) Explain two benefits of MNCs to their home countries. 4 One mark for each of two benefits identified and one mark Logical explanation which might include: for each explanation. Increasing income / improving the current account balance / raise living standards /higher tax revenue (1) if profits Note: common error is to confuse host and home country so returned to home county (1). before awarding marks be clear that the candidate is not writing about the host country. Reduces prices in the home country (1) if goods now produced at lower costs in host countries (1). Reduce unemployment (1) employment of workers from the home countries in host countries / may employ more in head office (1). Higher revenue for firms (1) which may increase their profits (1) can gain subsidies/grants from host countries governments (1) May e.g. be able to dump waste materials / reduce pollution (1) host countries may have fewer rules and regulation (1). 3(c) Analyse how an increase in productivity can affect 6 Candidates need to be clear about distinction between unemployment. productivity and production. Coherent analysis which might include: An increase in productivity will lower average costs of production (1) may increase output / revenue (1) raise firms’ profits (1) may encourage firms to expand / attract MNCs (1) employ more workers (1) reducing unemployment (1). An increase in productivity will make firms more competitive internationally (1) leading to more exports (1) and higher demand for labour further reducing unemployment (1). May enable the same or more output to be produced with fewer workers (1) saving money / increasing profits (1) may increase unemployment (1). Higher productivity may mean higher wages (1) raising consumption / demand for goods and services (1) more incentive to seek employment / leading to more employment (1). Increase productivity may be due to capital investment / better equipment /technology (1) could reduce demand for labour (1). 3(d) Discuss whether or not a decrease in a country’s 8 Level Description Marks unemployment rate will reduce poverty. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the Why it might: economic argument, making use of • may increase employment economic information and clear and • may raise incomes logical analysis to evaluate economic issues and situations. One side of the • may enable people to buy more goods and services argument may have more depth than • may reduce the gap between the high-paid and the low- the other, but overall both sided of the paid argument are considered and • More government tax revenue to spend on developed. There is thoughtful benefits/services for poor. evaluation of economic concepts, terminology, information and/or data Why it might not: appropriate to the question. The • may not be an increase in employment – unemployed discussion may also point out the may have left the labour force e.g. emigrated, retired possible uncertainties of alternative • may be in low-paid jobs decisions and outcomes. • may be in part-time jobs • some of the poor are not in the labour force e.g. 2 A reasoned discussion which makes 3–5 homemakers, sick and informal economy use of economic information and clear • may result in inflationary pressures reducing real analysis to evaluate economic issues and situations. The answer may lack incomes • may reduce absolute poverty but may not reduce some depth and development may be one-sided. There is relevant use of relative poverty. economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

Question 36

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

Accepted Answer

1(a) Calculate Australia’s unemployment rate in 2021. 4% Allow 4 without percentage 1(b) Identify two substitutes for coal. Two from:  gas  offshore wind / wind power  solar power / panels 2 1(c) Explain one economy of scale that could benefit a coal- mining firm. Managerial / labour economy (1) employing specialist workers e.g. mining engineers (1). Technical economy (1) employing efficient / technologically advanced equipment e.g. drones (1). External economy of scale (1) example e.g. skilled labour force (1). 2 One mark for the economy of scale identified and one mark for an explanation. 1(d) Explain two influences on the price elasticity of supply of coal. Storage time (1) expensive to store so inelastic supply (1). Construction of new mine / production time (1) takes a long time, so inelastic supply (1). Stocks (1) may make supply elastic (1). 4 One mark each for each of two influences identified and one mark each for each of two explanations. Question Answer Marks Guidance 1(e) Draw a demand and supply diagram to show how setting a maximum price below the equilibrium price will affect a market. Demand and supply diagram: Axes correctly labelled – price and quantity or p and q (1). Demand and supply curves correctly labelled (1). Price line set below the equilibrium (1). Demand shown as greater than supply (1) e.g. has the two dotted lines downwards (it does not have to be labelled Qs and Qd). 4 Note: Accept unlabelled price line / line drawn only to demand curve. Accept shortage if correctly identified on the diagram. Do not accept demand greater than supply if demand and supply curves are incorrectly drawn Question Answer Marks Guidance 1(f) Analyse whether large coal-producing countries are likely to be net exporters of coal. Coherent analysis which might include: Expected outcome: Large coal producing countries may have a surplus to sell / may have grown their production in order to sell abroad (1) most of the evidence supports this relationship (1) Supporting evidence: Five of the seven countries consume less coal than they produce (1) calculation e.g. US could have exported 11 million tonnes / Australia could have exported 394 million tonnes or simply the difference (1). Analysis: Countries that produce more coal than they consume may benefit from economies of scale / can export because their prices are low (1). Exceptions: China or India are an exception (1) as they consumed more coal than they produced (1). Analysis: they may have been net importers (1) since had used up stocks of coal / need more energy as a developing country (1) may not be able to export coal if world demand for coal is low / countries may both import and export coal (1). 5 Responses do not have to be in the format suggested but they should address the expected / normal outcome, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Question Answer Marks Guidance 1(g) Discuss whether or not an increase in the size of its coal industry will benefit the Australian economy. Award up to 4 marks for logical reasons why it might, which may include:  may increase GDP / economic growth (1) increasing living standards / raise incomes / reduce poverty (1)  may reduce unemployment (1) structural unemployment (1)  may improve current account position / have a surplus (1) as Australia seems to be a net exporter of coal (1)  may increase tax revenue (1) increasing government’s ability to spend (1)  economies of scale (1) result in lower prices for households and industries (1). Award up to 4 marks for logical reasons why it might not, which may include:  may increase pollution (1) lowering living standards / cause health issues (1) reduce tourism / negative impact on current account (1)  other forms of power may not be developed (1) example (1)  some workers may leave other jobs (1) these jobs may have better working conditions (1)  coal mining is a relatively dangerous industry (1) so life expectancy may be reduced / creates chronic illnesses / workers unable to work (1).  Global demand for coal may fall (1) impact upon Australia e.g. unsold stock (1).  May rapidly deplete stocks (1) leading to lower exports (1) and less employment (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Mark Tax revenue may decrease … 1 … because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(h) Discuss whether or not Australia is likely to have a budget deficit in 2026. Award up to 4 marks for logical reasons why it might, which may include:  unemployment is forecast to increase (1) so there may be more government spending on unemployment benefits (1) less income tax revenue (1)  there may be more government spending on retraining unemployed workers (1)  some of the rise in population may result in more government spending (1) e.g. on pensions / healthcare / education (up to 2 marks)  budget deficit in previous years (1) would mean interest would have to be paid on the debt that has built up (1). Award up to 4 marks for logical reasons why it might not, which may include:  population and the labour force are forecast to increase (1) so there may be more taxpayers / fewer claiming benefits (1)  tax revenue may rise (1) due to higher profits / higher tax rates (1)  GDP is forecast to increase (1) more people in work (1) which would be likely to increase direct and indirect tax revenue (1)  state support for industries may fall (1) may have been high in 2021 due to Covid-19 (1). 6

Question 37

In Greece, rich households spend more than the average household. The amount of spending in an economy influences whether its production po…

Accepted Answer

5(a) Identify two reasons why rich households spend more than the average household. Two from:  higher incomes  find it easier to borrow  more confidence  more savings / more wealth  high cost of luxury goods and services  maintaining / showing status  rich households may choose to have large families 2 If more than two reasons are given, consider the first three. 5(b) Explain the significance of a production point inside a PPC and a production point on its PPC. Logical explanation which might include: A point inside a PPC means output is lower than potentially achievable (1) there are unemployed resources / there is inefficient use of resources (1). A point on a PPC means output is at its maximum (1) all resources are employed / full employment / there is efficient use of resources (1). A production point shows a combination of goods produced (1) example e.g. X capital goods and Y consumer goods (1). 4 One mark each for each of two significances identified and one mark each for each of two explanations. Question Answer Marks Guidance 5(c) Analyse why someone who has been unemployed for more than a year may not get another job. Coherent analysis which might include: May lose skills (1) qualifications may become out of date (1) may experience ill-health (1) lack of recent job experience (1) high cost of retraining (1) may become less attractive to employers (1). Skills may be outdated (1) industry in decline (1) will need retraining (1). Economy could be in recession (1) with high number of people unemployed and few vacancies (1). May lose confidence / become discouraged / depressed (1) put less effort into finding another job (1). Unemployed workers may be occupationally immobile (1) geographically immobile (1). Unemployment/welfare benefits may be high (1) may be above low wages / maybe sufficient to live on (1). May face discrimination (1) on grounds of e.g. age (1). May retire (1) and leave the labour force (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not a government should encourage firms to merge. In assessing each answer, use the table opposite. Why it should:  may result in economies of scale  lower average costs of production  lower prices for consumers  raise quality of products  increase international competitiveness and improve current account  improved performance may increase profits and corporation tax Why it should not:  may result in diseconomies of scale  may increase monopoly power / reduce competition  raise prices  may reduce innovation  rationalisation may result in some workers losing their jobs  should be left to market forces to decide. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sided of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 38

Canada’s private sector firms have a number of different objectives. The quantity and quality of land used by these firms, including farms,…

Accepted Answer

3(a) Identify two objectives of private sector firms. Two from:  profit (maximisation)  growth / high sales  greater market share / market dominance  survival  improving the environment 2 Reward but do not expect profit satisficing, revenue maximisation, sales maximisation. Allow social welfare. If more than two objectives given, consider the first three. 3(b) Explain one reason why the quantity of land may increase and one reason why the quality of land may increase. Logical explanation which might include: Quantity of land Reclamation (1) creating land from the sea (1). Reduction in overfishing / hunting (1) restoring stocks of fish / wildlife (1). Reduction in flooding (1) avoiding soil erosion (1). Discovery of new natural resources (1) e.g. of oil (1). Quality of land Use of fertilisers (1) raising productivity / efficiency / fertility of land (1). Reduction in pollution (1) preventing damage / diseases (1). Good weather (1) raising productivity efficiency / fertility of land (1). Better equipment / more advanced technology (1) raising productivity efficiency / fertility of land (1). 4 One mark for identifying one reason why the quantity of land may increase and one mark for explaining that reason. One mark for identifying one reason why the quality of land may increase and one mark for explaining that reason. Question Answer Marks Guidance 3(c) Analyse how an increase in investment may affect unemployment. Coherent analysis which might include: Spending on capital goods (1) will increase total demand (1) firms may expand their output / new firms may set up / economic growth may occur (1) (may need more workers) to work with the capital equipment / demand for labour may increase / need more workers / increase job opportunities (1) this can reduce cyclical (1) unemployment (1). Investment in education / training/ healthcare / research and development (1) can raise productivity / skills (1) increase mobility (1) reduce structural unemployment (1). Investment in infrastructure (1) increase geographical mobility (1) reduce structural unemployment (1). It could cause unemployment (1) as capital goods may replace workers / production may become more capital- intensive / demand for workers may decrease (1) capital goods can be a substitute for labour (1) cause technological unemployment (1). 6 Credit fall in unemployment / rise in unemployment only once (1). Reference to cyclical / structural / technological (unemployment) can be given an additional mark in each case if linked to a relevant point. Question Answer Marks Guidance 3(d) Discuss whether or not a government should try to prevent a rise in unemployment. In assessing each answer, use the table opposite. Why it should:  may increase output / economic growth  increase tax revenue  reduce spending on unemployment benefit  reduce living standards / poverty Why it should not:  unemployment may be low  reduction in unemployment may cause inflation  the resulting higher incomes may cause a current account deficit  unemployment can create flexibility  opportunity cost of government policy measures  a government may have other objectives. 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 39

