Current account of balance of payments — Paper 2 · IGCSE Economics 0455

5 Abu Dhabi is a rapidly developing economy. It is building three new museums in its new cultural district, which may attract more tourists and help its balance of payments. The museums will include some very highly priced works of art. (a) Define ‘balance of payments’. [2] (b) Explain two characteristics of a rapidly developing economy. [4] (c) Analyse how an increase in tourism can increase a country’s inflation rate. [6] (d) Discuss whether the rich always save more than the poor. [8]

20 marks

Mark scheme: 5(a) Define ‘balance of payments’. Record of economic transactions (1) with other countries (1). Includes current account, capital account and financial account (2). Exports – imports (1). 2 5(b) Explain two characteristics of a rapidly developing economy. 1 mark each for each of two characteristics e.g.: • high increase in real GDP per head • significant improvements in healthcare • significant improvements in education • high proportion of workers employed in the tertiary sector • low rates of population growth • high spending on luxury products • encouragement of MNCs to set up • more use of advanced technology 1 mark each for each of two explanations: • a high increase in real GDP per head will increase living standards/be caused by e.g. higher investment • significant improvements in healthcare will increase life expectancy/be caused by e.g. higher spending on hospitals • significant improvements in education will raise workers’ skills/be caused by increased spending on universities • as countries develop, workers tend to move from the primary and secondary sectors to the tertiary sector • as countries develop, the birth rate tends to fall faster than the death rate • as countries develop, people may be able to spend on more than necessities • the attraction of MNCs may reduce unemployment • advances in technology due to more research and development and investment/will raise productivity. 4 May be able to establish high population growth, if argued that death rate will fall before fall in birth rate. Question Answer Marks Guidance 5(c) Analyse how an increase in tourism can increase a country’s inflation rate. An increase in tourism will increase demand for a range of products (1) higher demand may encourage firms to raise prices (1) leading to demand-pull inflation (1) especially if economy operating close to full employment (1). An increase in tourism may increase the money supply (1) leading to monetary/demand-pull inflation (1). An increase in tourism may increase demand for workers (1) to work in the tourist and related industries (1) this could raise wages (1) causing cost-push inflation (1). An increase in tourism will increase demand for the currency (1) this may cause a rise in the exchange rate (1) if demand for exports is inelastic (1) export revenue could rise (1) increasing total (aggregate) demand (1). 6 Do not expect but reward idea of a multiplier effect. 5(d) Discuss whether the rich always save more than the poor. Up to 5 marks for why they might: Rich have more income (1) greater ability to save (1) can purchase the products they want (1) and have money left to save (1). Rich may be able to save more and as a result may be paid a higher rate of interest (1) receive a higher reward from saving (1). Up to 5 marks for why they might not: Poor may have to save up to purchase products which the rich can buy from current income (1) e.g. a television (1). Poor may be less confident (1) may be anxious to save to cover e.g. health costs (1) may be concerned not to get into debt (1). Poor/unskilled may be concerned that they will lose their jobs (1) during an economic downturn may be the first to lose their jobs (1). 8 May approach the question from the perspective of whether the poor always save less than the rich.

This question in 0455/22 Feb/March 2017

3 In 2015, money sent home by Nepalese workers working abroad accounted for 29% of Nepal’s total income. These remittances also contributed positively to the country’s current account position on its balance of payments. In Kerala, a state in India, remittances accounted for 36% of total income, with people from the state going abroad to undertake a range of jobs including working as dentists and hotel cleaners. (a) Identify two factors that affect an individual’s choice of occupation. [2] (b) Explain two effects of a country having a surplus on the current account of its balance of payments. [4] (c) Analyse why dentists are paid more than hotel cleaners. [6] (d) Discuss whether an economy will benefit from recruiting workers from other countries. [8]

20 marks

Mark scheme: 3(a) Identify two factors that affect an individual’s choice of occupation. Any two from: • wages/earnings • job satisfaction • working conditions • working hours • holidays • job security • pensions • fringe benefits • chances of promotion • skills possessed • length/nature of training 2 Don’t accept money paid etc. 3(b) Explain two effects of a country having a surplus on the current account of its balance of payments. 1 mark each for each of two effects identified: • output/income may be high • employment may be high • upward pressure on the exchange rate • total (aggregate) demand will increase • demand pull inflation 1 mark each for each of two explanations given: • a surplus means that there is more export revenue being earned than import expenditure • a surplus means that international trade is adding to demand for the country’s products which may increase employment • demand for the currency will exceed supply of the currency • exports add to total demand resulting in inflation 4 Question Answer Marks Guidance 3(c) Analyse why dentists are paid more than hotel cleaners. • Dentists are in higher demand (1) have higher productivity (1) • Dentists are in lower supply (1) long period of training (1) more skilled (1) more qualified (1) • Dentists may have stronger bargaining power (1) may be more likely to belong to a trade union/professional organisation (1) 6 Accept an answer from the perspective of hotel cleaners being paid less than dentists. Maximum of 3 marks for a list-like approach. 3(d) Discuss whether an economy will benefit from recruiting workers from other countries. Up to 5 marks for why it might: • Workers from other countries can increase the size of the country’s labour force (1) fill unfilled vacancies (1) increasing output (1) productive potential (1) may be prepared to work for lower wages (1) reducing costs of production (1) lower prices for consumers (1) become more internationally competitive (1) • Workers from other countries may reduce the dependency ratio (1) e.g. reduce the burden of pensions (1) may increase the government’s tax revenue (1) • Workers from other countries may bring in new skills/ideas/have skills in short supply e.g. doctors (1) improving the production process (1) improving the quality of output (1) increasing output/GDP/economic growth (1) • Workers from other countries will earn incomes (1) increasing consumer spending (1) Up to 5 marks for why it might not: • Workers may lack the appropriate skills (1) may take time to adapt to new working practices/new language (1) • An increase in the supply of workers may put downward pressure on wages (1) foreign workers may replace domestic workers (1) leading to unemployment (1) • More workers may put pressure on domestic infrastructure (1) including housing (1) • Some workers’ remittances may be sent home (1) increasing the current account deficit (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.

This question in 0455/23 May/June 2017

5 In 2015, Venezuela was facing a number of challenges. Despite government subsidies, increases in demand meant there were shortages of food. The fall in the global price of oil increased the deficit on the current account of the country’s balance of payments. Oil accounted for nearly 90% of the country’s export earnings. In Venezuela, oil is produced by one large state-owned company, but the country also has many sole traders involved in other industries. (a) Define a ‘subsidy’. [2] (b) Explain two causes of a decrease in demand for oil. [4] (c) Analyse the advantages of being a sole trader. [6] (d) Discuss whether a government should be concerned about a growing deficit on the current account of its balance of payments. [8]

20 marks

Mark scheme: 5(a) Define a ‘subsidy’. 2 A payment by e.g. a government (1) to reduce production costs (1) to increase output (1) to improve quality (1) reduce prices for consumers (1). 5(b) Explain two causes of a decrease in demand for oil. 4 1 mark each for each of two reasons identified: • fall in price of another fuel / reduction in its availability • decrease in car driving • change in fashion/taste e.g. electric cars • greater concern for the environment • decrease in output / manufacturing of goods • decrease in population • decrease in income. 1 mark each for each of two explanations: • if the price of e.g. coal falls, some firms and households may switch from a substitute such as oil • oil/petrol is a complement to a car • e.g. electric cars are substitutes for petrol driven cars • people may use cars less because they are concerned about e.g. pollution • lower output will require less fuel to produce it / fewer people will be using fuel to get to and from work • lower population will mean there are fewer people to consume products that require fuel to produce or use them • decrease in income will decrease demand for products, e.g. car driving which requires fuel. Note: accept an increase in the price of oil as a possible reason. 5(c) Analyse the advantages of being a sole trader. 6 Flexible / can respond quickly to changes in demand (1) as one person makes all the decisions (1). Easy to set up (1) limited finance / limited paperwork needed (1). Can provide a personal service (1) get to know customers personally (1). Profit incentive (1) owner will get all the profits (1). Sole trader has total control (1) can decide e.g. hours of work, holidays (1) May have good relationships with staff (1) less industrial disputes (1). 5(d) Discuss whether a government should be concerned about a growing 8 deficit on the current account of its balance of payments. Up to 5 marks for why it should: Imports exceeding exports (1) country will be living beyond its means (1) consuming more than it produces (1) net exports will be making a negative contribution to output (1) output will be lower than possible (1) employment lower than possible (1) unemployment (1) may lead to increased government spending on benefits (1). May indicate a lack of international competitiveness (1) may suggest that the price of domestically produced products is too high (1) quality of domestically produced products too low (1). Country may be dependent on foreign products (1) causing security concerns (1). May put downward pressure on the exchange rate (1) increase the value of exports that have to be exchanged to gain a certain value of imports (1). Need to cover the deficit with e.g. borrowing/attracting investment from abroad (1). Up to 5 marks for why it should not: Deficit may only be temporary (1) more raw materials (1) capital goods may be imported (1) in the longer run these may be turned into exports (1). The deficit on current account may be balanced out by a surplus elsewhere (1) e.g. direct investment (1). The deficit may have been caused by a fall in incomes abroad (1) these may rise in the future, increasing exports (1). If the country has a floating exchange rate (1) a fall in the exchange rate resulting from the deficit will lower export prices (1) raise import prices (1) and so move the current account position towards a balance (1). A deficit reduces total demand (1) and this can reduce demand-pull inflation (1). Note: reward but do not expect reference to other parts of the balance of payments.

This question in 0455/21 Oct/Nov 2017

6 Trade protection reduces the opportunity for countries to specialise and influences the current account positions that countries have on their balance of payments. There are differences in the amount and types of trade protection used by developed and developing countries. Developed countries also usually have a lower death rate than developing countries. (a) Define ‘trade protection’. [2] (b) Explain two advantages of countries specialising. [4] (c) Analyse why developed countries usually have lower death rates than developing countries. [6] (d) Discuss whether a rise in income tax will reduce a current account deficit. [8]

20 marks

Mark scheme: 6(a) Define ‘trade protection’. Protecting domestic firms (1) from foreign competition (1). Helping domestic firms (1) to face foreign competition (1). Implementing trade barriers (1). Deliberate attempt to limit imports (1). Government action (1) that restricts international trade (1). 2 Question Answer Marks Guidance 6(b) Explain two advantages of countries specialising. 1 mark each for each reason identified: • can concentrate on what they are best at / factor endowment • can reduce average costs / create economies of scale • can increase output/income/GDP • can improve quality of output. 1 mark each for each of two reasons explained: • influenced by factor endowment • productivity can be increased / more price competitive / increased speed of production • living standards can rise • ‘practice makes perfect’. 4 Do not reward ‘promotes peace and friendship’. Reward but do not expect reference to comparative or absolute advantage. 6(c) Analyse why developed countries usually have lower death rates than developing countries. They tend to have higher incomes per head (1) enabling them to enjoy better housing (1) better nutrition (1) better education (1) better private sector healthcare (1) people live longer (1). Tax revenue may be higher (1) enabling greater public sector spending on education (1) greater public sector spending on health care (1) and so longer life expectancy (1). Better environment / less pollution / cleaner water (1) less illness (1). 6 Question Answer Marks Guidance 6(d) Discuss whether a rise in income tax will reduce a current account deficit. Up to 5 marks for why it might: A rise in income tax would reduce disposable income (1) which will lower consumer spending (1) lowering spending on imports (1). It may reduce spending on domestic products (1) encouraging firms to switch products to the export market (1). It may reduce demand-pull inflation (1) increasing international competitiveness (1). Up to 5 marks for why it might not: A rise in income tax may reduce saving rather than spending (1). It may be accompanied by a rise in government spending (1) leaving demand unchanged (1). It may increase demand for wage rises (1) which, if granted, would increase costs of production (1) making domestic products less internationally competitive (1). 8