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

Accepted Answer

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

Question 40

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 41

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

Accepted Answer

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

Question 42

People in Ecuador buy products using a variety of forms of money. The Ecuadorian government pays public sector workers’ wages directly into…

Accepted Answer

4(a) Identify two characteristics of money. 2 If more than two characteristics of money are given, consider the first three. Two from: • generally acceptable Accept an explanation of a characteristic e.g. money is easy • portable to carry rather than using the word portable. • recognisible • divisible • durable • limited in supply / scarce • uniformity 4(b) Explain two reasons why a reduction in their working 4 Also accept approach from the point of view of why workers hours may not cause public sector workers to move to would not want to work in the private sector. working in the private sector. Logical explanation which might include: One mark each for each of two reasons identified and one Wages may still be higher in the public sector (1) enabling mark each for each of two explanations. workers to buy more goods and services (1). If more than two reasons are given, consider the first three. Fringe benefits may be better in the public sector (1) e.g. more generous state pensions (1). Reduction in working hours results in more leisure time (1) improving work life balance (1). Job security may be better in the public sector (1) less worry about losing jobs / few job opportunities in the private sector (1). Skills are not transferable to the private sector (1) e.g. occupational immobility (1). Working conditions may be better in the public sector (1) e.g. better health and safety standards (1). Reduction in working hours may not result in less pay (1) making working in the public sector more attractive / may benefit from more leisure time / reduction in stress at work (1). 4(c) Analyse how advances in technology could affect firms’ 6 Note: Only reward lower cost of production once. profits. Coherent analysis which might include: Advances in technology: will improve the quality of capital goods (1) this could raise productivity / efficiency (1) higher output / lower costs of production (1) increase profits (1). could raise the quality of products (1) create new products (1) increase demand / revenue (1). could lead to new products / innovation (1) which may lead to lower demand for related products leading to loss of profits (1) example e.g. development of electric cars has led to fall in demand for diesel cars (1). can enable online training of new skills (1) improving productivity / speeding up training / increases number that can be trained (1). can improve internet and social media links (1) able to contact more potential customers in other countries (1) thereby increasing revenue / profit (1). due to the initial high cost of buying / developing advanced technological equipment (1) can reduce profits in the short run (1). could lead to small firms being forced out of business (1) due to the cost of new technology / and its maintenance (1) reducing profits / making a loss (1). 4(d) Discuss whether or not a decrease in government 8 Level Description Marks spending will increase unemployment. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic Why it might: argument, making use of economic • a cut in government spending could on education / information and clear and logical analysis to training could reduce skills / qualifications and labour evaluate economic issues and situations. productivity One side of the argument may have more • reduction in skills /qualifications could increase depth than the other, but overall, both sides structural unemployment of the argument are considered and • cut in government spending on public sector workers’ developed. There is thoughtful evaluation of wages could reduce, their motivation, may resign economic concepts, terminology, • lower government spending on providing information information and/or data appropriate to the about job vacancies could increase frictional question. The discussion may also point out unemployment the possible uncertainties of alternative • lower government spending could reduce total demand decisions and outcomes. which could cause cyclical unemployment. 2 A reasoned discussion which makes use of 3–5 Why it might not: economic information and clear analysis to • may reduce inflation, making products more evaluate economic issues and situations. internationally competitive, raising net exports The answer may lack some depth and • cut in government spending on unemployment benefits development may be one-sided. There is may reduce frictional unemployment relevant use of economic concepts, • may enable taxes to be cut which could increase terminology, information and data consumer spending and investment, leaving total appropriate to the question. demand and unemployment unchanged • amount of government spending may fall but it may be 1 There is a simple attempt at using economic 1–2 definitions and terminology. Some reference spent more effectively e.g. training may be more directed at skills required to fill vacancies. may be made to economic theory, with occasional understanding. Note: Level 1 would be knowledge and understanding of 0 A mark of zero should be awarded for no 0 unemployment and government spending or just creditable content. identification of points.

Question 43

New Zealand is a high-income country with a low unemployment rate and a surplus of imports over exports. Recently, its government has made …

Accepted Answer

5(a) Define unemployment rate. 2 The number of unemployed divided by the labour/work force (multiplied by 100) / the percentage of the labour force without a job (2). Those willing and able to work who cannot find employment (1). 5(b) Explain two reasons why a government may discourage 4 There is a degree of mix and match on this question. Most of smoking. the points may be interpreted as either identification or explanation. Essentially a question on why a government Logical explanation which might include: may discourage smoking. Improve health of those who give up smoking / smoking harms the health of smokers (1) reduce consumption of a demerit good / cigarettes are a demerit good (1) cigarettes are overconsumed / overproduced (1). Increase health of the population / reduce the health damage caused to non-smokers (1) reduce passive smoking / reduce air pollution (1). Reduce market failure (1) reduce external cost / reduce the gap between social costs and social benefits (1). Reduce health care costs (1) more could be spent on e.g. education (1). Increase productivity / stop fall in productivity (1) raise income/GDP / stop fall in income / GDP (1). 5(c) Analyse why a country’s exports may decrease. 6 Coherent analysis which might include: Price of exports may rise / inflation / become less price competitive (1) due to a rise in costs of production (1) a rise in the exchange rate (1) demand may fall (1). Quality of exports may fall (1) workers may be less skilled (1) investment may have decreased (1). Incomes abroad may have declined (1) reducing the purchasing power of foreign buyers (1) reducing foreign countries’ need for capital goods and raw materials (1). Demand in the home country may increase (1) encouraging firms to sell more of their output at home (1). Trade restrictions may be imposed (1) e.g. tariffs / quotas / subsidies / embargoes may be imposed by other countries (1) the government of the country itself may restrict, tax or ban exports (1) to stop depletion of resources / prevent shortage / rise in price on domestic market (1). May be disruptions to production (1) e.g. bad weather/war/pandemic (1) decrease in resources (1). Government subsidies to exporting may be stopped (1) government may switch to subsidising products sold on the home market (1). 5(d) Discuss whether or not the discovery of oil in a country 8 Level Description Marks will benefit its economy. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making use of Why it might: economic information and clear and • may increase GDP logical analysis to evaluate economic • may increase employment issues and situations. One side of the • may increase incomes argument may have more depth than the other, but overall both sided of the • may increase tax revenue argument are considered and • may increase exports developed. There is thoughtful • reduce imports of oil evaluation of economic concepts, terminology, information and/or data appropriate to the question. The Why it might not: discussion may also point out the • may create pollution possible uncertainties of alternative • may damage wildlife habitats/ areas of natural beauty decisions and outcomes. • may raise the exchange rate • oil may not be in demand – replaced by renewable 2 A reasoned discussion which makes 3–5 use of economic information and clear energy • working conditions may be poor analysis to evaluate economic issues and situations. The answer may lack • extraction may last for a short time – may be deplete some depth and development may be quickly one-sided. There is relevant use of • MNC may extract the oil and not many of the benefits economic concepts, terminology, may go to the domestic economy. information and data appropriate to the question. 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

Question 44

(a) Calculate the price elasticity of demand for coffee. [1] (b) Identify two rewards to factors of production in Nicaragua. [2] (c) Explai…

Accepted Answer

1(a) Calculate the price elasticity of demand for coffee. () 0.3 (1) 1(b) Identify two rewards to factors of production in Nicaragua. Wages (1) profits (1) 2 Only accept these answers if within the first three listed. 1(c) Explain one way in which unemployment is measured. Claimant count (1) based on workers claiming unemployment benefits (1). OR Labour force survey (1) asking people if they are out of work and looking for employment (1). 2 One mark for a way identified and one mark for an explanation. 1(d) Explain two functions of money in Nicaragua. Medium of exchange (1) used to buy and sell products / used to trade (1). Store of value (1) used to save / keeps its value over a period of time (1). 4 One mark each for each of two functions identified and one mark for each of two explanations. Only accept these answers if within the first three listed. Question Answer Mark Guidance 1(e) Analyse the relationship between the percentage of the labour force employed in agriculture and GDP per head. Coherent analysis which might include: Relationship: Inverse or negative relationship / move in opposite directions (1). Countries with a high percentage of their labour force employed in agriculture tend to have a low GDP per head (1). Supporting evidence: The four countries with the lowest % of the labour force employed in agriculture had the highest GDP per head (1) Specific reference to one or more countries e.g. Bahamas had the lowest % employed in agriculture and the highest GDP per head (1). Use of GDP per head data to show comparison between country with high employment in agriculture and one with low percentage employment in agriculture (1). Analysis of expected relationship: Wages may be low in agriculture (1) wages / value added tends to be higher in the secondary and / or tertiary sector (1). Exception: Nicaragua / Dominica (1) Nicaragua has the second highest % of labour force employed in agriculture but the lowest GDP per head / Dominica had the highest % of labour force employed in agriculture but the second to lowest GDP (1). Analysis of exception: Explanation of another influence on GDP per head (1). 4 Responses do not have to be in the format suggested but they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Note the four are: Bahamas Barbados Costa Rica Saint Lucia Question Answer Mark Guidance 1(f) Analyse, using a demand and supply diagram, how a drought could affect the market for coffee. Coherent analysis which might include: D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New supply curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). Written analysis: A drought will lead to a shortage / will increase costs of production (1). OR The lower supply will push up price / reduce quantity (traded) (1). 5 Question Answer Mark Guidance 1(g) Discuss whether or not small firms benefit Nicaraguan consumers. Award up to 4 marks for logical reasons why they might, which may include:  know customers’ requirements (1) provide a personal service / see them often (1) may be flexible (1)  may be many small firms / competitive markets (1) prices may be low (1) quality may be high (1) may offer wider choice collectively than a few large firms (1)  may provide products for which there is only a low demand (1) niche market (1)  makes goods more accessible in rural areas (1). Award up to 4 marks for logical reasons why it might not, which may include:  may not be able to take advantage of economies of scale (1) examples (1) higher average cost of production (1) higher price (1)  small firms may have lower profits (1) may limit investment / funds available (1) fail to raise quality (1)  may limit choice (1) individual small firms may have a limited range of products (1) cannot provide all that consumers may want (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 Only reward reference to quality or prices once. Question Answer Mark Guidance 1(h) Discuss whether or not Nicaragua should devote more of its resources to coffee production. Award up to 4 marks for logical reasons why it should, which may include:  global demand for coffee is increasing (1) demand for coffee is price inelastic (1) revenue / profits may increase (1) more tax revenue for government (1)  firms grow in size (1) greater specialisation / economies of scale may reduce average costs (1) raise quality (1) increase profits (1) more competitive (1)  exports may increase (1) improve the current account of its balance of payments (1) lead to economic growth/higher standard of living (1)  may lead to more job opportunities (1) less poverty / less government payments to unemployed (1)  already twelfth biggest world producer (1) growth will give them more monopoly power (1) more power to raise price of coffee (1). Award up to 4 marks for logical reasons why it should not, which may include:  other countries produce coffee (1) these may be more competitive (1)  output may be affected by changes in weather (1) natural disasters (1) overproduction can exhaust land (1) leading to lower yields in future (1)  opportunity cost (1) resources could be used to produce other products (1) example (1) coffee workers only receive low pay (1)  world market for coffee may fall / demand is unpredictable (1) resulting in surplus capacity / wasted resources (1)  bmore dependent on other countries for imports of other (agricultural) products (1)  firms may suffer from diseconomies of scale (1) reduce profits (1). 6 Do not expect, but reward reference to absolute or comparative advantage.

Question 45

(a) Calculate Tunisia’s balance on the current account of its balance of payments. [1] (b) Identify two qualities of a good tax that the Tu…

Accepted Answer

1(a) Calculate Tunisia’s balance on the current account of its balance of payments. –$2.4bn 1 Accept –2.4bn. Also accept –6.8 or –6.9 billion TND. 1(b) Identify two qualities of a good tax that the Tunisian government aimed to achieve. Efficiency / efficient / the tax should improve market performance / reduce market failure (1). Economical / economy / the tax should raise more in revenue than it costs to collect it (1). 2 If more than 2 qualities are given, consider the first 3. 1(c) Explain one reason why the Tunisian government regulates the price of flour and milk. Reduce poverty (1) flour and milk are basic necessities /essential products / people may be able to buy enough basic necessities / make them affordable / keep price relatively low (1). Or Prevent monopoly firms exploiting their market power (1) stop the firms raising price to a high level (1). 2 One mark for a reason identified and one mark for an explanation. Question Answer Marks Guidance 1(d) Explain two ways the Tunisian government tried to reduce frictional unemployment. Logical explanation which might include: Increased the labour market information available to workers and employers (1) so workers would be more aware of job vacancies / skills and qualifications required / employers more aware of those seeking jobs / may enable workers to move more quickly/easily between jobs / reduce search time / increase mobility of workers (1). Did not raise unemployment benefit (in line with inflation) (1) so, the purchasing power of unemployment benefit would fall / increase the incentive to work (1). 4 One mark for each of two ways identified and one mark for each of two explanations. If more than 2 ways are given, consider the first 3. Question Answer Marks Guidance 1(e) Analyse the relationship between the change in Tunisia’s average wage and the inflation rate. Relationship (up to 2 marks) Direct relationship / positive relationship (1) as change in the average wage increases so does the inflation rate / if change in average wage / rise in average wage falls so does the inflation rate / both fall and rose together / same trend (1). Evidence (up to 3 marks) 2016 – 2017 / 2018 both the average wage / change in average wage and inflation rate rose (1). Between 2014 – 2018, the average wage rose more rapidly than the inflation rate (1) real wages would have increased between 2014 – 2018 (1). Between 2018 – 2020 / in 2019 – 2020, the inflation rate was higher than the rise in the average wage (1) real wages would have fallen (1). Between 2014 – 2015/2016 / 2018 – 2019/2020 both the change in average wage and inflation rate fell (1). 2018 had the highest rise in the average wage and the highest inflation (1). 2016 had the lowest increase in the inflation rate but not the lowest increase in the average wage / 2020 had the lowest increase in the average wage but not the lowest inflation rate (1). Over the whole period the inflation rate rose while the increase in the average wage fell (1). Explanation (up to 2 marks) A rise in the average wage may increase costs of production / cause cost push inflation / a higher inflation rate will encourage workers to press for a wage rise (1). A rise in the average wage may increase disposable income / consumer expenditure / total demand / cause demand-pull inflation (1). 4 Responses do not have to be in the format suggested but they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Note: average wage did not fall. Question Answer Marks Guidance 1(f) Analyse, using a demand and supply diagram, how an increase in wage costs would affect the market for shoes. Coherent analysis which might include: D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New supply curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). Written analysis: An increase in wage costs would increase costs of production which may raise price (1). 5 Note: higher price needs to be linked to higher costs of production/higher costs/higher wage costs. Question Answer Marks Guidance 1(g) Discuss whether or not the Tunisian government should continue to subsidise electricity production. Award up to 4 marks for logical reasons why it might, which may include:  reduce costs of producing electricity (1) increase supply of electricity (1) lower price of electricity (1) make electricity more affordable / reduce poverty (1)  lower costs of firms that use electricity (1) which may encourage them to expand / attract MNCs / increase output / increase GDP / cause economic growth (1) increase employment / lower unemployment (1)  reduce inflation / firms lower prices (1) make Tunisia’s products more internationally competitive / increase exports / lower imports / improve the current account balance (1)  may reduce pollution / external costs (1) if subsidising green sources of energy (1). Award up to 4 marks for logical reasons why it might not, which may include:  electricity firms may rely on the subsidy (1) may not keep costs low / become inefficient (1) may not pass on the subsidy in the form of lower price (1)  opportunity cost (1) government could spend money on e.g. healthcare (1)  may result in a budget deficit / increase in taxes (1)  may cause pollution / external costs (1) if e.g. coal powered / deplete non-renewable resources (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(h) Discuss whether or not a rise in the value of the Tunisian dinar would benefit the Tunisian economy. Award up to 4 marks for logical reasons why it might, which may include:  may reduce inflation (1) imports would be cheaper (1) enable households to buy more imports / higher purchasing power (1) more choice (1) may lower price of some raw materials and/or capital goods (1) increase competitive pressure on domestic firms (1) lower costs of production (1)  lower total (aggregate) demand (1) which may reduce demand-pull inflation (1)  may be taken as an indicator of a strong economy / increase confidence (1) encourage investment / attract MNCs (1)  if demand for exports is price inelastic, export revenue may rise (1). Award up to 4 marks for logical reasons why it might not, which may include:  higher export prices / may reduce exports / export revenue (1) lower price of imports (1) may increase imports / import expenditure (1) reduce international competitiveness (1) increase the deficit / reduce surplus on the current account of Tunisia’s balance of payments (1)  lower net exports may reduce GDP / economic growth (1) which may increase unemployment / reduce employment (1)  may discourage MNCs / investment (1) because of higher cost of setting up in the country (1). 6 Note: lower total demand may be credited on either side but only once. Note: the generic advice above in terms of MNCs. One mark for attract or discourage MNCs. Another mark could be gained by explaining why they may be attracted and another mark for explaining why they may be discouraged.

Question 46

Unemployment in the United Kingdom (UK) fell in December 2021 to 4.1%. Market forces would usually mean that wages would increase due to th…

Accepted Answer

2(a) Identify two ways of measuring unemployment. 2 claimant count (1) (labour force) survey (1) 2(b) Explain two factors that could influence living standards 4 One mark for each factor identified and one mark for each apart from unemployment rates. explanation. Logical explanation which might include: Accept arguments which describe reasons for either • income / wage levels (1) higher wages allow people to low / high living standards. afford more goods and services (1) • education (1) high education levels lead greater skills Accept answers that give HDI (1) with reference to either and to better paid jobs / lead to high human GDP per head, education or health. development index (1) • health standards / healthcare (1) high health standards lead to better enjoyment of life / less illness / better well- being (1) • cost of living / inflation rate (1) affecting purchasing power (1) • working hours (1) lower working hours gives more leisure time (1) • hygiene / sanitation (1) good water quality prevents diseases (1) • environmental standards (1) e.g. pollution reduces quality of life (1) • availability of public / merit goods (1) e.g. street lights / parks (1) • crime rates (1) low crime rates improve safety / quality of life (1) 2(c) Analyse how market forces can increase wages. 6 Reward, but do not expect, answers that analyse this question using elasticity of demand and supply. Coherent analysis which might include: • an increase in demand (1) for labour (1) may increase wages if the demand for a product increases (1) i.e. derived demand (1), there will be an increase in demand for workers producing that product (1) for example, if price of substitutes such as robots increases, there will be an increase in the demand for human labour (1) • a decrease in supply (1) of labour (1) may increase wages if it is caused by a decrease in the labour force (1) or a decrease in number of people qualified / having skills in that occupation (1). 2(d) Discuss whether or not free trade will increase 8 Level Description Marks economic growth. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making Why it might: use of economic information and • may enable countries to specialise on what they are clear and logical analysis to best at producing evaluate economic issues and • higher competition may increase productivity and lower situations. One side of the costs of production, increasing demand for their argument may have more depth products than the other, but overall both • may enable firms to buy raw materials and capital sides of the argument are goods at a lower price considered and developed. There • may give firms access to larger markets, enabling them is thoughtful evaluation of to expand output. economic concepts, terminology, information and / or data Why it might not: appropriate to the question. The • may prevent infant industry from growing discussion may also point out the • may speed up the closure of declining industries possible uncertainties of • may replace domestic output with imports alternative decisions and • may reduce tax revenue outcomes. • firms may gain monopoly power and may restrict output • firms may engage in unfair competition e.g. dumping. 2(d) 2 A reasoned discussion which 3–5 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 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 47