This question in 0455/23 Oct/Nov 2017

3 In 2014, the government of Kazakhstan devalued its currency, the tenge. A year later the country still had a current account deficit. Therefore, in 2016 it considered adopting a floating exchange rate which might help to remove the deficit. However, it had concerns that this might affect the country’s inflation rate which was already high at 17%. (a) Define devaluation. [2] (b) Explain two advantages of a floating exchange rate. [4] (c) Analyse how fiscal policy measures could reduce inflation. [6] (d) Discuss whether or not a reduction in a current account deficit on the balance of payments will benefit an economy. [8]

20 marks

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

This question in 0455/21 May/June 2018

4 In 2015, the Tripartite Free Trade Area (TFTA) was established. It covers 26 countries and is the biggest free trade area in Africa. Removing trade restrictions can enable economies to take greater advantage of economies of scale. Some economists argue that improving Africa’s roads would be more beneficial and would do more to reduce a current account deficit on the balance of payments and raise living standards. (a) Define economies of scale. [2] (b) Explain two benefits consumers may gain from free trade. [4] (c) Analyse how reducing transport costs could increase a country’s exports and imports. [6] (d) Discuss whether or not raising living standards is the most important economic objective for developing countries. [8]

20 marks

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

This question in 0455/21 May/June 2018

3 Farms in the USA are getting larger. One dairy farm in the state of Indiana has over 38 000 cows. Farms in the USA compete with farms in both developed and developing countries. The value of the farms’ exports of milk appears in the trade in goods section of the current account of the USA’s balance of payments. (a) Identify two examples of capital goods that may be used by a farm. [2] (b) Explain how a country could have a trade in goods surplus, but a deficit on the current account on the balance of payments. [4] (c) Analyse the economies of scale from which a farm may benefit. [6] (d) Discuss whether or not developing countries benefit from producing mainly primary products. [8]

20 marks

Mark scheme: 3(a) Identify two examples of capital goods that may be used by a farm. One mark each for each of two examples e.g. tractor, farm buildings. 2 3(b) Explain how a country could have a trade in goods surplus but a deficit on the current account on the balance of payments. Trade in goods surplus means exports (of goods) exceeds imports (of goods) (1) trade in goods is only one part of the current account (1) identification of two of the three other components (1) there could be a larger deficit on the trade in services balance (1) example of a service item decreasing (1) there can be a larger deficit on income (primary) balance (1) example of an income item increasing (1) there could be a larger deficit on current transfers (secondary) balance (1) example of a current transfer item decreasing (1) or a combination of deficits on other items (1). A current account deficit means more money will be leaving than entering the country (1). 4 3(c) Analyse the economies of scale from which a farm may benefit. Buying (purchasing) economies (1) e.g. buying seed in bulk at reduced price (1). Technical economies (1) using up to date / efficient equipment e.g. combine harvesters (1). Managerial economies (1) employing specialist workers e.g. farm managers (1). Financial economies (1) borrowing at a lower rate of interest/finding it easier to obtain a loan (1). Risk bearing economies (1) a farm may grow a variety of crops (1). 6 Maximum of 4 marks unless at least one type of economy of scale is related specifically to a farm e.g. buying seed in bulk. Also credit analysis of external economies of scale. Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 3(d) Discuss whether or not developing countries benefit from producing mainly primary products. Up to 5 marks for why they might: May have the resources to produce high quality (1) low cost primary products (1). If more can be exported (1) revenue can be used for development (1). Specialisation can reduce average costs (1) increasing output (1) enabling advantage to be taken of economies of scale (1). Demand for primary products may be increasing (1) some primary products can be sold for high prices (1) e.g. oil (1) increasing living standards (1). May be able to raise revenue (1) as demand for some primary products, e.g. oil, is price- inelastic (1). Countries may lack education (1) primary sector provides some unskilled jobs (1). Up to 5 marks for why they might not: Demand for primary products does not tend to rise as rapidly as demand for manufactured products and services (1) tend to have less valued added (1). The production of some primary products may be adversely affected by bad weather and diseases (1) disrupting supply (1) resulting in fluctuating income (1) working conditions may be poor (1). Developed countries may impose trade restrictions on primary products from developing countries (1). The primary sector does not tend to offer many high skilled jobs (1) low pay (1) low living standards (1). There are risks of overspecialisation (1) a more diversified economy would be in a stronger position to resist economic downturns (1). Developing countries will be dependent on other countries for manufactured goods and services (1). 8 Accept as an alternative to the first two points that developing countries may have the resources to produce high quality primary products at low cost, that they may not have the resources to produce high quality secondary / tertiary products at low cost. Reward but do not expect reference to comparative advantage.

This question in 0455/22 May/June 2018

1 Nigeria adopts a floating exchange rate In June 2016, Nigeria adopted a floating exchange rate after the country’s central bank had spent months trying to maintain its fixed exchange rate. It had used foreign currency reserves to buy its currency, imposed tariffs and limited the amount of foreign currency that Nigerians could purchase. Most economists thought that the value of Nigeria’s currency would depreciate. A lower value of the Nigerian naira might help increase output and reduce the deficit on the current account of the country’s balance of payments. In 2015, Nigeria experienced a deficit on its current account for the first time in 20 years. Countries with a current account deficit often have a higher inflation rate and a lower economic growth rate than those with a current account surplus. Fig. 1 shows the inflation rate, economic growth rate and the current account balance of selected countries in 2015. Fig. 1 The inflation rate, economic growth rate and current account balance of selected countries in 2015 China Colombia Germany Nigeria Turkey -8 -6 -4 -2 0 2 4 6 8 10 Inflation rate Economic growth rate Current account balance (% of GDP) A current account deficit can lower the exchange rate and so may increase import prices. A higher price of imports, including imported food, can accelerate inflation. In 2015, as well as experiencing a current account deficit, tax revenue fell in Nigeria and was lower than government expenditure. Some economists predicted that the government would cut spending on education and healthcare in 2016 to reduce the gap between tax revenue and government spending. The Nigerian government has been trying to reduce poverty in the country. In 2015, more than 60% of the population were living in poverty. Among the causes of the high level of absolute poverty was an unemployment rate of 9.5%. One policy measure proposed to reduce poverty in Nigeria is for the government to raise the wages of low-paid workers. The government also wants to diversify the economy because the oil industry accounts for almost 90% of the country’s export earnings. The oil industry pays high wages to some of its workers and relatively high interest rate payments to local banks. It also creates water pollution and air pollution. (a) Identify, from the extract, two methods of trade protection. [2] (b) Analyse what may cause a depreciation in an exchange rate. [5] (c) Analyse to what extent the information in Fig. 1 suggests that countries with current account deficits have higher inflation rates and lower economic growth rates than those with current account surpluses. [4] (d) Explain, using information from the extract, two reasons why poverty may have increased in Nigeria in 2015–16. [4] (e) Discuss whether or not a cut in government spending on education would reduce the gap between government spending and tax revenue. [5] (f) Explain, using information from the extract, two external costs that arise from oil production in Nigeria. [4] (g) Discuss whether or not an increase in the wages of low-paid workers will reduce poverty. [6]

30 marks

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

This question in 0455/23 Oct/Nov 2018

7 High technology (hi-tech) firms use a range of resources including labour and land. One US hi-tech firm has produced a new price index which it claims is more accurate than the Consumer Prices Index (CPI). Central banks try to achieve the most accurate measure of inflation because inflation has effects on a range of people, including savers and borrowers, and on the level of investment in a country. (a) Identify the reward received by labour and the reward received by enterprise. [2] (b) Explain how inflation may affect borrowers and savers. [4] (c) Analyse why it is important to a government that inflation is measured accurately. [6] (d) Discuss whether or not an increase in investment would reduce a deficit on the current account of the balance of payments. [8]

20 marks

Mark scheme: 7(a) Identify the reward received by labour and the reward received by enterprise. Labour = wages (1). Enterprise = profit (1). 2 7(b) Explain how inflation may affect borrowers and savers. Borrowers may gain (1) if the inflation rate exceeds the interest rate/the real value of what they repay may fall (1). Savers may lose (1) if the inflation rate exceeds the interest rate/the real value of their saving will fall (1). 4 7(c) Analyse why it is important to a government that inflation is measured accurately. It is important to ensure a government/central bank follows the right policies (1). If, for instance, a government overestimates inflation it may increase taxes (1) cut government spending (1) raise interest rates (1) which may increase unemployment (1) reduce economic growth (1). Measures of inflation e.g. CPI/RPI (1) can be the basis of wage claims (1) and rises in some state benefits/indexed linked state benefits (1). Helps planning (1) may encourage investment (1). 6 7(d) Discuss whether or not an increase in investment would reduce a deficit on the current account of the balance of payments. Up to 5 marks for why it might: May lower costs of production (1) make domestic products more internationally price competitive / lower export prices (1) so increasing demand for exports (1). Advanced technology / more efficient production (1) may increase the quality of products produced (1) increase demand for domestically produced products (1) reducing demand for imports (1). Investment in labour (human capital) (1) can increase skills (1) raise productivity (1) increase quality of products (1). Investment abroad could increase primary income/income (1). Up to 5 marks for why it might not: The investment may go on imported capital goods (1) in the short run would increase spending on imports (1). The investment may be in products which are not in demand abroad (1) are not substitutes for imports (1). In the short run investment may increase total (aggregate) demand by more than total (aggregate) supply (1) which may cause inflation (1) making domestic products less internationally competitive (1). Domestic products may become more competitive but net exports may not rise if offset by another change (1) e.g. import restrictions/fall in income abroad / rise in exchange rate (1). Investment may not be big enough to make a difference (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.

This question in 0455/23 Oct/Nov 2018

2 Ireland has attracted a significant number of foreign multinational companies (MNCs) to set up production in the country. These firms employ approximately 10% of the country’s labour force and make a high proportion of Ireland’s exports. The surplus on the current account of Ireland’s balance of payments fell in 2016 while government spending rose. (a) Identify two reasons why an MNC may decide to start producing in a foreign country. [2] (b) Explain two reasons why someone may want to work for an MNC. [4] (c) Analyse how an increase in exports could improve a country’s economic performance. [6] (d) Discuss whether or not an increase in government spending will reduce a surplus on the current account of that country’s balance of payments. [8]

20 marks

Mark scheme: 2(a) Identify two reasons why an MNC may decide to start producing in a 2 foreign country. • access to raw materials • cheap labour • skilled labour • large market • government support • low taxes • avoid trade restrictions 2(b) Explain two reasons why someone may want to work for an MNC. 4 • wages may be high (1) giving high living standards (1) • working conditions may be good (1) e.g. short working hours, good health and safety standards (1) • training may be good (1) raising worker’s future job prospects (1) • fringe benefits may be good (1) e.g. free accommodation (1) • more chance of promotion (1) higher earnings in the long run (1) • Good reputation (1) prestige working for the firm / increased future employment opportunities (1). 2(c) Analyse how an increase in exports could improve a country’s 6 macroeconomic performance. An increase in exports can increase export revenue (1) this may reduce a current account deficit (1). An increase in exports will increase total (aggregate) demand (1) firms will produce more products / higher output (1) more workers will be employed (1) unemployment will fall (1) economic growth will increase / incomes will rise / higher living standards (1). 2(d) Discuss whether or not an increase in government spending will 8 reduce a surplus on the current account of the country’s balance of payments. Up to 5 marks for why it might: Higher government spending may go on imports (1) e.g. imported computers for government offices (1). Higher government spending on e.g. state benefits (1) will increase disposable income (1) some of this might be spent on imports (1). Higher government spending will increase total (aggregate) demand (1) this may cause inflation (1) reduce international competitiveness (1) reduce exports (1) increase imports (1). Up to 5 marks for why it might not: Government spending on education and training / healthcare (1) may raise labour productivity (1) reduce costs of production (1) improve quality (1) increased demand for domestically produced products (1) increase exports (1) reduce imports (1). Government spending on infrastructure (1) may reduce transport costs (1) increasing price competitiveness (1) increasing exports (1) reducing imports (1). The government may subsidise domestic products (1) lowering the price of domestic products (1) increasing exports (1) reducing imports (1).