(a) Calculate the percentage of the Jordanian labour force employed in the secondary sector. [1] (b) Identify two components of the current…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the percentage of the Jordanian labour force 1 Accept 19. employed in the secondary sector. 19% (1). 1(b) Identify two components of the current account of 2 If more than two suggested components are given, consider Jordan’s balance of payments. the first three. Trade in services (1) primary income (1). Accept invisibles for trade in services. 1(c) Explain the main type of unemployment experienced by 2 Faill in demand is not sufficient here for fall in total demand Jordan in 2020. as total demand is given in the source material – must be macro. Cyclical unemployment (1) lower total demand / fall in employment in most industries / number of workers greater Accept ‘demand deficient unemployment for cyclical than the number of jobs available (1). unemployment. 1(d) Explain two advantages the Jordanian economy may 4 One mark each for each of two advantages identified and gain from the mergers between its tourism firms. one mark for each of two explanations. Logical explanation which might include: Lower prices may be linked to either ‘raise output’ etc. or Lower prices (1) may raise output/GDP/employment/living ‘raise exports’ etc. standards / may be the result of taking advantage of Similarly higher quality may be linked to ‘raise exports etc.’ economies of scale (1). or ‘raise output etc.’. Higher quality (1) may raise exports / reduce current account deficit / increase international competitiveness / increase tourism revenue / more foreign currency / may be the result of sharing ideas (1). 1(e) Analyse the relationship between birth rate and average 4 Responses do not have to be in the format suggested but age. they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, Coherent analysis which might include: and analyse the overall data. Expected relationship (up to 2 marks): Accept analysis based on how differences in the average of Countries with a low birth rate are likely to have a high population may affect the birth rate. average age (1) an inverse relationship / negative relationship / move in opposite directions (1). For supporting evidence and the second ‘exception’ mark, comparisons must be made. No marks for just stating the Supporting evidence (up to 2 marks): birth rate and average age figures. Four countries with the lowest birth rates had the highest average age (1) Monaco had the lowest birth rate and the highest average age (1) Niger with the highest birth rate has the lowest average age (1) e.g. Germany has a lower birth rate and a higher average age than Jordan (1). Analysis of expected relationship (up to 2 marks): A low birth rate would mean that children would form a small proportion of the population / a high birth rate may mean children would form a high proportion of the population / it would increase the proportion of people aged over 65 (1). A high birth rate may indicate low living standards / lower income which may be associated with low life expectancy (1). A high average age may mean that there are fewer people of child-bearing age (1). Exception (up to 2 marks): Venezuela or Maldives (1) Maldives had a lower birth rate than Venezuela but the same average age (1). Analysis of exception (up to 1 mark): The average age of a country’s population is also influenced by the death rate and net migration (1). 1(f) Analyse, using a demand and supply diagram, how an 5 increase in population size will affect the market for clothing. Coherent analysis which might include: D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New demand curve shifted to the right (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). Written analysis: An increase in population size will increase the number of consumers / increase demand for clothes / price increases (1). 1(g) Discuss whether or not the Jordanian government 6 Apply this example to all questions with the command should spend more on renewable energy. word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it should, which may include: Each point may be credited only once, on either side of an • need for more energy due to an increase in population argument, but separate development as to how/why the (1) non-renewable sources of energy will run out / outcome may differ is rewarded. reduced dependency on fossil fuels (1) may reduce import bills (1) Generic example mark • would reduce environmental damage (1) reduce external costs (1) lower pollution (1) reduce extent of Tax revenue may decrease… 1 climate change / global warming / promote sustainable development (1) improve health (1). ...because of reason e.g. incomes may be 1 • cheaper in the longer run (1) solar and wind power are lower. free goods (1) lower costs of production (1) reduce household bills (1). Tax revenue may increase because incomes 0 may be higher i.e. reverse of a previous Award up to 4 marks for logical reasons why it should not, argument. which may include: • expensive to build (1) opportunity cost (1) example (1) Tax revenue may increase because of a 1 • relies on weather (1) supplies may be disrupted / different reason i.e. not the reverse of a insufficient / unreliable (1) previous argument e.g. government spending • cost of renewable energy projects may increase with on subsidies may stimulate the economy more high interest than spending on education. • rates (1) may be funded by borrowing (1) may increase taxes (1) • may cause visual pollution (1) e.g. wind turbines (1). 1(h) Discuss whether or not the Jordanian central bank 6 Some points e.g. discouraged spending may be considered should have raised the rate of interest in 2021. from either side but see guidance table on 1f. Award up to 4 marks for logical reasons why it should have, which may include: • total demand predicted to increase / may have reduced total demand (1) encouraged saving (1) discouraged spending / borrowing (1) lowered demand-pull (1) inflation (1) reduced imports (1) • may have attracted more funds for the Jordanian government to borrow / use (1) for e.g. renewable energy projects (1). Award up to 4 marks for logical reasons why it should not have, which may include: • cost of government borrowing would have increased / may have difficulty paying off government debt (1) • investment may have been discouraged (1) lowered economic growth (1) reduced growth in employment / caused unemployment (1) • may have increased the exchange rate (1) foreigners depositing money in the country’s banks / attracted hot money flow (1) raised export prices / lowered import prices / decreased exports / increased imports (1) reduced tourism (1) increased the current account deficit (1).

Question 48

In 2021, there were extensions and contractions in demand for a number of South African products. In that year, a South African court stopp…

Accepted Answer

4(a) Define an extension in demand. 2 May be shown by a movement down a demand curve caused by a fall in price. A movement along a demand curve (1) higher demand (1) caused by a fall (1) in price (1). Not accepting: an increase in demand but accepting: an increase in quantity demanded. 4(b) Explain two external costs that may be caused by 4 One mark each for each of two costs identified and one exploring for oil. mark for each of two explanations. Logical explanation which might include: Reduce tourism may be given as an identification or as an explanation of e.g. ‘Damage to the natural environment’ Air pollution / pollution (1) those living nearby may experience a reduction in air quality / contribute to climate change/global warming / reduced health (1). Noise pollution (1) disturbing sleep (1). Water pollution / oil spillage (1) damage health (1). Damage to the natural environment / land / deforestation (1) destroy wildlife habitats / cause global warming / climate change (1). Reduce tourism (1) lower employment (1). Congestion (1) increasing transport costs (1). 4(c) Analyse how growth in a country’s tertiary sector can 6 increase its living standards. Coherent analysis which might include: May have high productivity (1) increase output (1) increase employment / reduce unemployment (1). May pay higher wages (1) allowing workers to consume more goods and services / afford education / afford healthcare / reduce poverty / buy more necessities / buy some luxuries/wants (1). May provide good working conditions (1) less tiring / less physically demanding (1) resulting in good health of workers (1) few accidents (1). May involve expansion of education (1) increasing future employment / workers’ skills (1) earning prospects (1) increase quality of output (1) increase HDI value (1). More transport services (1) could reduce prices / lower congestion / reduce stress (1). Growth of entertainment industry (1) improve leisure time (1). May involve expansion of healthcare (1) increase life expectancy / better health (1). May increase tax revenue (1) enabling the government to spend more on e.g. education (1). Less pollution (1) less environmental damage / less climate change / less global warming (1). 4(d) Discuss whether or not workers who lose their jobs are 8 Reward but do not expect reference to hysteresis. likely to stay unemployed for a long time. Level Description Marks In assessing each answer, use the table opposite. 3 A reasoned discussion which 6–8 Why they might: accurately examines both sides of the • may lose skills / unskilled workers may have greater economic argument, making use of difficulty than skilled workers in finding another job economic information and clear and • may become out of date with advances in technology / logical analysis to evaluate economic working practices issues and situations. One side of the • may be expensive for firms to employ as may need argument may have more depth than extra training the other, but overall both sides of the • may lose confidence argument are considered and • may become less attractive to employers developed. There is thoughtful • more likely to stay unemployed if a result of evaluation of economic concepts, cyclical/structural rather than frictional unemployment terminology, information and/or data • may be high unemployment benefits. appropriate to the question. The discussion may also point out the Why they might not: possible uncertainties of alternative • may receive government training decisions and outcomes. • may be geographically/occupationally mobile • gap between wages and state benefits may encourage 2 A reasoned discussion which makes 3–5 the unemployed to seek work use of economic information and clear • economy may grow, expanding employment analysis to evaluate economic issues and situations. The answer may lack opportunities some depth and development may be • may leave the labour force, e.g. retire / emigrate one-sided. There is relevant use of • may be seasonally unemployed. economic concepts, terminology, information and data appropriate to the question. 4(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

Question 49

(a) Calculate the average cost of producing a car in Belarus in 2021. [1] (b) Identify two reasons why Belarus is described as a mixed econ…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the average cost of producing a car in Belarus 1 Accept 10 650 or 0.010650million or 0.1065m. in 2021. Needs to be to at least 2 dp e.g. 0.011m $10 650 (1). 1(b) Identify two reasons why Belarus is described as a 2 mixed economy. • There is a public sector / some people work in the public sector / there are state-owned firms / there is government intervention e.g. fining the unemployed (1). • There is a private sector (1). 1(c) Explain the type of inflation experienced by Belarus. 2 Cost-push (1) due to a rise in the price of energy / increase in costs of production of firms (1). 1(d) Explain two reasons why the production possibility 4 One mark each for each of two reasons identified and one curve (PPC) of Belarus may have shifted to the left mark for each of two explanations. between 2011 and 2021. No marks for drawing a PPC diagram. Logical explanation which might include: • a decline in the size of the country’s labour force (1) reduction in the quantity of resources / fewer workers will be likely to reduce country’s ability to produce products (1) • a decrease in the number of students going to university (1) reduce quality of resources / labour skills / productivity / (1). 1(e) Analyse the relationship between life expectancy and 4 Responses do not have to be in the format suggested but HDI value. they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, Coherent analysis which might include: and analyse the overall data. Expected relationship: Note: simply repeating the data is not enough for a mark as • a high life expectancy would be expected to be it is only description whereas the skill being tested is associated with a high HDI value (1) analysis. • positive relationship / direct relationship / move in the same direction (1). Supporting evidence: • two countries with the longest life expectancy have the highest HDI value OR two countries with the lowest life expectancy also have the lowest HDI value (1) • specific reference to a country e.g. Norway had the longest life expectancy and the highest HDI value (1). Analysis of expected relationship: • life expectancy is one of the components of HDI (1) accounts for a third of its value / explanation of how better health / life expectancy raises standard of living (1). Exception: • Belarus / Thailand (1) Belarus has a shorter life expectancy but a higher HDI value (1). Analysis of exception: • there are other components of the HDI: education / GDP (GNI) per head (1). 1(f) Analyse, using a demand and supply diagram, how 5 subsidising the production of milk would affect the market for milk. Coherent analysis which might include: D&S diagram: • axes correctly labelled – price and quantity or P and Q (1) • original demand and supply curves correctly labelled (1) • new supply curve shifted to the right (1) • equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). Written analysis: • reduction in cost of production / increase in supply / increase in quantity traded / reduction in price (1). 1(g) Discuss whether or not the construction of electric 6 Apply this example to all questions with the command vehicle charging stations would benefit an economy. word DISCUSS (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d) Award up to 4 marks for logical reasons why it might benefit, which may include: Each point may be credited only once, on either side of an • likely to encourage use of electric vehicles (1) stations argument, but separate development as to how/why the and vehicles are complements (1) outcome may differ is rewarded. • improve the environment (1) reduce external costs (1) including air / noise pollution (1) reduce healthcare Generic example Mark costs / improve health of workers (1) • building the stations / building more electric cars may Tax revenue may decrease… 1 create employment (1) • government / private sector investment / purchase of ...because of reason e.g. incomes 1 electric vehicles may raise total (aggregate) demand (1) may be lower. causing higher output / economic growth (1). Tax revenue may increase 0 Award up to 4 marks for logical reasons why it might not because incomes may be higher benefit, which may include: i.e. reverse of a previous • other forms of transport may have more beneficial argument. effects on the environment (1) e.g. cycling / buses (1) • some people may be reluctant to switch (1) price of Tax revenue may increase 1 electric cars may be too high (1) resources are wasted because of a different reason i.e. (1) not the reverse of a previous • if people do switch, it may cause unemployment (1) in argument e.g. government e.g. oil firms / production of diesel and petrol cars / less spending on subsidies may public transport (1) stimulate the economy more than • Increase in electric vehicles on road (1) causes road spending on education. congestion (1) • Opportunity cost of government investment (1) monies could have been spent e.g. education /health / infrastructure (1) • If economy at full employment (1) investment may lead to demand-pull inflation (1). 1(h) Discuss whether or not people should be fined for being 6 unemployed. Award up to 4 marks for logical reasons why they should be fined, which may include: • if frictional unemployment (1) a fine would encourage workers to put more effort into finding a job (1) spend less time between jobs (1) help move economy towards full employment (1) higher output (1) and economic growth (1) • fines may increase government revenue (1) which could be spent on e.g. healthcare / support to find a job (1) • may not be seeking a job as receive benefits (1) fines may encourage them to find work and reduce government spending on unemployment benefits (1). Award up to 4 marks for logical reasons why they should not be fined, which may include: • may be a lack of suitable jobs available (1) the unemployed may have lacked the skills required (1) may not have been able to move to other areas of the country (1) may have disabilities / ill-health (1) providing support may reduce unemployment more quickly (1) • unemployment may be structural / cyclical (1) it would have been more effective to increase training (1) increase total demand (1) • unemployed may have little income to pay the fine (1) may increase their debt (1) lead to greater poverty / unable to pay for basic necessities (1) affect their mental health / wellbeing / causes depression (1) • may encourage the growth of the shadow/unofficial/informal economy (1) as not registered as unemployed (1) • may reduce wages (1) workers may be forced to accept low-paid jobs (1).

Question 50

Nigeria has a mixed economic system. In January 2023, Nigeria had a high unemployment rate of 33% which created a number of costs. Its high…

Accepted Answer

4(a) Identify two costs of unemployment. 2 If more than two costs given, consider the first three. Two from: • loss of output / low economic growth • loss of tax revenue / budget deficit • high government spending on benefits • higher government spending on measures to reduce unemployment / training the unemployed • loss of income / poverty / low living standards • loss of skills • health problems / high government spending on healthcare • more crime • movement of a production point inside the PPC / not producing at full capacity. 4(b) Explain how the key resource allocation decisions are made in a 4 Maximum of three marks if only one sector is mixed economic system. covered. Logical explanation which might include: For the last mark: accept, but do not expect reference to ‘may carry out a cost-benefit Private sector / individuals / households / firms / consumers (1) will use analysis’, price mechanism (1) demand and supply / demand / market forces (1) influenced by the profit motive (1) use most cost-effective methods of production (1). Public sector / government / state (1) will use its spending (1) taxation (1) regulation / maximum prices / minimum prices / directives (1) influenced by social costs / social benefits / economic welfare (1). 4(c) Analyse the causes of an increase in the demand for foreign 6 currency. Coherent analysis which might include: To buy more goods and services from that country / higher demand by other countries for that country’s products (1) increased foreign tourism (1) may be the result of higher inflation in the buying country (1) may be due to removal of trade restrictions (1) rise in quality of the other country’s products (1) higher incomes in the buying country (1). To speculate / increased confidence in the currency (1) that it will rise in price / value (1) make a profit (1). To invest more in that country (1) e.g. set up a branch of a MNC / FDI (1) MNC sending profit home (1). To send more money home to relatives (1) workers’ remittances (1). The government / central bank may buy it (1) to influence the exchange rate (1) add to the reserves (1). To take advantage of a rise in interest rates in that country (1) increase hot money flows (1) increase return on saving / financial investment (1). More people may migrate to that country (1) to e.g. buy a home in another country (1). 4(d) Discuss whether or not inflation will harm a country’s firms. 8 Level Description Marks In assessing each answer, use the table opposite. 3 A reasoned discussion 6–8 which accurately Why it might: examines both sides of the • may increase price of raw materials and capital goods economic argument, • increase costs of production making use of economic • increase menu and shoe leather costs information and clear and • workers may take industrial action to gain wage rises logical analysis to evaluate • increase costs and disrupt output economic issues and • cost-push inflation situations. One side of the • less internationally competitive argument may have more • profits may fall depth than the other, but • may make it difficult to plan. overall both sides of the argument are considered Why it might not: and developed. There is • demand-pull inflation can increase sales thoughtful evaluation of • revenue may rise by more than costs, increase profits economic concepts, • if lower than rival countries can make products more internationally terminology, information competitive and/or data appropriate to • if low and stable, may not be a problem the question. The • may reduce real value of debts discussion may also point out the possible • may be able to reduce real costs of wages. uncertainties of alternative decisions and outcomes. 4(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 51

(a) Calculate the value of Gabon’s oil production as a percentage of Gabon’s GDP. [1] (b) Identify two external benefits of rainforests. [2…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the value of Gabon’s oil production as a 1 Accept 30 without %. percentage of Gabon’s GDP. 30%. 1(b) Identify two external benefits of rainforests. 2 If more than two benefits given, consider the first three. Two from: • reduce air pollution / pollution / improves air quality (1) • protect against floods (1) • prevent soil erosion (1). 1(c) Explain what effect an increase in tourism may have on 2 No marks for simply saying current account of the balance of Gabon’s current account of the balance of payments. payments increases. • Increase in exports (1) • increase trade in services (invisible) surplus / reduces deficit (1) • Improves the current account balance surplus / reduces deficit (1). 1(d) Explain two reasons why the Gabonese Government 4 One mark each for each of two reasons identified and one wants to reduce reliance on oil. mark each for each of two explanations. Logical explanation which might include: Only these two reasons are acceptable. • Running out of oil / create a shortage (1) revenue from the industry will decline / employment in the industry will decline / GDP will decline /cause recession / conserve for future generations / may need to import oil / price for oil may rise (1). • Oil industry creates water pollution / pollution (1) an external cost / harms health / reduces standard of living / protect the environment / attract tourists (1). 1(e) Draw a demand and supply diagram to show the effect 4 of the discovery of new gold deposits on the market for gold. Coherent analysis which might include: D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New supply curve shifted to the right (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 1(f) Analyse the relationship between the literacy rate and 5 Responses do not have to be in the format suggested but the percentage of the labour force employed in they should address the expected/normal relationship, offer agriculture. supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Coherent analysis which might include: Supporting evidence should involve interpretation, not just Expected relationship: description. Simply stating percentages without analysis of • Generally, an inverse / negative relationship (1) the being high or low gets no marks. higher the literacy rate, the smaller the % of the labour force employed in agriculture (1). Accept as analysis where two countries with different levels of adult literacy and percentage employed in agriculture are Supporting evidence: directly compared. • South Africa had the highest literacy rate and the lowest % of the labour force employed in agriculture (1). • Zambia / Sierra Leone / Mali had the lowest literacy rates and the highest %s of labour force employed in agriculture (1). Analysis of expected relationship: • A high literacy rate may increase the chance of workers gaining jobs in high paid tertiary jobs (1) a low literacy rate may mean workers have to undertake unskilled jobs in agriculture / a high proportion of workers employed in agriculture may mean that high literacy rate is not required (1). Exception: • Gabon (1) Gabon has a high literacy rate but also a high % of the labour force employed in agriculture (1). Analysis of exception: • Some jobs in agriculture are skilled / secondary and tertiary sectors may be small (1). 1(g) Discuss whether or not a government should pay 6 Apply this example to all questions with the command private sector firms to give work experience to word DISCUSS unemployed young people. (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) Award up to 4 marks for logical reasons why it should, Each point may be credited only once, on either side of an which may include: argument, but separate development as to how/why the outcome may differ is rewarded. • can enable young workers to develop their skills / raise their productivity (1) increase their confidence / Generic example mark motivation to get a job / get higher paid jobs (1) young people may make mistakes and cost firm money while Tax revenue may decrease 1 being trained (1) • can increase the chances of young people gaining a job because of reason e.g. incomes may be lower. 1 (1) reduce unemployment (1) reduce the cost of unemployment benefits (1) reduce future training costs Tax revenue may increase because incomes 0 (1) increase tax revenue (1) leads to economic growth may be higher i.e. reverse of a previous (1). argument. Award up to 4 marks for logical reasons why it should Tax revenue may increase because of a 1 not, which may include: different reason i.e. not the reverse of a previous argument e.g. government spending • the quality of the work experience may not be good (1) on subsidies may stimulate the economy more the young may be given unskilled jobs (1) poor working than spending on education. conditions / not regulated (1) • opportunity cost [implied] (1) government spending could be used to e.g. improve state education (1) government incurs additional expenditure / raises taxes to pay for it (1) the young may have been employed by the private sector without payment by the government (1) • it may reduce the efficiency of private firms (1) reduce their output (1) firms may be corrupt (1). 1(h) Discuss whether or not a growth in the size of firms in 6 Maximum of 2 marks for just listing different types of Gabon’s textile industry will reduce their average cost economies and diseconomies of scale or just stating of production. economies of scale and diseconomies of scale may be experienced without references to examples. Award up to 4 marks for logical reasons why it might, which may include: Essentially full marks can be gained for identification and explanation of two economies of scale and one diseconomy • labour economies (1) workers can specialise / increase of scale OR one economy of scale and two diseconomies of labour productivity (1) scale. • managerial economies (1) employ specialists (1) • technical economies (1) using advanced capital Note there is no marks awarded for simply stating that equipment (1) average costs may or rise or for drawing a diagram showing • buying / purchasing economies (1) receiving a discount average costs changing as a firm grows in size. as buying in bulk (1) • selling economies (1) reducing transport costs (1) • marketing economies (1) spreads fixed costs over more output (1) • financial economies (1) easier / cheaper to borrow (1) • research and development economies (1) introduce new products / new production methods (1) • risk bearing economies (1) able to suffer fall in demand for one product or supply problems connected to one product (1) • may experience external economies of scale (1) example (1). Award up to 4 marks for logical reasons why it might not, which may include: • difficulty of controlling a large firm (1) may be slower to make decisions (1) 1(h) • communication problems (1) may be more difficult to 6 keep everyone informed (1) • poor industrial relations (1) may be less contact between managers and workers / decreasing productivity (1).