This question in 0455/22 Feb/March 2019

2 The Saudi Arabian government is encouraging the growth of the private sector. It is a low-cost oil producer, but its exports to South Africa have fallen recently. South Africa has a floating foreign exchange rate, but its central bank has recently tried to prevent a large fall in its foreign exchange rate. (a) Define a floating foreign exchange rate. [2] (b) Explain two benefits a government may gain from the growth of the private sector. [4] (c) Analyse why a country with low costs of production may experience a decrease in its exports. [6] (d) Discuss whether or not a government should prevent a fall in its country’s foreign exchange rate. [8]

20 marks

Mark scheme: 2(a) Define a floating foreign exchange rate. The price of a currency (1) determined by market forces (1). 2 2(b) Explain two benefits a government may gain from the growth of the private sector. Higher tax revenue (1) private sector may be more efficient / private sector may earn higher profits / higher tax revenue may be spent on e.g. education (1). Lower government spending on supporting state-owned enterprises (1) spending could rise on other areas e.g. healthcare (1). Increases employment / reduces unemployment (1) which is a government objective / reduces government payments on unemployment benefits (1). 4 2(c) Analyse why a country with low costs of production may experience a decrease in its exports. The foreign exchange rate may increase (1) leading to higher export prices (1). The quality of the products produced may fall (1) reducing demand (1). Incomes abroad may have fallen (1) reducing foreigners’ ability to buy exports (1). There may be a rise in competition (1) with foreign firms having even lower costs (1). Producers may charge higher prices (1) leading to a fall in demand (1). Foreign countries may implement protection measures (1) e.g. tariffs (1). 6 The analysis must be dynamic / about change. Question Answer Marks Guidance 2(d) Discuss whether or not a government should prevent a fall in its country’s foreign exchange rate. Up to 5 marks for why it should: A fall in the exchange rate would increase the price of imports (1) this will increase the price of imported raw materials (1) this will increase costs of production (1) inflation may occur (1). A rise in the price of finished products (1) will reduce the goods and services people can buy (1) reduce living standards (1). A fall in the exchange rate may reduce confidence in the country (1) this may reduce investment (1). A lower exchange rate may increase debt repayments (1) making it more difficult for firms and the government to pay back loans (1). Higher government spending on e.g. state benefits (1) will increase disposable income (1) some of this might be spent on imports (1). Up to 5 marks for why it should not: A lower exchange rate will reduce the price of exports (1) more exports may be sold (1) this combined with lower imports may improve the current account balance (1). Demand for domestic products may rise (1) this may increase output (1) so cause economic growth (1) reduce unemployment (1). 8

This question in 0455/21 May/June 2019

2 Germany’s economy is one of the best performing economies in the European Union (EU). Germany has low unemployment rates and a surplus on the current account of the balance of payments. Single parents, long-term unemployed, immigrants, elderly, and low-skilled workers have not always benefitted from Germany’s economic performance. This has created increasing levels of relative poverty. (a) Define a surplus on the current account of the balance of payments. [2] (b) Explain two possible causes of low unemployment. [4] (c) Analyse how long-term unemployment can cause relative poverty. [6] (d) Discuss whether or not an increase in a surplus on the current account of the balance of payments decreases unemployment. [8]

20 marks

Mark scheme: 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

This question in 0455/23 May/June 2019

5 The Monetary Authority of Singapore (MAS), the government body which controls the monetary policy of the country, has allowed the Singapore dollar to appreciate. However, the high cost of the Singapore dollar has created a need for new incentives for firms, such as a reduction in taxes and granting subsidies. (a) Define monetary policy. [2] (b) Explain two functions of money. [4] (c) Analyse the consequences of an appreciating currency on the current account of the balance of payments of a country. [6] (d) Discuss whether or not a reduction in taxes is beneficial for an economy. [8]

20 marks

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

This question in 0455/21 Oct/Nov 2019

6 The Indian government subsidises the country’s exports of cotton textiles. The USA, the largest buyer of Indian cotton textiles, benefited from this. India planned to stop the subsidy by 2019. This was welcomed by other cotton textile exporters. The USA may not be much affected, in part, because income usually rises in the country. The value of the Indian rupee against the US dollar was relatively stable in this period but rose slightly in mid-2017. (a) Identify the difference between an export and an import. [2] (b) Explain how a rise in the income of its main trading partners may affect a country’s trade in goods balance. [4] (c) Analyse how a rise in a country’s foreign exchange rate may affect its unemployment rate. [6] (d) Discuss whether or not a government should subsidise its exports. [8]

20 marks

Mark scheme: 6(a) Identify the difference between an export and an import. An export is sold to other countries / outflow of goods and services in exchange for money / credit item in the balance of payments (1) an import is purchased from other countries / inflow of goods and services in exchange for money / debit item in the balance of payments (1). 2 6(b) Explain how a rise in the income of its main trading partners may affect a country’s trade in goods balance. A rise in income abroad will increase the countries’ ability to purchase products (1) demand for this country’s exports may rise (1) particularly luxury products / products without domestic substitutes (1) exports are a credit item in the trade in goods balance (1) the trade in goods balance may improve (1) may move from a deficit to a surplus / any deficit may be reduced / any surplus may be increased (1). The rise in income may be the result of the countries selling more goods to this country (1) this may increase the country’s imports (1) imports are a debit term (1) the trade in goods balance may move from a surplus to deficit / any deficit may become larger / any surplus may get smaller (1). 4 6(c) Analyse how a rise in a country’s foreign exchange rate may affect its unemployment rate. A rise in the exchange rate will make exports more expensive (1) imports cheaper (1) demand for exports may fall / export revenue may decrease (1) demand for imports may rise / import expenditure may rise (1) net exports may fall (1) total (aggregate) demand may fall (1) output may decline (1) demand for labour may fall (1) unemployment may rise (1) cyclical unemployment (1). 6 Reward but do not expect reference to PED. Question Answer Marks Guidance 6(d) Discuss whether or not a government should subsidise its exports. Up to 5 marks for why it should: A subsidy would lower costs of production (1) lower the price of exports (1) this may make them more internationally competitive (1). Some industries producing exports may be infant industries (1) may need support before advantage can be taken of economies of scale (1). Exports may rise (1) this may improve the current account / trade in goods and services balance (1) raise GDP / increase economic growth (1) increase employment / lower unemployment (1). Up to 5 marks for why it should not: Some domestic firms may already be price competitive (1) and so do not need a subsidy (1). The subsidy may encourage some domestic firms to become inefficient (1) not cutting their costs (1) and improving the quality of their output (1). It may be regarded to be a form of trade protection (1) other countries may retaliate (1) so exports may not increase (1). There will be an opportunity cost involved (1) example (1). 8

This question in 0455/22 Oct/Nov 2019

7 In 2016, France had a trade in services deficit. France is a rich, developed country with a high standard of living. The country is, however, facing several challenges including population problems. Also, after elections in 2017, politicians and economists debated whether the country should try to move towards freer international trade. (a) Define a trade in services deficit. [2] (b) Explain two population problems a rich, developed country may experience. [4] (c) Analyse how a move to freer international trade may benefit a country’s producers. [6] (d) Discuss whether or not the standard of living is higher in developed countries than in developing countries. [8]

20 marks

Mark scheme: 7(a) Define a trade in services deficit. • Imports of services being greater than exports of services (2). • A deficit on a section of the balance of payments (1). 2 7(b) Explain two population problems a rich, developed country may experience. • an ageing population (1) due to a falling death rate and birth rate / increasing dependency / increasing the cost of healthcare and/or pensions (1). • A decreasing population (1) a declining labour force (1) due to a falling birth rate / increasing dependency (1). • net immigration (1) putting pressure on schools/hospitals/housing (1). 4 7(c) Analyse how a move to freer international trade may benefit a country’s producers. • With lower tariffs (1) their exports will be cheaper (1) the volume of exports will not be restricted by quotas (1). • If producers are efficient (1) they will sell more abroad (1). • Producers will be able to buy imported raw materials more cheaply (1) this will reduce their costs of production (1) increase their profits (1). 6 Question Answer Marks Guidance 7(d) Discuss whether or not the standard of living is higher in developed countries than in developing countries. Up to 5 marks for why it might be: • Higher average income (1) enabling people to buy more goods and services (1) spend money on healthcare (1) education (1) enabling people to live longer / be more productive (1). • Government tax revenue is likely to be higher (1) enabling the government to spend more on e.g. pensions, healthcare (1). Up to 5 marks for why it might not be: • Some people’s living standards in developed countries are low/some people’s living standards in developing countries are high (1) income is not evenly distributed (1). • Working hours in some developed countries are high (1) leading to stress (1) less leisure time (1). • Environmental conditions are better in some developing countries (1) with less pollution (1). 8 Reward answers from the opposite perspective - developing countries have a lower standard of living than developed countries.

This question in 0455/23 Oct/Nov 2019

1 (a) Calculate India’s economic growth rate in 2017. [1] (b) Identify two methods of protection. [2] (c) State why India is a mixed economy. [2] (d) Explain why external costs cause market failure. [4] (e) Draw a demand and supply diagram to show the effects of a decrease in the costs of production on the market for cars. [4] (f) Analyse the relationship between the size of countries’ primary sector output and GDP per head. [5] (g) Discuss whether or not increasing subsidies given to bus travel would reduce pollution in India. [6] (h) Discuss whether or not India is likely to experience a deficit on the current account of its balance of payments in the future. [6]

30 marks

Mark scheme: 1(a) Calculate India’s economic growth rate in 2017. 7% (1). 1 1(b) Identify two methods of protection. One mark each for any two from: • tariff • quota 2 1(c) State why India is a mixed economy. It has a private sector / private sector firms (1) and a public sector / public sector firms /government intervention (1). 2 1(d) Explain why external costs cause market failure. Logical explanation which might include: External costs are not considered (1) base decisions just on private costs and benefits (1). They cause harmful effects to third parties / negative side effects (1) they result in overconsumption (1) and overproduction (1). Their existence may mean that social costs exceed social benefits (1). Examples of causes or costs: e.g. driving, pollution / environmental damage, burning fields and mining (up to 2). They result in a misallocation of resources / inefficient use of resources (1). 4 Question Answer Marks Guidance 1(e) Draw a demand and supply diagram to show the effects of a decrease in the costs of production on the market for cars. Axes correctly labelled – price and quantity or P and Q (1). Demand and supply curves correctly labelled (1). Supply curve shifted to the right (1). Equilibriums – shown by lines P1, P2 / Q1, Q2: or marking the equilibrium points E1 and E2 (1). 4 Question Answer Marks Guidance 1(f) Analyse the relationship between the size of countries’ primary sector output and GDP per head. Coherent analysis which might include: Generally, the countries with the relatively smallest primary sectors have the highest GDP per head / inverse relationship (1). Evidence e.g. US has only 1% of output accounted for by the primary sector and the highest GDP per head (1) another piece of supporting evidence e.g. the two countries with the largest primary sectors have the lowest GDP per head (1). Exception is India/Philippines (1) India has a smaller relative sized primary sector but a lower GDP per head (1). This is the expected relationship as primary sector tends to decline as an economy develops / often larger in developing economies / resources move into secondary and then tertiary sectors (1) tertiary sector tends to generate higher incomes / primary sector tends to generate lower incomes (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not increasing subsidies given to bus travel would reduce pollution in India. Award up to 4 marks for logical reasons why it might, which may include: • subsidies reduce costs (1) increase supply (1) lower prices (1) raise quality of bus travel (1) and cause demand to extend / higher demand (1) • people using buses will reduce the volume of traffic/reduce congestion (1) • buses use cleaner fuel (1). Award up to 4 marks for logical reasons why it might not, which may include: • people may not switch from car to bus travel (1) price of cars may fall (1) cost of producing cars is declining (1) other reason why e.g. more comfortable / door to door (1). • providers of bus transport may not pass on much of the subsidies in the form of lower prices (1) • opportunity cost of using subsidies (1) could spend money on other ways to reduce pollution e.g. education (1) • economy is growing so incomes rising (1) both bus and car travel may increase (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 previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Reward application of subsidies to producers and/or consumers. Increase in supply, lower prices, extension in demand may be shown on a demand and supply diagram. Question Answer Marks Guidance 1(h) Discuss whether or not India is likely to experience a deficit on the current account of its balance of payments in the future. Award up to 4 marks for logical reasons why it might, which may include: • there was a deficit in 2016 and 2017 (1) and it was on an upward trend (1) • incomes are rising / economic growth is occurring (1) and so more imports may be purchased both by consumers and by firms (1) • it is expected that the exchange rate will rise (1) this may increase the price of exports (1) and demand for exports may fall (1) price of imports may fall (1) so demand for imports may rise (1) • Indian trade restrictions may be reduced / Indian government promoting free trade (1) which may increase imports (1). • tax rates may be cut (1) with more disposable income (1) people may buy more imports (1). Award up to 4 marks for logical reasons why it might not, which may include: • there may be more foreign tourists (1) if pollution declines (1) • lower tariff on imported raw materials / imported capital goods (1) may reduce costs of production (1). • other countries may remove their trade restrictions (1) allowing India’s exports to rise (1) • if the government does spend more on education (1) productivity may rise (1) and India’s products may become more price and quality competitive (1). • MNCs may be attracted for a number of the reasons given (1) MNCs may produce exports / import substitutes (1). • Higher investment (1) may raise quality of exports / domestic products (1) lower price of exports (1). • Car production is rising (1) more cars may be exported / fewer cars may be imported (1). 6