Question 52

In recent years, the quantity of Latvia’s factors of production has changed. Since 2008, its capital has increased and its land has not cha…

Accepted Answer

3(a) Identify the rewards to capital and land. 2 If just names the two rewards, they can be in any order. • Interest (1) • rent (1) 3(b) Explain two causes of a decrease in enterprise in an 4 One mark each for each of two causes identified and one economy. mark each for each of two explanations. Logical explanation which might include: If more than two causes given, consider the first three. • Decrease in profit / increase in corporate income MAX of two marks if not identifying what changes. (corporation) tax (1) increase in interest rates for borrowing (1) reduce financial incentive to become an entrepreneur (1). • Reduction in education (1) reduce those with the skills to become entrepreneurs (1). • Reduction in immigration / reduction in population (1) reduce the number of people who can become entrepreneurs (1). • Entrepreneurs move abroad (1) better prospects / less tax (1). • Reduction in the retirement age (1) reduces supply of potential entrepreneurs (1). • Recession / war (1) firms may go out of business / reduces willingness to take risks / reduces confidence / certainty (1). • Increased government regulation (1) excessive rules may discourage entrepreneurs (1). • Nationalisation of an industry / growth of monopolies (1) removal of entrepreneurs (1). 3(c) Analyse how changes in conditions of supply can affect 6 Only allow one mark for reference to a rise in price and one a firm’s prices. mark for reference to a fall in price. Coherent analysis which might include: MAX 4 marks if not identifying change in conditions of supply. • Increase in costs of production (1) due to rise in wages / raw material costs / capital goods costs / tariffs (1) raise price (1) to maintain profit (1). • Natural disasters (1) can create a shortage (1) raise price (1). • Changes in weather (1) good weather can create a surplus in supply e.g. agriculture (1) prices fall (1) or poor weather can create a shortage (1) prices rise (1) • Increase in indirect tax / corporate income (corporation) tax (1) a firm may pass this onto consumers as higher prices (1) especially if demand is inelastic (1). • Government subsidies to firms (1) reduce the cost of production (1) the firm may be able to gain the same revenue and profit (1) with a lower price (1). • Discovery of new source of raw materials (1) enabling the firm to supply (1) more at a lower price (1). • Advances in technology (1) example (1) could lower costs of production (1) reducing price (1). • Improvements in education and training (1) raise productivity (1) lower prices (1). 3(d) Discuss whether or not a rise in a national minimum 8 Accurate diagram can achieve Level 1. wage will harm an economy. Level Description Marks In assessing each answer, use the table opposite. 3 A reasoned discussion which accurately 6–8 Why it might: examines both sides of the economic • increase unemployment if firms cannot afford to pay argument, making use of economic higher wages information and clear and logical • higher unemployment would reduce total demand analysis to evaluate economic issues • lower total demand would reduce output and situations. One side of the • tax revenue may fall, and expenditure on state benefits argument may have more depth than may rise the other, but overall both sides of the • if higher wages are paid, there may be inflation. argument are considered and developed. There is thoughtful Why it might not: evaluation of economic concepts, • reduce poverty as raise the income of the low-paid terminology, information and/or data • encourage more people to enter the labour force appropriate to the question. The • increase productivity as workers may be more discussion may also point out the motivated possible uncertainties of alternative • encourage firms to train workers to gain better return decisions and outcomes. • may be set below the existing equilibrium wage level. 2 A reasoned discussion which makes 3–5 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(d) 8 Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

Question 53

The world’s four largest accountancy firms experienced a decline in demand for their services at the start of 2023. One cause of this lower…

Accepted Answer

2(a) Identify two advantages a firm may gain from merging 2 If more than two advantages given, consider the first three. with another firm. Two from: • reduce competition / increase market power / increase market share / may become a monopoly / become a price maker / higher barriers to entry • gain economies of scale / reduce (average) cost / increased efficiency / higher productivity • gain control over outlets • gain control over raw materials • rationalisation • greater profit / revenue • new ideas / access to improved technology • spread risks • more resources / more labour / more capital / more enterprise / more land • higher demand / more sales / larger size of firm • gain consumer data 2(b) Explain two disadvantages workers may experience as 4 One mark each for each of two reasons identified and one a result of losing their jobs. mark each for each of two explanations. Logical explanation which might include: Loss of income (1) resulting in lower living standards / lower If more than two reasons given, consider the first three. quality of life / poverty / inability to buy necessities / lower purchasing power / lower spending / lower consumption / Reward ‘making it more difficult to get another job’ only lower spending on a particular good or services e.g. once. education/healthcare/housing/holidays (1). Loss of skills (1) may need to gain new skills / as miss out on training / make it more difficult to get another job / lower paid job / reduced mobility of labour (1). May be more likely to get into debt (1) harder to repay any past loans (1). Harder to get a loan (1) banks may not expect them to be able to repay loan (1). Loss of fringe benefits (1) example e.g. health insurance / home (1). Less attractive to future employers / bad reputation (1) make it more difficult to get another job (1). Mental health problems / stress / illness / divorce (1) loss of self-esteem / loss of self-confidence / making it more difficult to get another job / reduced life expectancy / due to difficulty/time to find another job (1). May have to sell possessions (1) to gain money / to meet bills (1). Demotivation (1) give up looking for work / become a discouraged worker / become voluntarily unemployed (1). Reduced ability to save (1) reduced ability to cope with unexpected events / to finance e.g. education / healthcare / retirement (1). 2(c) Analyse the advantages of an increase in labour 6 Reward but do not expect reference to reduce labour market mobility. failure. Coherent analysis which might include: • An increase in the ability of workers to change jobs / provide more choice of jobs (1) occupational mobility of labour (1) improve skills / productivity / experience by changing jobs (1). • An increase in the ability of workers to move from one area to another (1) geographical mobility of labour (1) move to a more pleasant area (1). • Can reduce structural / regional / frictional (1) unemployment (1) enable workers to get new jobs more quickly / reduce long term unemployment (1) may enable some workers to find higher paid jobs / gain higher wages / reduce poverty / higher standard of living / better working conditions (1) raise tax revenue / reduce government spending on benefits (1). • It can reduce labour shortages (1) reduce costs / cost- push inflation (1) increase output / increase GDP / cause economic growth (1). • It can enable firms to respond more quickly/more fully to changes in consumer demand / increase flexibility / change in size (1) reduce surpluses and shortages of products (1). 2(d) Discuss whether or not the demand for chocolate is 8 Level Description Marks likely to be price elastic. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic argument, making use of economic Why it might: information and clear and logical • may have substitutes analysis to evaluate economic issues • may be seen as a luxury and situations. One side of the argument • PED of particular brands will be more elastic than may have more depth than the other, but demand for chocolate as a whole overall both sides of the argument are • the longer the time period, the easier it will be for considered and developed. There is consumers to change their spending patterns. thoughtful evaluation of economic concepts, terminology, information Why it might not: and/or data appropriate to the question. • may be addictive The discussion may also point out the • may be seen as a necessity possible uncertainties of alternative • may take up a small % of income. decisions and outcomes. 2 A reasoned discussion which makes use 3–5 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. 2(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

Question 54

In 2022, more than a quarter of a million workers, including doctors, left Sri Lanka to work in other countries. This was largely due to ec…