This question in 0455/22 Feb/March 2020

4 Economists are uncertain about the future United States (US) macroeconomic performance. For instance, in recent years, US unemployment has fallen while the deficit on the current account of the balance of payments has fluctuated. Whether its current account deficit will rise or fall in the future may be affected by proposed tax cuts. Some economists suggest that the US government should not be concerned about the country’s current account deficit. (a) Define macroeconomics. [2] (b) Explain two consequences to firms of unemployment. [4] (c) Analyse how tax cuts could increase exports. [6] (d) Discuss whether or not a current account deficit on its balance of payments harms an economy. [8]

20 marks

Mark scheme: 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.

This question in 0455/21 May/June 2020

1 (a) Calculate Pakistan’s trade in goods balance in 2017. [1] (b) Identify two possible causes of demand-pull inflation in Pakistan in 2017. [2] (c) Explain the opportunity cost to Pakistan of producing consumer goods. [2] (d) Explain two reasons why education is a merit good. [4] (e) Analyse why the children of poor families tend to receive less education than the children of rich families. [4] (f) Analyse the relationship between GDP per head and imports per head. [5] (g) Discuss whether or not the supply of teachers in Pakistan is likely to increase in the future. [6] (h) Discuss whether or not an increase in its import tariffs would be likely to benefit the Pakistani economy. [6]

30 marks

Mark scheme: Question Answer Marks 1(a) Calculate Pakistan’s trade in goods balance in 2017. 1 –$36.5bn (1). 1(b) Identify two possible causes of demand-pull inflation in Pakistan in 2 2017. Any two from: Higher government spending (1) higher consumer spending / rising population (1) increased investment (1). 1(c) Explain the opportunity cost to Pakistan of producing consumer 2 goods. Logical explanation which might include: Capital goods (1) resources that could have been used to produce capital goods are being used to produce consumer goods / (next) best alternative forgone (1). 1(d) Explain two reasons why education is a merit good. 4 Logical explanation which might include: People underestimate full benefit / private benefit (1) not appreciating health and job opportunity benefits (1). People not taking into account external benefits (1) e.g. better quality products/larger quantity of products or economic growth (1). 1(e) Analyse why the children of poor families tend to receive less 4 education than the children of rich families. Coherent analysis which might include: The children of the poor may not attend school (1) they may have to work (1) to help support their families (1). Poor families are likely to have difficulty paying to have their children educated (1) some schools in Pakistan are in the private sector (1) there seems to be a lack of low-cost schools (1). The children of the poor may leave school at a younger age (1) may miss more school days due to ill health (1). 1(f) Analyse the relationship between GDP per head and imports per head. 5 Coherent analysis which might include: Generally the countries with the highest GDP per head spend the most per head on imports (1) examples e.g. Norway has the highest income per head and the highest spending on imports per head and Haiti has the lowest income and the lowest spending on imports (up to 2) exception: Russia has a higher income per head than Mexico but a lower spending per head on imports (1). Expected relationship as income rises (1) people can afford more imports (1). The four countries with above average GDP per head spend above the global average on imports (1). The two countries with below average GDP per head spend more on imports (1). 1(g) Discuss whether or not the supply of teachers in Pakistan is likely to 6 increase in the future. Generic example mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. 0 reverse of a previous argument. Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on 1 subsidies may stimulate the economy more than spending on education. Award up to 4 marks for logical reasons why it might, which may include: • education standards may rise (1) which may increase those qualified to be teachers (1) • working conditions may improve (1) with better buildings (1) • population is increasing (1) which may increase the size of the labour force (1). Award up to 4 marks for logical reasons why it might not, which may include: • wages may not rise (1) teachers may switch to other jobs (1) • teachers may emigrate to other countries (1) • the qualifications required to be a teacher may increase (1) by more than educational standards rise (1). 1(h) Discuss whether or not an increase in its import tariffs would be likely 6 to benefit the Pakistani economy. Award up to 4 marks for logical reasons why it might, which may include: • may reduce the trade deficit (1) by reducing demand for imports (1) • tax revenue may increase (1) enabling the government to increase its spending (1) • may help protect infant industries (1) until they can take advantage of economies of scale (1). Award up to 4 marks for logical reasons why it might not, which may include: • demand for some finished imports may be price inelastic (1) • demand for capital goods / raw materials may be inelastic (1) • incomes may rise (1), leading to higher spending on imports (1) • other countries may impose trade restrictions (1) reducing Pakistan’s ability to export (1).

This question in 0455/22 May/June 2020

2 The election of a new president in South Africa in 2018 led to improvement in business and consumer confidence. Inflation rates fell despite a rise in total demand. One government policy measure established areas known as economic zones where firms pay lower, or no, taxes. These zones encourage domestic firms to become internationally competitive which could reduce the deficit on the current account of South Africa’s balance of payment. (a) State two components of the current account. [2] (b) Explain why inflation may fall even if there is an increase in total demand. [4] (c) Analyse how a country’s current account deficit might be reduced if its firms become internationally competitive. [6] (d) Discuss whether or not lower taxes on firms will be beneficial for an economy. [8]

20 marks

Mark scheme: 2(a) State two components of the current account. Any two from: • trade in goods • trade in services • primary income • secondary income 2 Any two components. Accept exports and imports for 1 mark. 2(b) Explain why inflation may fall even if there is an increase in total demand. Logical explanation which might include: There may have been an increase in total supply (1) which may be greater than the increase in total demand (1). There could be an improvement in productivity (1) better technology / capital (1). Costs of production could have gone down (1) e.g. lower taxes / lower costs of raw material, stronger exchange rates (1). 4 2(c) Analyse how a country’s current account deficit might be reduced if its firms become internationally competitive. Coherent analysis which might include: Being internationally competitive e.g. high productivity, low inflation, low exchange rates (max 2) increases production (1) reduces cost of production (1) decreases price of exports (1) increases quality of exports (1) increases demand for exports (1) increases value of exports / net exports (1). Imports relatively more expensive / other countries products more expensive (1) lower relative quality of imports (1) decreases imports (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not lower taxes on firms will be beneficial for an economy. In assessing each answer, use the table opposite. Why it might be beneficial: • will increase after tax profits • increase ability and incentive to invest • firms may expand output leading to higher employment and economic growth • higher investment may increase innovation and productivity which may improve the current account • will reduce cost of production. This may reduce inflation Why it might not be beneficial: • firms might not invest more and just keep the profits to themselves • government will get less revenue from firms, reducing ability to spend to improve the economy • may attract MNCs which may replace domestic firms • capital goods may replace labour, causing unemployment • higher output may result in external costs e.g. pollution. 8 Level Descriptors Mark 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development or may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0 Question Answer Marks Guidance 2(d) Example of L3 answer: Lower taxes on firms will be beneficial for an economy, as this will reduce the production costs for firms and increase their profits. With greater profits, firms may invest in labour, which will decrease unemployment, and allow the firm to increase its output. With greater output, a firm’s exports may increase, and this will improve the current account position. Furthermore, lower taxes may allow for lower prices as the reduced production costs may be passed on to consumers. Also, lower taxes may allow a firm to increase its wages which not only increase average incomes, but also increase productivity and so economic output. On the other hand, low taxes may not be beneficial, as firms may use their increased income for expansion, but may also increase external costs such as pollution when they do this. Furthermore, lower taxes may allow firms to become monopolies, which will hurt competition and the potential for new firms. Moreover, with increased income, firms may choose to become capital-intensive rather than labour-intensive, which would increase unemployment. Principal Examiner comment: Strong on one side and reasonable on the other side.

This question in 0455/21 Oct/Nov 2020

2 Mexico has a history of trade deficits. The government is moving the economy closer to free trade, to try to improve its macroeconomic performance. It was predicted in 2017 that Mexico’s economy would experience a small rise in its unemployment rate. In 2017 the economy’s inflation rate was 6.6%, the highest rate since 2001. A number of policy measures may be used to reduce inflation, including increasing the rate of income tax. (a) Define trade in goods balance. [2] (b) Explain two benefits producers may gain from free trade. [4] (c) Analyse, using a production possibility curve (PPC) diagram, the effect of an increase in unemployment on an economy. [6] (d) Discuss whether or not an increase in the rate of income tax will reduce inflation. [8]

20 marks

Mark scheme: 2(a) Define trade in goods balance. Value of exports of goods / revenue earned from exports minus value of imports of goods / expenditure on imports of goods (2). Exports minus imports (1) of goods / visible items (1). 2 Accept exports (of goods) = imports of (goods) for 1 mark 2(b) Explain two benefits producers may gain from free trade. Logical explanation which might include: Availability of larger/global market (1) may increase revenue/profit (1). Ability to produce on a larger scale / higher output (1) take advantage of economies of scale (1) specialise (1). Access to cheaper / better quality raw materials / raw materials without tariffs imposed on them (1) lowering costs of production/raising quality of products produced/lowering price (1). Access to advanced technology/ideas from abroad (1) resulting in improved methods of production/new products (1). Increased competitive pressure (1) which may raise efficiency (1). 4 One mark for each of two benefits identified and one mark for each of two explanations. Question Answer Marks Guidance 2(c) Analyse, using a production possibility curve (PPC) diagram, the effect of an increase in unemployment on an economy. Up to 4 marks for the diagram: Axes correctly labelled (1). Curve drawn as a curve or downward sloping line to the axes (1). Two production points shown – one on or to left of PPC and the other further to the left of the PPC (1). Movement of the production point inwards indicated by arrow or lettering (1). Up to 2 marks for coherent analysis which might include: Unemployment means resources are not used (1) there is inefficiency (1) reduces output/GDP / causes a recession (1). 6 For analysis, only accept a PPC shifted inwards if logical justification is given i.e. an increase in unemployment may cause some workers to leave the labour force – ‘unemployment causing unemployment’. capital goods O consumer goods A B Question Answer Marks Guidance 2(d) Discuss whether or not an increase in the rate of income tax will reduce inflation. In assessing each answer, use the table opposite. Why it might: • reduce disposable income/purchasing power • consumer expenditure likely to fall • investment may fall • total (aggregate) demand may fall • demand-pull inflation may decrease • higher government revenue may increase government spending on supply-side policy measures. Why it might not: • workers may seek higher wages • higher wages may increase costs of production • cost-push inflation/wage-price spiral may occur • higher tax revenue may increase government spending • higher government spending may offset lower consumer expenditure leaving total (aggregate) demand unchanged • people may be very confident about the future so they cut back on savings rather than spending. 8 Level Descriptors Mark 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development or may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0 Question Answer Marks Guidance 2(d) Example of L3 answer: Due to an increase in the rate of income tax, inflation may fall as disposable income will fall. People will have less money to spend so they may spend less and total demand will fall. A fall in demand will cause prices to fall as producers will not be able to sell as many goods and services. They will want to keep their market share. Demand-pull inflation will decrease. However, an increase in income tax may not cause inflation to fall. Workers may force up the wage rate. Firms’ labour cost and costs of production will increase so firms may push up prices to maintain profits. This can cause cost-push inflation and a wage price spiral. Plus, government revenue from high taxes will rise and government spending may rise. This may offset the fall in consumer expenditure and inflation may not fall. Principal Examiner comment: Strong on both sides. Example of L1 answer: Inflation refers to the fall in the purchasing power of money. Income tax is a payment to the government. The increase in direct tax will definitely help the government. This may help the government solve the problem of inflation and will increase the purchasing power of money. Principal Examiner comment: Definitions given but the answer does not explain why inflation may, or may not, be reduced.