Accepted Answer

4(a) Identify two types of unemployment. 2 If more than two types given, consider the first three. Two from: Also accept voluntary unemployment, involuntary Frictional (1) structural (1) cyclical / demand deficient (1) unemployment, seasonal, classical, casual, regional, technological. Accept demand-deficient as an alternative to cyclical. 4(b) Explain two ways that money received from relatives 4 One mark each for each of two ways identified and one working abroad could raise their families’ living mark each for each of two explanations. standards. If more than two ways given, consider the first three. Logical explanation which might include: No marks for why the money received may be large due to Could spend more on food / buy more products / buy more e.g. lower tax rates abroad, high exchange rate. basic necessities have higher purchasing power / more income / could increase overall spending (1) reduce poverty (1). Could spend more on better quality food (1) improve nutrition / improve health (1). Could spend money on education / training (1) increase earning potential / wages (1). Could spend on healthcare (1) raise life expectancy (1). Could spend on housing (1) reduce illness (1). May be able to afford luxuries (1) e.g. may be able to afford a holiday / car (1). Could set up a small business (1) which could earn them an income (1) Could pay off debts / reduce need to borrow / reduce cost of borrowing (1) reduce stress (1). Could save more (1) earn interest / pay for e.g. healthcare/education of children in the future (1) Could work fewer hours / fewer jobs (1) less stress (1). 4(c) Analyse how an increase in direct taxation could 6 increase unemployment. Coherent analysis which might include: • (Increase in) (personal) income tax (1) (increase in) tax on wealth (1) would reduce disposable income / purchasing power / money available / the amount of their wages they can keep (1) reduce consumer spending (1) lower total demand (1) lower demand for workers (1) as demand for workers depends on demand for goods and services / derived demand (1) increase cyclical unemployment (1). • Reduce incentive to work / encourage workers to leave their jobs (1) may now rely on unemployment benefit / as may receive more from unemployment benefit than from a now lower paid job (1) increase frictional/voluntary unemployment (1). • (Increase in) corporation (corporate income) tax (1) will reduce the amount of profit that can be kept / reduce profit (1) firms may reduce output / reduce economic growth / may cause a recession / reduce supply / less incentive to expand (1) reduce investment (1) result in cyclical unemployment (1) may reduce employment to cut costs (to maintain profit) (1). 4(d) Discuss whether or not a doctor would benefit from 8 Maximum of 4 marks if discussing working in another city working in another country. rather than country. In assessing each answer, use the table opposite. Level Description Marks Why they might: 3 A reasoned discussion which accurately 6–8 • may be higher paid, higher living standards examines both sides of the economic • may benefit from lower inflation argument, making use of economic • may benefit from lower taxes information and clear and logical • may be more chances of gaining a job or gaining a analysis to evaluate economic issues promoted post and situations. One side of the argument • may have better working conditions may have more depth than the other, but • may have more fringe benefits overall both sides of the argument are • may gain new skills and experience considered and developed. There is • may be safer environment thoughtful evaluation of economic • may be able to send money home to family concepts, terminology, information • may provide better opportunities for their children. and/or data appropriate to the question. The discussion may also point out the Why they might not: possible uncertainties of alternative • may have longer working hours decisions and outcomes. • may have less holidays 2 A reasoned discussion which makes use 3–5 • may have less job security of economic information and clear • may miss friends / relatives analysis to evaluate economic issues • may face discrimination and situations. The answer may lack • may face language problems/ cultural differences. some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 4(d) 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 55

(a) Calculate the number of people who are in poverty in Egypt. [1] (b) Identify two of Egypt’s primary sector exports. [2] (c) Explain how…

Accepted Answer

Question Answer Mark Guidance 1(a) Calculate the number of people who are in poverty in 1 30 690 000 Egypt. Accept 30.7 million. 30.69 million 1(b) Identify two of Egypt’s primary sector exports. 2 Accept any two Two from: oil (1), citrus fruits (1), gold (1) 1(c) Explain how building a new city can reduce 2 Only one mark if not linked to building. unemployment. Building a new city requires labour / creates job opportunities / increases demand for labour (1) to work in construction / build new buildings (1). 1(d) Explain why tourism is a good source of economic 4 Award a maximum of 2 marks for just identification of points growth for Egypt. without explanation. Logical explanation which might include: Egypt has many ancient / human-made attractions and buildings (1) not found in many parts of the world / that tourists want to visit (1) creating more employment / tax revenue (1). Egypt has natural attractions, such as beautiful beaches / warm climate / good weather (1) these attract tourists / low government spending required / low investments required (1). Egypt has good infrastructure (1) this can attract tourists as its easier to travel to the country or attractions / can attract investors with lower cost of production (1). Egypt has good security (1) tourists feel safe / investors are confident in the security of their investments (1). Egypt has experienced a fall its currency value (1) making holidays more affordable (1). 1(e) Draw a demand and supply diagram to show the likely 4 effect of falling incomes on the market for housing in the new city. D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New demand curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 1(f) Analyse the relationship between investment (as a % of 5 Responses do not have to be in the format suggested but GDP) and economic growth rates for Egypt. they should address the expected / normal relationship, offer supporting evidence of that, highlight any exceptions to that, Coherent analysis which might include: and analyse the overall data. Expected relationship: Positive / direct (1) higher / lower investment should lead to higher / lower economic growth rates (1). Supporting evidence: From 2017–2019, Investment rising and economic growth also rising (1) From 2019–2020, investment falling and economic growth also falling (1). Analysis: Higher investment leads to higher economic growth due to higher total demand / investment is a component of total demand (1) and increased productivity / lower cost of production (1). Exception: identification of an exception 2015–2017 or 2020–21 (1), 2015–2017, investment rising but economic growth falling slightly / relatively stable / largely unchanged (1), 2020–2021, investment falling but economic growth rate rising (1). Analysis of the exception: Current investment increase now could lead to a delayed response in economic growth rates (1) data shows percentage not total investment (1). 1(g) Discuss whether or not deregulation in education in 6 Answers not referring to education, max 3 marks. Egypt will increase living standards. Apply this example to all questions with the command Award up to 4 marks for logical reasons why it might, which word DISCUSS may include: (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) • deregulation has led to an increased number of schools / universities in Egypt (1) may increase competition Each point may be credited only once, on either side of an between private schools / universities (1) may lower argument, but separate development as to how/why the fees (1) raise quality (1) outcome may differ is rewarded. • more people have opportunities for education and training (1) making people more educated / skilled / Generic example mark qualified / literate / productive (1) easier to find jobs (1) earn an income (1) increasing affordability of goods and Tax revenue may decrease 1 services (1) more educated people tend to enjoy better health / spend more on healthcare (1) longer life because of reason e.g. incomes may be lower. 1 expectancy (1) increase HDI (1) • more school buildings will increase employment (1) of Tax revenue may increase because incomes 0 builders (1) teachers (1) may be higher i.e. reverse of a previous • may reduce government spending on education (1) argument. allowing the government to spend more on items that could increase living standards e.g. healthcare (1). Tax revenue may increase because of a different 1 reason i.e. not the reverse of a previous Award up to 4 marks for logical reasons why it might not: argument e.g. government spending on • opening more private schools and universities in Egypt subsidies may stimulate the economy more than might increase the level of inequality (1) as private spending on education. education remains unaffordable to lower income groups (1) restricting their employment opportunities (1) as private education is usually more expensive than state- provided education (1) • standards of living only improve for those from higher income groups (1) lower income groups remain in relative poverty (1) widen gap between rich and poor / increase relative poverty (1) • private schools and universities may prioritise profits (1) over the quality / standards of education provided (1). 1(h) Discuss whether or not a fall in the value of the 6 One mark for identifying increase or decrease in investment. Egyptian currency would harm the Egyptian economy. Award up to 4 marks for logical reasons why it might, which may include: • fall in the value of the Egyptian currency may cause cost push (1) inflation (1) reducing the purchasing power of Egyptians (1) as imported goods become more expensive (1) standards of living could decrease (1) • cost of production could increase (1) increasing the price of domestically produced goods (1) some firms may try to cut cost by reducing jobs (1) increase unemployment (1) • may create uncertainty / reduce confidence (1) discourage investment (1). Award up to 4 marks for logical reasons why it might not, which may include: • Egyptian exports become cheaper (1) increasing demand for exports / increasing revenues of domestic producers / incomes (1) causing economic growth (1) demand may switch from imports to domestically produced products (1) may reduce current account deficit (1) • industries such as the tourism industry may benefit (1) as holidays in Egypt become more affordable for non- Egyptians (1) • workers also have more job opportunities (1) since there is more demand for domestically produced goods and services (1) • may increase investment / hot money flows (1) reduced cost to set up an MNC / may expect profit if currency value rises later (1).

Question 56

(a) Calculate foreign workers as a percentage of Japan’s labour force in 2022. [1] (b) Identify two reasons why Japan has a high average ag…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate foreign workers as a percentage of Japan’s 1 Accept 2.5 without %. labour force in 2022. 2.5% (1). 1(b) Identify two reasons why Japan has a high average age 2 If more than two reasons are given, consider the first three. of population. Low birth rate (1) high life expectancy (1) good healthcare (1) young adults moving abroad (1). 1(c) Explain why some young Japanese people emigrate. 2 One mark for identification and one mark for explanation. To gain high wages (1) enjoy a better living standard / able to purchase more goods and services (1). 1(d) Explain two ways Japan could attract more foreign 4 One mark each for two ways identified and one mark each workers. for two explanations. Logical explanation which might include: If more than two ways are given, consider the first three. Only the 3 listed identifications can be credited, and • remove the Japanese language test (1) more foreigners explanation marks can only be awarded if applied to a valid would be able to work in the country (1) identification. • allow foreign workers to bring their families with them (1) foreign workers are more likely to settle in the country if they are not separated from their families (1) • allow unskilled workers to stay for more than five years (1) if gain high wages / enjoy living in the country would not want to leave / attract workers who want to live permanently in the country / give workers the opportunity to stay permanently / increase international mobility of labour (1). 1(e) Draw a demand and supply diagram to show the effect 4 of a decrease in population on the market for furniture. Coherent analysis which might include the following. D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New demand curve shifted to the left (1). OR New supply curve shifted to the left (1). OR New demand curve shifted to the left AND new supply curve shifted to the left. Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 1(f) Analyse the relationship between global GDP per head 5 Responses do not have to be in the format suggested but and global air passenger numbers. they should address the expected / normal relationship, offer supporting evidence of that, highlight any exceptions to that, Coherent analysis which might include the following. and analyse the overall data. Expected relationship: Supporting evidence should involve interpretation, not just Generally, a positive relationship (1) the higher the global description. GDP head, the higher the air passenger numbers (1). Supporting evidence: 2016–2019 GDP per head rose and air passenger numbers increased (1). Analysis of expected relationship: Higher GDP per head increases purchasing power / ability to pay for air travel (1) as people get richer, they travel more for leisure and business (1). Exception: 2021 (1) GDP per head rose but air passenger numbers decreased (1). Analysis of exception: May have been a time delay in people gaining confidence in flying after COVID-19 pandemic / other influences on demand e.g. air fares (1). 1(g) Discuss whether or not a high savings rate is likely to 6 Reference to AD / total demand falling can be credited on benefit Japan. either side of the argument, but only once. Award up to 4 marks for logical reasons why it might, which Apply this example to all questions with the command may include: word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) • may keep inflation low (1) as spending will not be high (1) reduce (total) demand (1) reduce demand-pull Each point may be credited only once, on either side of an inflation (1) argument, but separate development as to how / why the • may reduce imports (1) improve the current account of outcome may differ is rewarded. the balance of payments (1) • provide finance for investment (1) firms able to borrow Generic example mark from banks (1) • may enable households to finance future expenditure Tax revenue may decrease… 1 (1) on e.g. healthcare / education / provide for retirement / provide support for individuals in difficult ...because of reason e.g. incomes may be lower. 1 times (1) • may enable government to cut benefits, e.g. pensions Tax revenue may increase because incomes 0 (1) spend money saved on other priorities, e.g. may be higher i.e. reverse of a previous healthcare (1). argument. Award up to 4 marks for logical reasons why it might not, Tax revenue may increase because of a different 1 which may include: reason i.e. not the reverse of a previous argument e.g. government spending on subsidies • may lower total demand (1) reduce GDP (1) increase may stimulate the economy more than spending unemployment (1) cyclical unemployment (1) could on education. cause a recession (1) • may reduce investment as demand is low (1) reduce improvements in technology (1) • Less indirect tax raised (1) may lead to reduced government spending (1). 1(h) Discuss whether or not labour mobility in Japan is likely 6 Reference to occupational and geographical mobility can be to increase in the future. credited on either side of the argument, but only once. Award up to 4 marks for logical reasons why it might, which Reference to falling house prices or improved transport must may include: be linked to improved mobility for credit and vice versa. • Improvements in education and training (1) could increase skills / qualifications (1) increase occupational mobility (1) • Improvements in transport / subsidised travel (1) could enable people to move to different areas (1) raise geographical mobility (1). Award up to 4 marks for logical reasons why it might not, which may include: • Ageing population (1) may have out-of-date skills (1) more difficult to change jobs (1) reduce occupational mobility (1) may be more reluctant to move to a different area (1) reason (1) reduce geographical mobility (1) • House prices may rise (1) making it difficult to move from areas with low house prices to areas with high prices (1).