This question in 0455/22 Oct/Nov 2020

5 Wage rate growth has increased recently in Kazakhstan, but its economic growth rate has slowed. This is, in part, due to a fall in exports. To try to increase the economic growth rate, the government has increased its spending on investment. In August 2015, it adopted a floating foreign exchange rate system in an attempt to improve the country’s macroeconomic performance. (a) Define wages. [2] (b) Explain two reasons, other than methods of protection, why a country’s exports may fall. [4] (c) Analyse how a rise in investment could increase a country’s economic growth rate. [6] (d) Discuss whether or not a country should switch from a fixed foreign exchange rate system to a floating foreign exchange rate system. [8]

20 marks

Mark scheme: 5(a) Define wages. A payment/reward (1) to labour/workers (1). 2 5(b) Explain two reasons, other than methods of protection, why a country’s exports may fall. Logical explanation which might include: Lower incomes abroad (1) reduce the ability of foreigners to buy the country’s exports / lower demand (1). Rise in the foreign exchange rate (1) will make exports more expensive (1). Quality may fall (1) e.g. educational standards may have declined (1). Price may rise (1) due to inflation/higher costs of production/lower productivity/making exports less competitive (1). Domestic demand may rise (1) products may be switched from the export to the home market (1). Lower output (1) reduce the ability of firms to export as many goods and services / result of fewer resources (1). 4 One mark for each of two reasons identified and one mark for each of two explanations. Question Answer Marks Guidance 5(c) Analyse how a rise in investment could increase a country’s economic growth rate. Coherent analysis which might include: More investment will increase total (aggregate) demand (1) there will be more capital goods (1) these may be more efficient / embody advanced technology (1) productive capacity will increase / productivity rise (1) costs of production may fall (1) prices may fall (1) quality may rise (1) more products may be demanded by domestic consumers (1) foreign buyers / more exports (1) output may increase (1). Higher investment may increase employment (1) raise income (1). Investment in human capital/education/healthcare (1) can raise productivity (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not a country should switch from a fixed foreign exchange rate system to a floating foreign exchange rate system. In assessing each answer, use the table opposite. Why it should: • the government will not have to devote time and attention to maintaining the exchange rate and so may use policy measures to e.g. reduce inflation • fewer foreign exchange reserves would have to be kept to maintain the exchange rate. These could be used to stimulate economic activity • exchange rate may be lower which may increase economic growth, lower unemployment and improve the current account position. Why it should not: • a lower exchange rate may cause inflation • fluctuations in the exchange rate may create uncertainty. This may discourage investment and reduce economic growth • may discourage MNCs from setting up in the country • a higher exchange rate could reduce economic growth, employment and harm the current account position. 8 Level Descriptors Mark 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development or may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0 Question Answer Marks Guidance 5(d) Example of L3 answer: A floating exchange rate changes with changes in demand and supply. A country should switch from a fixed foreign exchange rate system to a floating exchange rate system as there will be no need to keep foreign reserves so it can spend foreign reserves on something else. A country can easily change monetary policy changing interest rate without being worried. It can concentrate on other aims and not the exchange rate. Floating exchange rate automatically adjust current account of the balance of payments as increase in demand for exports will increase exchange rate reducing demand on exports. A country should not switch from fixed foreign exchange rate system to floating exchange rate as speculation could say that the value of local currency will decrease so people will sell it causing value to decrease as it will have lower demand. The uncertainty about export and import prices may discourage MNCs. Principal Examiner comment: Strong on one side and reasonable on the other.

This question in 0455/22 Oct/Nov 2020

1 (a) Calculate the external cost per kilometre of driving a car in Manila in 2017. [1] (b) Identify two macroeconomic aims of the Philippine government. [2] (c) Explain one reason why traffic congestion can reduce labour productivity. [2] (d) Explain how an increase in the mobility of Philippine workers would be likely to affect unemployment in the Philippines. [4] (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. [4] (f) Analyse the relationship between the countries’ consumer expenditure and imports. [5] (g) Discuss whether or not the supply of enterprise is likely to increase in the Philippines. [6] (h) Discuss whether or not building more roads in Manila will benefit the Philippine economy. [6]

30 marks

Mark scheme: 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

This question in 0455/23 Oct/Nov 2020

4 The use of supply-side policy measures, including deregulation, is moving China closer to a market economic system. Some supply-side policy measures, such as education and subsidies, can also increase a country’s economic growth rate. China joined the World Trade Organisation in 2001 and has since removed some quotas on imports and reduced some import tariffs. These measures may influence the size of its current account surplus. (a) Define deregulation. [2] (b) Explain two benefits consumers may gain from a market economic system. [4] (c) Analyse how education and subsidies can increase a country’s economic growth rate. [6] (d) Discuss whether or not a reduction in a country’s trade protection will reduce its current account surplus. [8]

20 marks

Mark scheme: 4(a) Define deregulation. The removal of rules/regulation (2). Less government intervention (1) to encourage competition (1). Actions making it easier for businesses to enter / operate in an industry (1). Supply-side policy (1) to increase competition (1). Question Answer Marks Guidance 4(b) Explain two benefits consumers may gain from a market economic system. Logical explanation which might include: Sovereignty (1) consumers decide what will be produced (1). Choice (1) there may be a number of firms producing a product (1). Low prices (1) competition may mean that firms have to charge low prices to keep their customers (1). High quality (1) the profit incentive may encourage firms to raise quality to attract more consumers (1). 4 One mark for each of two benefits identified and one mark for each of two explanations. 4(c) Analyse how education and subsidies can increase a country’s economic growth rate. Coherent analysis which might include: Education/training may increase qualifications/skills (1) raising the productivity of workers (1) increasing the mobility of workers (1) attracts MNCs (1) reduces unemployment (1) raising the quality (1) and quantity of output (1). Subsidies will lower firms’ costs of production (1) encouraging firms to increase their production (1) increasing supply (1) lowering price (1) a higher output is likely to be bought and sold (1). Subsidies for consumers e.g. education/health (1) may help in gaining skills/jobs and being more productive (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not a reduction in a country’s trade protection will reduce its current account surplus. In assessing each answer, use the table opposite. Why it might: • lower tariffs will reduce price of imports • removal of quotas may result in more imports being purchased • removal of a ban/embargo will permit imports of the product to enter the country • import expenditure may rise • higher import expenditure may reduce the gap between export revenue and import expenditure Why it might not: • foreign firms may not have the capacity to supply more products • demand for imports may be price inelastic • the quality of imports may have fallen • other countries may also reduce their trade restrictions • the exchange rate may fall, raising exports and reducing imports • export revenue may rise to match the higher import expenditure • may have large surplus on invisibles Example of Level 2 answer: The removal of quotas and tariffs on imports will make it relatively cheaper to import into the country. More imports will come into the country reducing its current account surplus. However, a reduction in a country’s trade protection will show the country’s willingness to have trading partners. 8 Level Descriptors Mark 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development or may be one-sided. There is relevant use of economic concepts, terminology, information, and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0 Question Answer Marks Guidance 4(d) As such, domestic firms will allocate more resources into producing exports at relatively lower costs and better quality so that they will be more competitive in the global economy. Other countries may be attracted to these exports and the demand for them will increase. Thus, the demand for local currency will increase, causing the current account surplus to increase. Thus, the current account surplus may increase or decrease depending on the extent of the fall in import prices and the rise in demand for exports. Principal Examiner comment: There is limited coverage of both sides.

This question in 0455/23 Oct/Nov 2020

4 It is estimated that half of Egyptian men smoke. This is one of the highest rates in the world. In recent years the Egyptian government has increased the tax on cigarettes. The government and central bank have also tried to reduce inflation and improve Egypt’s international trade performance. The Egyptian government could use subsidies to reduce its deficit on the current account of its balance of payments. (a) Identify two qualities of a good tax. [2] (b) Explain two reasons why governments tax cigarettes. [4] (c) Analyse how a central bank could reduce inflation. [6] (d) Discuss whether or not an increase in government subsidies will reduce a deficit on the current account of the balance of payments. [8]

20 marks

Mark scheme: 4(a) Identify two qualities of a good tax. Two from: • certainty / easy to understand / people know how much to pay • convenience / easy to pay • economy / cheap to collect • efficiency / not harm performance of markets • equity / fair / based on ability to pay • flexibility / easy to change 2 4(b) Explain two reasons why governments tax cigarettes. Logical explanation which might include: To raise revenue (1) demand for cigarettes is price-inelastic / smoking is addictive / to spend on e.g. education (1). To discourage consumption / to discourage production (1) they are a demerit good / cigarettes are more harmful than smokers realise / they cause health problems (1). To reduce external costs / they create external costs (1) impose a cost on third parties / cause pollution / health problems for non-smokers (1). To improve the current account position (1) cigarettes may be imported (1). 4 One mark each for each of two reasons identified and one mark each for each of two explanations. Question Answer Marks Guidance 4(c) Analyse how a central bank could reduce inflation. Coherent analysis which might include: A central bank could use contractionary monetary policy (1). A central bank could increase the rate of interest (1) increase saving (1) reduce borrowing (1) reduce consumer expenditure (1) reduce total (aggregate) demand (1) reduce demand-pull inflation (1). A central bank could reduce the money supply (1) print less money / sell government bonds (1) restrict bank lending (1) fewer loans may reduce investment (1) reduce consumer expenditure (1). Raising the exchange rate (1) may reduce the price of imports (1) lowering cost-push inflation (1). One effect of a lower interest rate might be to lower costs of production (1) reduce cost-push inflation (1). 6 Accept but do not expect reference to increasing reserve / liquidity ratio (1). Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 4(d) Discuss whether or not an increase in government subsidies will reduce a deficit on the current account of the balance of payments. In assessing each answer, use the table opposite. Why it might: • reduce costs of production • lower prices, making products more internationally competitive • export revenue may rise • import expenditure may fall Why it might not: • firms may not lower prices • firms may be encouraged to be inefficient • demand for exports may not rise if quality is poor • demand for exports and imports may be price- inelastic • other countries may retaliate by imposing trade restrictions / giving subsidies • subsidies to consumers can increase demand for imports and divert exports to the home market • subsidies to producers may increase demand for imports of raw materials and capital goods Example of an L3 answer An increase in government subsidies would reduce a deficit in the current account of the balance of payments as domestic firms could use the subsidy to lower the price of its goods, improve quality and hence make its products more internationally competitive. This would increase exports of the country’s products. It would also reduce imports as citizens would substitute the imported products with the more competitive domestically made goods. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Marks Guidance 4(d) The increased government subsidies may also allow firms to make more profits and households to save more. The profits and extra savings may be invested abroad. This would increase the primary income on return on investments would come from abroad back to the home country. This would also reduce a current account deficit. On the other hand, government subsidies may not reduce the current account deficit if domestic industries become dependent on them and don’t actually improve their methods of production and lower costs. This would not make their products more internationally competitive and demand for exports would not increase. It may not also improve the deficit in the short run if firms use the subsidies to import raw materials and capital goods from abroad. However, on the long run it would lead to better products and lower pricing, making the products of domestic firms more internationally competitive. Example of an L2 answer Current account deficit means import expenditure is more than export revenue. This happens when export prices are higher than import prices. Providing subsidies to producers can cause them to lower prices and export more. It can also increase firms’ confidence and they may invest more. However, sometimes subsidy may increase imports. A subsidy may make firms more inefficient and produce lower quality products. The subsidy may also be given to firms making products not in demand and so the firms will not have the potential to grow. Example of an L1 answer Government subsidy refers to an incentive provided by the government to producers. Governments can reduce deficit on the current account of the balance of payments by increasing the total supply, it will also result in an increase in GDP and promote economic growth. Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

This question in 0455/22 Feb/March 2021

1 (a) Calculate the value of Nigeria’s exports of goods in 2017. [1] (b) Identify two examples of capital goods. [2] (c) Explain whether Nigeria had a budget deficit or a budget surplus in 2017. [2] (d) Explain how government spending on training may increase tax revenue in the long run. [4] (e) Analyse how living standards in Nigeria compare with living standards in Ethiopia in 2017. [4] (f) Analyse how a government could encourage firms to increase their investment. [5] (g) Discuss whether or not an increase in Nigeria’s population will benefit its economy. [6] (h) Discuss whether or not an increase in Nigeria’s import tariff on rice would increase the output of Nigerian rice. [6]

30 marks

Mark scheme: 1(a) Calculate the value of Nigeria’s exports of goods in 2017. $43.1bn 1 $ is not essential. 1(b) Identify two examples of capital goods. Two from: • [delivery] vehicles • machines • [office] equipment 2 1(c) Explain whether Nigeria had a budget deficit or a budget surplus in 2017. • budget deficit (1) • government spending exceeded tax revenue (1) • government spending was $19.5bn and tax revenue was $12.9bn (1) 2 1(d) Explain how government spending on training may increase tax revenue in the long run. Logical explanation which might include: • Training may increase skills of workers (1) raise productivity (1) raise wages / incomes (1) increase job opportunities / employment / reduce unemployment (1) increase income tax revenue (1). • Higher wages may increase spending / demand (1) increase indirect tax revenue (1). • A more productive labour force may reduce costs of production (1) raise profits (1) increase corporation tax revenue (1). 4 Question Answer Marks Guidance 1(e) Analyse how living standards in Nigeria compare with the living standards in Ethiopia in 2017. Coherent analysis which might include: • Nigeria’s higher GDP per head (income) (1) suggests Nigerians may have been able to enjoy more goods and services (1). • Nigeria has a lower life expectancy (1) suggesting poorer healthcare (1). • Nigeria has a higher average number of years spent at school (1) suggesting the labour force may be more educated (1). • Nigeria has a higher percentage of underweight five-year olds (1) suggesting poor nutrition / income inequality (1). • Overall comment: Nigeria’s income per head and average years spent at school suggests a higher living standard but life expectancy and percentage of five years underweight suggests a lower living standard (1). 4 Question Answer Marks Guidance 1(f) Analyse how a government could encourage firms to increase their investment. Coherent analysis which might include: • Reduce the rate of interest (1) making it cheaper to borrow (1) encouraging borrowing as consumer spending is likely to rise (1). • Lower corporation tax (1) increasing the funds available to invest (1) increasing the incentive to invest as return from investment would rise (1). • Create greater economic certainty / confidence (1) by e.g. keeping inflation low and stable / not changing government spending and taxation frequently (1) making it easier for firms to plan / it can take time to get a return from investment (1). • Provide subsidies/grants/loans (1) decreasing cost of investments (1) encouraging MNCs (1). • Raise tariffs (1) increasing demand for home produced goods (1). • Less government regulation/policies (1) reduces costs for firms (1) more willing to invest (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not an increase in Nigeria’s population will benefit its economy. Award up to 4 marks for why it might: • Fall in death rate (1) may indicate improved healthcare (1). • Total (aggregate) demand will increase (1) may enable existing firms to expand / increase output (1) new firms to set up (1) attract MNCs (1). • Labour force may increase (1) causing total (aggregate) supply to increase / raise productive capacity (1) increase output / GDP (1). • May move country towards optimum population (1) if there are unused resources (1). • Net immigration will increase labour force (1) and reduce dependency ratio (1) • More tax revenue (1) can be spent on improving e.g., public services (1). Award up to 4 marks for why it might not: • Birth rate is rising (1) will increase dependency (1) resources which may have increased economic growth may have to be devoted to rearing the children (1). • Labour force may fall in the short run (1) to look after the children (1). • Pressure will be put on the environment (1) there may be more pollution (1) causing overcrowding / poor health (1). • If food output cannot be increased (1) may be more malnourishment/famine / poverty (1) more food is required / food may have to be imported (1) food prices may increase (1). 6 Apply this example to all questions with the command word DISCUSS (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(g) • Population is rising but age structure may be changing (1) as there is net emigration of young people (1) may result in reduction in labour force (1). • [Opportunity] cost for government (1) which has to spend on health/education rather than infrastructure (1). • Increase in output to meet demand (1) results in faster usage of resources in country (1) and shortages (1). Question Answer Marks Guidance 1(h) Discuss whether or not an increase in Nigeria’s import tariff on rice would increase the output of Nigerian rice. Award up to 4 marks for why it might: • A higher tariff may raise the price of imported rice (1) may reduce demand for / consumption of imported rice (1) may cause Nigerians to demand more home- produced rice as it is cheaper (1) effect would be greater, the greater the elasticity of demand for the import of rice (1) may enable Nigerian rice farmers to raise their price / make more profit (1). • A tariff may raise government tax revenue (1) some of this could be used to subsidise Nigerian rice farmers / modernise farming methods and so raise productivity (1). Award up to 4 marks for why it might not: • Nigerian farmers are less productive than Asian competitors (1) have high(er) costs of production (1) Nigerian price may still be higher even with the higher import tariff (1). • The supply of Nigerian rice may be price-inelastic (1) so even if Nigerian farmers could sell their rice for more, they may have difficulties adjusting supply (1). • More Nigerian rice will not be sold if quality is poor (1) consumers my prefer the varieties of rice produced in other countries (1) other countries retaliate by imposing higher tariffs (1) current account surplus may be reduced (1). • Increase in import tariffs may be small (1) making little difference to import prices and consumption (1). • Not enough resources/ factors of production e.g., farmers (1) to produce more rice in Nigeria (1). 6

This question in 0455/21 May/June 2021

4 The Canadian government has introduced a number of policy measures designed to encourage more women to enter the labour force. Canada’s labour force has reduced as its population has aged. The number of workers and their output are influenced by changes in the country’s foreign exchange rate and consumer expenditure. In 2018, the Canadian dollar fell in value while Canadian consumer expenditure increased. (a) Define the labour force. [2] (b) Explain two causes of an ageing population. [4] (c) Analyse how a fall in the value of a country’s foreign exchange rate could reduce a deficit on the current account of its balance of payments. [6] (d) Discuss whether or not an economy will benefit from an increase in consumer expenditure. [8]

20 marks

Mark scheme: 4(a) Define the labour force. • Those who are economically active (2). • Those willing (1) and able to (work) (1). • The employed (1) and the unemployed (1). 2 4(b) Explain two causes of an ageing population. Logical explanation which might include: • A fall in the death rate / increase in life expectancy (1) resulting from better healthcare / better nutrition / higher income / better lifestyles (1). • A fall in the birth rate (1) resulting from higher cost of raising children / fall in child benefit / increase in women working / increase in use of family planning / fall in infant mortality / reduction in need for children to support parents due to provision of state pensions or healthcare (1). • Rise in net emigration of mainly young-aged people (1) resulting from higher incomes abroad / increase in job opportunities abroad (1). 4 One mark each for each of two causes identified and one mark each for each of two explanations. Question Answer Marks Guidance 4(c) Analyse how a fall in the value of a country’s foreign exchange rate could reduce a deficit on the current account of its balance of payments. Coherent analysis which might include: • Foreign exchange rate is the price / value of one currency in terms of another currency or currencies (1) a fall in the value of a foreign exchange rate means that the domestic currency buys less foreign currency / depreciates (1). • A fall will reduce price of exports (1) raise demand for exports (1) increase export revenue (1) money flows into country which will reduce Balance of Payments deficit (1) if demand is elastic (1). • Increase price of imports (1) reduce demand for imports (1) reduce import expenditure (1) reduces the money flows out of the country which reduces the Balance of Payments deficit (1) if demand is elastic (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not an economy will benefit from an increase in consumer expenditure. In assessing each answer, use the table opposite. Why it might: • may increase total (aggregate) demand which may encourage firms to expand • cause economic growth • reducing cyclical unemployment • raise tax revenue enabling the government to spend more on education and healthcare • eliminate / reduce deflation • raise inflation to the inflation target rate Why it might not: • may cause demand-pull inflation especially if economy is at full capacity • may increase spending on imports • may divert exports to the home market • may cause a deficit on the current account of the balance of payments • may reduce long run economic growth as resources may be diverted away from producing capital goods • may increase the consumption of demerit goods 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Marks Guidance 4(d) 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

This question in 0455/21 May/June 2021

1 (a) Calculate, in $s, the contribution of the fishing industry to Morocco’s GDP in 2017. [1] (b) Identify two macroeconomic aims, other than balance of payments stability, that the Moroccan government could achieve through the blue economy. [2] (c) Explain why an increase in the global demand for fish could reduce a deficit in Morocco’s current account of its balance of payment. [2] (d) Explain two causes of poverty amongst fishermen. [4] (e) Analyse whether GDP per head always increases when the percentage (%) contribution of the primary sector increases. [4] (f) Analyse how regulation of fishing could ensure economic growth is sustained for future generations. [5] (g) Discuss whether or not subsidies to fishermen could help the Moroccan economy. [6] (h) Discuss whether or not a reduction in trade protection by other African countries would be beneficial for Morocco. [6]

30 marks

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

This question in 0455/23 May/June 2021

2 Latvia is one of the fastest growing economies in Europe. Although its GDP per head is below the European average, it is quickly catching up. Living standards are improving. At the same time, a decrease in borrowing has reduced the chance of high inflation. The job market is also improving as the unemployment rate is falling. However, there are concerns that there might be less balance of payments stability. (a) Identify two indicators of living standards. [2] (b) Explain how a decrease in borrowing could reduce the chance of high inflation. [4] (c) Analyse how economic growth conflicts with balance of payments stability. [6] (d) Discuss whether or not having a lower GDP will be a disadvantage to an economy. [8]

20 marks

Mark scheme: 2(a) Identify two indicators of living standards. Two from e.g.: Real GDP per head Human Development Index (HDI) healthcare education Accept GDP per head. 2(b) Explain how a decrease in borrowing could reduce the chance of high inflation. Logical explanation which might include: Decrease in borrowing means people’s purchasing power would reduce / less money to spend (1) would lead to less consumption / less spending (1) or investment (1) this could lead to a decrease in total demand (1). Bank lending would be reduced (1) the money supply may be reduced / less money in circulation / less money in the economy. (1) price of goods and services will remain low / stop prices rising (1) less demand-pull inflation (1). 4 Question Answer Mark Guidance 2(c) Analyse how economic growth conflicts with balance of payments stability. Coherent analysis which might include: Economic growth may benefit from higher spending (1) whereas balance of payments stability does not (1). Less balance of payment stability because economic growth leads to higher income (1) higher employment (1) increases spending/consumption (1) increase the demand for goods and services (1) including imported goods (1) reducing net exports (1) increase trade deficit / reduce trade surplus (1). Economic growth could increase demand for imported raw materials (1) imported capital goods (1). Economic growth could lead to demand-pull inflation (1) wage rises (1) increase price of exports (1) reduce competitiveness of exports (1). 6 Question Answer Mark Guidance 2(d) Discuss whether or not having a lower GDP will be a disadvantage to an economy. In assessing each answer, use the table opposite. Why it might be a disadvantage: • lower income and lower purchasing power, lower standards of living • lower investment as less demand for goods and services, less production • lower healthcare and education standards • lower levels of employment • may be lower exports • lower tax revenue • may result in deflation Why it might be an advantage: • less production leads to less environmental problems • less work could lead to less stress • less income leads to less imports, better current account balance • less income leads to less inflation • GDP per head could rise if population fallen more than GDP 8 Accept discussion of low GDP. 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 2(d) Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