Question 57

There are several policy measures a central bank or government can use to reduce unemployment. One policy measure a government could use to…

Accepted Answer

4(a) Identify two policy measures a central bank could use to 2 If more than two measures are given, consider the first maintain price stability. three. Two from: the rate of interest (1) the money supply (1) the exchange rate (1) quantitative easing / tightening (1). 4(b) Explain two benefits to an economy of full employment. 4 One mark each for two benefits identified and one mark each for two explanations. Logical explanation which might include the following. • High output / GDP (1) maximum use of labour resource. • High tax revenue (1) government could spend on e.g. education / healthcare (1). • Low spending on state benefits (1) can keep taxes low / money saved can be spent on other things (1). • Low poverty / increase incomes (1) enable people to purchase basic necessities / which could increase living standards (1). 4(c) Analyse how an increase in government spending on 6 Reward, but do not expect reference to multiplier / multiplier building houses could reduce unemployment. effects. Coherent analysis which might include the following. An increase in government spending on building homes may increase demand for building workers (1) may increase demand for building materials (1) demand for building materials workers / other workers related to building industry (1) labour is a derived demand (1) reduce structural unemployment (1) increase incomes (1) increase consumer expenditure (1) increase total demand (1) reduce cyclical unemployment (1) increase GDP / economic growth (1) may increase quality of homes (1) improve health (1) fewer workers may lose their jobs because of illness (1) increase labour productivity which may increase demand for labour (1) increase supply of houses (1) reduce price of houses (1) improve mobility of labour (1). 4(d) Discuss whether or not an increase in a country’s 8 Level Description Marks economic growth rate will increase its HDI value. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic argument, making use of economic Why it might: information and clear and logical • increase in GDP may increase GDP per head if analysis to evaluate economic issues increase in GDP is greater than any rise in population and situations. One side of the • higher GDP per head may increase spending on good argument may have more depth than nutrition / good housing and as a result increase life the other, but overall, both sides of the expectancy argument are considered and • higher GDP per head may increase tax revenue, developed. There is thoughtful enabling a government to spend on education and evaluation of economic concepts, healthcare terminology, information and/or data • higher GDP per head may enable families to keep their appropriate to the question. The children in education for longer. discussion may also point out the possible uncertainties of alternative Why it might not: decisions and outcomes. • higher GDP per head may result in more spending on demerit goods, lowering life expectancy 2 A reasoned discussion which makes 3–5 • may lead to inflation hindering access to healthcare and use of economic information and clear education and increase inequality in the distribution of analysis to evaluate economic issues income and situations. The answer may lack • may be the result of higher military expenditure which some depth and development may be will not increase HDI one-sided. There is relevant use of • income may become more unevenly distributed, economic concepts, terminology, meaning life expectancy and years of education of the information and data appropriate to the poor may fall question. • more pollution may be created, lowering life expectancy • working hours and stress may increase, lowering life expectancy. 4(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

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21	see sheet	20	0455/21 May/June 2020
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23	see sheet	30	0455/23 May/June 2020
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30	see sheet	30	0455/22 Feb/March 2022
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33	see sheet	20	0455/21 Oct/Nov 2022
34	see sheet	20	0455/22 Oct/Nov 2022
35	see sheet	20	0455/23 Oct/Nov 2022
36	see sheet	30	0455/21 May/June 2023
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41	see sheet	30	0455/23 Oct/Nov 2023
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44	see sheet	30	0455/21 May/June 2024
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47	see sheet	30	0455/22 Oct/Nov 2024
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55	see sheet	30	0455/23 May/June 2025
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Questions25 pages

Mark scheme57 answers

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Questions as text

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Q8 · Banking and unemployment in Morocco Morocco’s banking industry has been described as one… 0455/21 May/June 2018

Q9 · In February 2016, share prices on stock exchanges fell throughout the world 0455/22 May/June 2018

Q10 · In 2016, there were fears that the Singaporean economy could enter a recession because of… 0455/23 May/June 2018

Q11 · During a recent recession in Europe, Spain had an unemployment rate of over 25% 0455/21 Oct/Nov 2018

Q12 · Rubber production in Liberia Liberia is a west African country that has faced a number of… 0455/22 Oct/Nov 2018

Q13 · In 2016, the Indonesian government increased its spending on healthcare and education and… 0455/22 Oct/Nov 2018

Q14 · Universal basic income (UBI) UBI is a scheme where a government provides everyone with a… 0455/21 May/June 2019

Q15 · It was predicted that global unemployment would rise by over two million in 2017 0455/21 May/June 2019

Q16 · Moldova is Europe’s poorest economy with many of its people living in poverty 0455/22 May/June 2019

Q17 · Iceland’s Economic Structure The people of Iceland once depended on farming and fishing… 0455/23 May/June 2019

Q18 · Germany’s economy is one of the best performing economies in the European Union (EU) 0455/23 May/June 2019

Q19 · Driverless cars and advances in technology It is predicted that driverless cars, powered… 0455/22 Oct/Nov 2019

Q20 · Between 2007 and 2017, the average wage in China tripled, while it fell in Brazil 0455/23 Oct/Nov 2019

Q21 · Economists are uncertain about the future United States (US) macroeconomic performance 0455/21 May/June 2020

Q22 · Australian firms have been praised for introducing new technology 0455/21 May/June 2020

Q23 · Calculate the total number of people over 60 years old in Greece in 2015 0455/23 May/June 2020

Q24 · Calculate the external cost per kilometre of driving a car in Manila in 2017 0455/23 Oct/Nov 2020

Q25 · In 2018, the US had its lowest unemployment rate for 18 years 0455/21 May/June 2021

Q26 · Nearly one million people in Cairo, the capital city of Egypt, live in crowded, unhealthy… 0455/22 May/June 2021

Q27 · Cyclical unemployment is below the national average in some big cities in Canada such as… 0455/23 May/June 2021

Q28 · In 2018, 54% of Russia’s population was female and the government announced plans to… 0455/23 Oct/Nov 2021

Q29 · South Africa has a high number of unemployed workers 0455/23 Oct/Nov 2021

Q30 · Calculate the number of Bermudian workers who were unemployed in 2018 0455/22 Feb/March 2022

Q31 · South Africa (SA) experienced a recession in the second half of 2019 and an unemployment… 0455/22 Feb/March 2022

Q32 · Botswana’s net migration varies 0455/22 Feb/March 2022

Q33 · Medan is the third largest city in Indonesia by population 0455/21 Oct/Nov 2022

Q34 · In 2019, Russia had an unemployment rate of 4.6% 0455/22 Oct/Nov 2022

Q35 · Romania’s indirect tax rate was 19% between 2017 and 2019 0455/23 Oct/Nov 2022

Q36 · Calculate Australia’s unemployment rate in 2021 0455/21 May/June 2023

Q37 · In Greece, rich households spend more than the average household 0455/21 May/June 2023

Q38 · Canada’s private sector firms have a number of different objectives 0455/22 May/June 2023

Q39 · Calculate New Zealand’s GDP per head in 2020 0455/23 May/June 2023

Q40 · In 2020, some firms in Suriname, a South American country, stopped production 0455/22 Oct/Nov 2023

Q41 · Calculate Montenegro’s budget deficit as a percentage of its GDP 0455/23 Oct/Nov 2023

Q42 · People in Ecuador buy products using a variety of forms of money 0455/23 Oct/Nov 2023

Q43 · New Zealand is a high-income country with a low unemployment rate and a surplus of… 0455/22 Feb/March 2024

Q44 · Calculate the price elasticity of demand for coffee 0455/21 May/June 2024

Q45 · Calculate Tunisia’s balance on the current account of its balance of payments 0455/22 May/June 2024

Q46 · Unemployment in the United Kingdom (UK) fell in December 2021 to 4.1% 0455/21 Oct/Nov 2024

Q47 · Calculate the percentage of the Jordanian labour force employed in the secondary sector 0455/22 Oct/Nov 2024

Q48 · In 2021, there were extensions and contractions in demand for a number of South African… 0455/22 Oct/Nov 2024

Q49 · Calculate the average cost of producing a car in Belarus in 2021 0455/23 Oct/Nov 2024

Q50 · Nigeria has a mixed economic system 0455/22 Feb/March 2025

Q51 · Calculate the value of Gabon’s oil production as a percentage of Gabon’s GDP 0455/21 May/June 2025

Q52 · In recent years, the quantity of Latvia’s factors of production has changed 0455/21 May/June 2025

Q53 · The world’s four largest accountancy firms experienced a decline in demand for their… 0455/22 May/June 2025

Q54 · In 2022, more than a quarter of a million workers, including doctors, left Sri Lanka to… 0455/22 May/June 2025

Q55 · Calculate the number of people who are in poverty in Egypt 0455/23 May/June 2025

Q56 · Calculate foreign workers as a percentage of Japan’s labour force in 2022 0455/22 Oct/Nov 2025

Q57 · There are several policy measures a central bank or government can use to reduce… 0455/22 Oct/Nov 2025