This question in 0455/23 May/June 2021

1 (a) Calculate, in $, the total exports of Laos to China in 2017. [1] (b) Identify two roles of commercial banks. [2] (c) Explain how access to seaports may benefit an economy. [2] (d) Explain two benefits of the free market reforms introduced by the government of Laos. [4] (e) Analyse the impact of improved education on the economy of Laos. [4] (f) Analyse the relationship between a country’s Ease of Doing Business ranking and its GDP per head. [5] (g) Discuss whether or not strict rules and regulations benefit an economy. [6] (h) Discuss whether or not a slowdown of China’s economy will be harmful to the economy of Laos. [6]

30 marks

Mark scheme: 1(a) Calculate, in $, the total exports of Laos to China in 2017. 1.1832 billion / 1 183 200 000. 1 Accept 1.18 or 1.2 billion. 1(b) Identify two roles of commercial banks. Helps local entrepreneurs to borrow money (1). Encourages households to save / enables households to save (1). 2 Accept loan / lending 1(c) Explain how access to seaports may benefit an economy. Enables an economy to take full advantage of international trade / take greater advantage of international trading opportunities (1) enables immigration of skilled workers (1) Can export and import goods (1) goods can be transported more cheaply (than by rail or air / over longer distances) / may encourage specialisation (1) increases consumer choice (1). May encourage investment (1) attract MNCs (1) create economic growth (1) 2 1(d) Explain two benefits of the free market reforms introduced by the government of Laos. The free market reforms have enabled Laos to sell their abundant raw materials internationally (1) increases export revenue / improves current account balance / creates employment / encourages firms to expand / increases GDP (1). Encourages foreign investment (1) may lower costs of production / increases total demand / improves current account balance / creates employment / increase tax revenue (1). 4 One mark each for each of two benefits identified and one mark each for each of two explanations. Accept improved infrastructure. Question Answer Marks Guidance 1(e) Analyse the impact of improved education on the economy of Laos. Increased adult literacy rate (1) better skills/qualifications (1) increase productivity (1) / increase productive capacity / total supply (1) increase demand for labour (1) reduce unemployment / raise employment (1) raise wages (1) reduce poverty (1). More attractive for entrepreneurs / new businesses / investment (1) increase output / GDP (1) leading to higher living standards (1). Improvements in technology (1) due to workers having higher IT skills (1) Increase the consumption of merit goods / decrease the consumption of demerit goods (1) 4 1(f) Analyse the relationship between a country’s Ease of Doing Business ranking and its GDP per head. Expected relationship: Positive / direct (1) if ease of doing business (EDB) rank is high, GDP per capita is high (1). Supporting evidence: Singapore has the highest EDB rank and GDP per capita is highest (1) Timor-Leste has the lowest EDB rank and GDP per capita is the lowest (1). Exception: Brunei / Malaysia (1) has lower EDB rank than Malaysia but higher GDP per head (1). Alternatively South Korea / Brunei (1) Brunel has lower EDB rank but higher GDP per head (1). Analysis: The greater the ease of doing business, the more investment there is likely to be (1) higher investment is likely to increase GDP (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not strict rules and regulations benefit an economy. Award up to 4 marks for logical reasons why they might, which could include: • Environmental rules (1) e.g. cap on carbon emission, tax on polluting industries (1) reduce market failure (1) reduce external costs (1) e.g. could decrease pollution / protect natural resources (1) less health problems for the society (1) better standards of living (1). • Anti-competition rules (1) e.g. restrictions on monopoly power (1) improved consumer choice / lower prices / better quality (1) foreign companies will not dominate the market (1) opportunities for domestic firms to develop (1) increased future economic growth (1). • Restrictions on imports (1) may protect domestic industries / allow growth of domestic industries (1). • Bans e.g. prohibiting smoking in public places (1) may reduce market failure / reduce external costs (1). • Labour market legislation (1) protecting workers’ rights (1). Award up to 4 marks for logical reasons why they might not, which could include: • Strict regulation discourages business (1) Laos ranks one of the lowest in the World Bank’s Ease of Doing Business index (1) lack of investment / MNCs discouraged (1) lower productivity (1) lack of competition (1) lack of employment opportunities (1) decreased total demand (1) decreased economic growth / lower GDP (1) lower standards of living (1). 6 Apply this example to all questions with the command word Discuss (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(g) • Bureaucracy / red tape increases the time and effort of doing business (1) increases cost of production (1) lowers profit (1). • Rules and regulations may lack clarity (1) causing them to be implemented incorrectly (1) • Takes time for the government to administer rules and regulations (1) opportunity cost of government spending (1). • Import restrictions reduce competition (1) may result in higher prices (1) lower quality (1) 1(h) Discuss whether or not a slowdown of China’s economy will be harmful to the economy of Laos. Award up to 4 marks for logical reasons why it might, which might include: • China is Laos’s largest trading partner / 58% of Laos’s exports are sold to China (1) China slowing down will lead to less demand for Laos’s exports (1) less export revenue / worsen current account (1) less total demand (1) less economic growth (1) may not be able to buy more, irreplaceable imports (1). • China is the largest source of foreign investment into Laos (1) less foreign investments will lead to less job creation (1) less employment / higher unemployment (1) lower standards of living (1). Award up to 4 marks for logical reasons why it might not, which might include: • Reduce dependence on China (1) find new markets and investors (1) other countries’ economies could be expanding (1) which could generate more exports (1) and jobs (1). • May lead to fewer environmental problems (1) less pollution (1) higher standard of living (1). • Domestic investors and firms could fill the gap (1) more employment (1) higher GDP (1). 6

This question in 0455/21 Oct/Nov 2021

2 In 2019, the government of France proposed a 3% tax on the revenue of large firms that advertise and sell products online. This tax may lead to a redistribution of income. There are concerns that this tax may also lead to a reduction in France’s export of services as firms affected may leave France. However, the government hopes that supply-side policy measures will encourage such firms to stay in France. (a) Define redistribution of income. [2] (b) Explain two reasons why governments redistribute income. [4] (c) Analyse the economic effects of a reduction in a country’s export of services. [6] (d) Discuss whether or not supply-side policy measures will encourage firms to operate in an economy. [8]

20 marks

Mark scheme: 2(a) Define redistribution of income. Transfer of income from some individuals (1) to others (1). Tax taken from the rich (1) is spent on the poor (1). Progressive / regressive taxation (1) 2 2(b) Explain two reasons why governments redistribute income. Logical explanation which might include: • Reduce poverty (1) higher purchasing power (1) afford basic necessities (1) e.g. healthcare / education / proper housing (1). • Reduction in poverty reduces social problems / waste of resources (1) as poverty may create e.g. poor health / reduce productivity (1). • To promote equity / greater equality of income (1) reducing the gap between rich and poor (1) • To increase incentives if redistribute from poor to rich (1) may increase effort / enterprise (1) 4 One mark each for each of two reasons identified and one mark each for each of two explanations. 2(c) Analyse the economic effects of a reduction in a country’s export of services. Coherent analysis which might include: As export of services decreases, total exports will decrease (1) total demand decreases (1) less inflation (1) lower economic growth / lower GDP (1). Less export of services, less demand for service workers (1) less job opportunities / higher unemployment (1). Higher current account deficit / less current account surplus (1) reduces ability to buy imports (1) lower standards of living (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not supply-side policy measures encourage firms to operate in an economy. In assessing each answer, use the table opposite. Why they might encourage firms: • Makes it easier to hire and fire workers might lower costs of employing workers to firms. • Better skills could increase productivity. • Encouraging more workers into the labour market could increase the supply of workers. • Reduction in trade union power can reduce cost / make it easier to start a business. • Lower direct taxes will encourage more firms to start up. • Deregulation will reduce barriers to operate in an economy. • Privatisation will allow private firms to invest in the economy. • Subsidies will give firms an incentive to stay in the country. Why they might not encourage firms: • Less job security could decrease productivity, increasing cost of production for firms. • Costs of hiring workers might still be lower elsewhere. • Supply side measures (e.g. labour market reforms) may take a long time before the effects on the economy are apparent • Lower direct taxes may reduce the government’s ability to spend on education / training which will increase firms’ cost of production • Deregulation may enable other firms to engage in unfair practices • There may be a fear that subsidies might be withdrawn and if there is a fall in demand MNCs will not want to stay in the country anyway • Other governments may be giving larger subsidies 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 Question Answer Marks Guidance 2(d) Level Description Marks 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

This question in 0455/21 Oct/Nov 2021

3 South Africa has a high number of unemployed workers. South Africa’s inflation rate has been stable in recent years, partly due to relatively stable wages. An increase in wages can cause inflation and can increase the number of consumer goods bought and produced. To increase employment and reduce the deficit on the current account of South Africa’s balance of payments, some economists suggest more foreign multinational companies (MNCs) should be encouraged to produce in South Africa. (a) Identify two ways unemployment is measured. [2] (b) Explain two ways an increase in wages can cause inflation. [4] (c) Analyse, using a production possibility curve (PPC), the opportunity cost to an economy of producing more consumer goods. [6] (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. [8]

20 marks

Mark scheme: 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

This question in 0455/23 Oct/Nov 2021

2 South Africa (SA) experienced a recession in the second half of 2019 and an unemployment rate of 29%. Only a small proportion of this unemployment was frictional. South Africa’s foreign exchange rate fell from 1 SA rand = US$0.08 in 2018 to 1 SA rand = US$0.06 in 2019. South Africa had reduced import tariffs, but in 2019 some South African economists suggested tariffs should be used to protect its infant industries. (a) Define frictional unemployment. [2] (b) Explain why an infant industry may need protection. [4] (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. [6] (d) Discuss whether or not a reduction in income tax will end a recession. [8]

20 marks

Mark scheme: 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

This question in 0455/22 Feb/March 2022

1 (a) Calculate the number of births in Cyprus in 2019. [1] (b) Identify two indicators of living standards. [2] (c) State why the global market for grapes was in disequilibrium in 2019. [2] (d) Explain two reasons why more well-educated workers tend to work past retirement age than less-educated workers. [4] (e) Analyse how a rise in a country’s retirement age is likely to affect its government’s budget. [4] (f) Analyse the relationship between inflation rates and current account balances. [5] (g) Discuss whether or not, after 2019, Cyprus’s production possibility curve (PPC) is likely to shift to the right. [6] (h) Discuss whether or not adopting capital-intensive production will benefit consumers. [6]

30 marks

Mark scheme: 1(a) Calculate the number of births in Cyprus in 2019. 12 240 (1) 1 1(b) Identify two indicators of living standards. GDP per head / per capita (1). HDI (1). Life expectancy / healthy people (1). Proportion of people in primary sector (1). Level of education / qualifications (1). 2 Do not reward GDP 1(c) State why the global market for grapes was in disequilibrium in 2019. Bad weather / failure of the grape harvest (1) there was a shortage (1) which means demand exceeded supply (1). 2 1(d) Explain two reasons why more well-educated workers tend to work past retirement age than less-educated workers. Logical explanation which might include: Well-paid / good work benefits (1) which provides an incentive to work for longer / high job satisfaction / enter workforce late (1). Healthy (1) and so more able to work for longer / remain productive (1). Work in jobs which do not require physical strength / less tiring (1) older workers tend to be less strong / allows them to continue working as long as remain fit (1). 4 One mark for each of two reasons identified and one mark for each explanation. Question Answer Marks Guidance 1(e) Analyse how a rise in a country’s retirement age is likely to affect its government’s budget. Coherent analysis which might include: A rise in the retirement age / less people retired will reduce the cost of pensions (1) may reduce government spending / government may spend on alternatives e.g., infrastructure, education or health (1). More people in work will increase incomes / businesses expand production (1) raise direct tax revenue (1) spending will increase (1) raise indirect tax revenue (1). 4 Question Answer Marks Guidance 1(f) Analyse the relationship between inflation rates and current account balances. Coherent analysis which might include: Overview: Generally, an inverse relationship / the lower the inflation rate, the higher the current account surplus or the higher the inflation rate, the higher the current account deficit (1). Supporting evidencemax of 2 marks Mongolia has the highest inflation rate (1) and the largest current account deficit (1) Mongolia / Kenya / Nepal have the highest inflation rates (1) all have a current account deficit (1). Iceland / Slovenia have a low rate of inflation (1) but have a current balance of payments surplus (1) Exception: Cyprus lowest inflation rate (1) but a current account deficit / 3rd highest current account deficit (1). Comments: Most of the table shows the expected relationship. (1) Low inflation rates may make products more price competitive / high inflation rates may make prices less price competitive (1) 5 Do not accept current account balance is high or low. Answers need to refer to size of surplus or deficit. Simply using data without explanation is description rather than analysis. Question Answer Marks Guidance 1(g) Discuss whether or not, after 2019, Cyprus’s production possibility curve (PPC) is to shift to the right. Award up to 4 marks for logical reasons why it might, which may include: Quantity / quality of resources may have increased (1) retirement age may have increased (1) people living longer (1) so labour force is likely to have increased (1). Investment may have increased (1) due to low interest rates (1) more capital goods would increase productive capacity (1). Award up to 4 marks for logical reasons why it might not, which may include: Quantity and quality of resources may have decreased (1) land quality is decreasing (1) which will reduce the productivity of land (1). Entrepreneurs may emigrate (1) reducing the supply of enterprise / skilled workers (1). Birth rate is falling (1) size of workforce may fall in future (1) Covid19 may have reduced productivity (1). For recognising that any of these reasons could result in PPC shifting to the left / stay unchanged (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Marks Tax revenue may decrease 1 because of reason e.g., incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e., reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e., not the reverse of a previous argument e.g., government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(h) Discuss whether or not adopting capital-intensive production will benefit consumers. Award up to 4 marks for logical reasons why it might, which may include: It may reduce costs of production / more efficient / may result in economies of scale (1) lower costs may reduce prices (1). It may avoid disruption to supply (1) as no industrial action / strikes (1). It may be quicker / faster (1) to respond to changes in consumer demand (1) It may raise quality (1) as absence of human error (1). Award up to 4 marks for logical reasons why it might not, which may include: Products may be standardised / lack variety (1) individual wants may not be met (1). Capital equipment may break down / costly to maintain (1) causing delays in production (1). Initial high cost of capital equipment (1) may push up prices (1). 6

This question in 0455/21 May/June 2022

2 Australia’s foreign exchange rate fluctuates. The value of Australia’s exports is regularly greater than the value of its imports. Australia is Papua New Guinea’s main trading partner. In 2019, the government of Papua New Guinea increased income tax to reduce its inflation rate. It used other policy measures to increase its economic growth rate. (a) Define foreign exchange rate. [2] (b) Explain two reasons why the value of a country’s exports may be greater than the value of its imports. [4] (c) Analyse how an increase in income tax can affect a country’s inflation rate. [6] (d) Discuss whether or not governments should aim for a high rate of economic growth. [8]

20 marks

Mark scheme: 2(a) Define foreign exchange rate. The price / value of a currency (1) in terms of another currency / currencies (1). 2 2(b) Explain two reasons why the value of a country’s exports may be greater than the value of its imports. Logical explanation which might include: Price of exports may be lower than price of other countries’ products (1) due to e.g., devaluation / depreciation / weaker currency / higher productivity / lower inflation (1). Quality of exports may be higher than the quality of other countries’ products (1) due to e.g., more investment / better education / specialisation (1). Incomes abroad may have increased (1) enabling foreigners to buy more of the country’s products (1). Protective measures (1) restrict imports / subsidise domestic firms or exports (1). May have high value exports e.g., oil (1) with high (global) demand (1). Recession / low demand at home (1) results in fewer imports / encourages firms to export (1). 4 One mark for each of two reasons identified and one mark for each explanation. Question Answer Marks Guidance 2(c) Analyse how an increase in income tax can affect a country’s inflation rate. One mark for a simple explanation that an increase in income tax can reduce the rate of inflation Coherent analysis which might include: An increase in income tax will reduce disposable income / purchasing power (1) this may reduce consumer spending (1) lower total demand (1) this may encourage firms to reduce prices / reduce price rises (1) lower demand-pull inflation (1). Increase in income tax may encourage workers to press for wage rises (1) increase costs of production (1) cause cost-push inflation (1). Income tax revenue can be used to provide e.g., subsidies to certain goods and services (1) reducing prices (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not governments should aim for a high rate of economic growth. In assessing each answer, use the table opposite. Why it should:  economic growth can raise incomes  higher incomes can raise living standards  economic growth can reduce unemployment  economic growth can increase tax revenue allowing the government to spend more on e.g., education. Why it should not:  may deplete non-renewable resources which can reduce future growth  may result in pollution  may put other demands on workers who may have to work long hours  may lead to a deficit on current account of the balance of payment  may result in greater inequality  risk of inflation 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and / or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 68 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 35 Question Answer Marks Guidance 2(d) Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 12 0 A mark of zero should be awarded for no creditable content. 0

This question in 0455/21 May/June 2022

4 In 1982, Nauru had the world’s highest GDP per head. It had a large primary sector and exported phosphate, a natural fertiliser. However, this natural resource did not last long. Nauru is now facing market failure due to pollution and unhealthy food imports. Despite having more imports of goods than exports of goods, it still records a surplus on the current account of its balance of payments. (a) Define GDP per head. [2] (b) Explain how a country with more imports of goods than exports of goods can still record a surplus on the current account of its balance of payments. [4] (c) Analyse the causes of market failure. [6] (d) Discuss whether or not having a large primary sector is a disadvantage to an economy. [8]

20 marks

Mark scheme: 4(a) Define GDP per head. Total output / income / expenditure (1) divided by population / per person (1). GDP per head = Total GDP / Population 4(b) Explain how a country with more imports of goods than exports of goods can still record a surplus on the current account of its balance of payments. Logical explanation which might include: Export prices may be high (1) import prices may be low (1) export revenue may exceed import expenditure (1). Current account consists of trade in goods, trade in services, primary income, and secondary income (1). Therefore, even if there are more imports of goods than exports of goods, which creates a trade of goods deficit (1) if the other three components have a surplus (1) then the overall current account will have a surplus (1). This is likely to be the case if there is a high level of income from investments abroad (1) exports of services (1) a lot of transfer payments (1) such as inflow of aid to a country (1) incomes of nationals working abroad / remittances (1). 4 Question Answer Marks Guidance 4(c) Analyse the causes of market failure. Coherent analysis which might include: Market failure is when market forces cause an inefficient allocation of resources (1). Demerit goods (1) example (1) imperfect information (1) where consumers may not know about the actual costs (1). Merit goods (1) example (1) consumers may not know about actual benefits (1). External costs (1) costs to the third party (1) not considered by consumers and producers (1) therefore goods are overproduced or overconsumed (1). External benefits (1) benefits to the third party (1) not considered by consumers and producers (1) goods are underproduced and under- consumed (1). Public goods (1) non-rivalry (1) and non-excludable (1) free rider problem (1) people want to consume but don’t want to pay for it (1) no profit incentive for firms (1) goods are underprovided by the market (1). Abuse of monopoly power (1) when firms have no competitors (1) they will push up prices (1) or reduce quality (1). Factor immobility (1) where labour cannot move from one job to another (1) or to take up a job somewhere else (1) leads to structural unemployment (1) 6 Question Answer Marks Guidance 4(d) Discuss, whether or not, having a large primary sector is a disadvantage to an economy. In assessing each answer, use the table opposite. Why primary sector is a disadvantage:  lack of value added – low price, low income – low standards of living  unstable prices – unstable income  low productivity – low income  high tariffs – difficult to export  specialisation in any one sector is risky  unsustainable – natural resources could be exhausted Why primary sector is an advantage:  provides employment, especially low skilled in developing countries  provides employment, e.g. high skilled in Saudi Arabian oil  produces high value added exports, e.g. gold in S. Africa  produces exports with inelastic demand, e.g. oil  low start-up costs, low barriers to entry, e.g. farming  may be better than other countries at producing primary products  may be able to diversify with money earned from primary sector  could reduce inequality between urban and rural areas 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

This question in 0455/23 May/June 2022

1 (a) Calculate how many dollars 6400 Nigerian naira would have bought in 2019. [1] (b) Identify two ways a bank could increase demand for its services. [2] (c) State why a merger between two commercial banks is a horizontal merger. [2] (d) Explain two reasons why a large US commercial bank may charge a high price for its services. [4] (e) Analyse how an increase in unemployment may affect the Nigerian government’s budget. [4] (f) Analyse the relationship between countries’ average years of schooling and birth rates. [5] (g) Discuss whether or not a subsidy, given to farmers by the Nigerian government, would reduce the deficit on the current account of its balance of payments. [6] (h) Discuss whether or not the US government should impose a minimum price on chocolate. [6]

30 marks

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

This question in 0455/22 Oct/Nov 2022

5 Palau is a small island country in the Pacific Ocean. It has received considerable financial support from the US. Living standards are thought to be lower in Palau than in the US. Palau imposes some of the highest tariffs in the world. These trade tariffs affect Palau’s current account of its balance of payments. In 2019, commercial bank lending to firms and households in Palau increased. (a) Identify two components of the current account of the balance of payments. [2] (b) Explain two reasons for differences in living standards between countries. [4] (c) Analyse the reasons why a country may impose tariffs on imports. [6] (d) Discuss whether or not an increase in commercial bank lending will increase economic growth. [8]

20 marks

Mark scheme: 5(a) Identify two components of the current account of the 2 Also accept visible balance, invisible balance, income and balance of payments. current transfers. Trade in goods (1) In addition, accept exports and imports. Trade in services (1) Primary income (1) Secondary income (1). 5(b) Explain two reasons for differences in living standards 4 One mark for each of two reasons identified and one mark between countries. for each explanation. Logical explanation which might include difference in: Rate of employment /level of income (GDP per head) (i) will influence the ability to buy goods and services (1). Productivity (1) resulting in differences in ability to enjoy a different quantity of goods and services (1). Availability of resources / factors of production (1) resulting in differences in productive capacity (1). Level of technology (1) resulting higher quality of goods and services / better sanitation / clean water (1). Healthcare (1) resulting in differences in life expectancy (1). Education (1) causing differences in skills / job outcomes (1). International trade (1) resulting in differences in GDP per head (1). Cost of living (1) affecting ability to buy goods and services (1). Environment (1) level of pollution / density of housing (1). War/conflict (1) causing reduced welfare / opportunity / diverted resources (1). 5(c) Analyse the reasons why a country may impose tariffs 6 on imports. Coherent analysis which might include: To increase the price of imports (1) may reduce demand for imports (1) reduce import expenditure (1) improve the current account position / balance of payments (1) increase demand for domestic firms (1) reduce unemployment (1) increase economic growth (1). To protect infant industries (1) enabling them to take advantage of economies of scale / stop them from being driven out by foreign firms with much lower costs due to size (1). To protect declining industries (1) prevent unemployment rising (1). To protect strategic industries (1) ensure self-sufficiency (1). To discourage demerit goods (1) to improve health / welfare of consumers (1). To stop dumping of overseas goods (1) where goods sold at below cost price / aimed at driving out domestic firms (1). As a source of government revenue (1) e.g. to use to subsidise domestic producers (1). As a countermeasure / retaliation (1) in response to unilateral imposition of tariffs by another country (1). 5(d) Discuss whether or not an increase in commercial bank 8 Level Description Marks lending will increase 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 use of Why it might: economic information and clear and • households may spend more on goods and services logical analysis to evaluate economic • higher total demand may increase output issues and situations. One side of the argument may have more depth than • firms may invest more leading to higher employment the other, but overall both sided of the • higher investment will increase total demand and argument are considered and productive capacity. developed. There is thoughtful evaluation of economic concepts, Why it might not: terminology, information and/or data • economy may already be at full employment appropriate to the question. The • higher total demand may increase prices / rate of discussion may also point out the inflation rather than output possible uncertainties of alternative • households and firms may spend on imports decisions and outcomes. • households and firms may borrow to repay past debts • variable interest rate increase could then affect level of 2 A reasoned discussion which makes 3–5 future consumption and investment 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 for 0 no creditable content.

This question in 0455/23 Oct/Nov 2022

1 (a) Calculate the value of US imports from China in 2020. [1] (b) Identify two causes of the increase in the quantity of US factors of production. [2] (c) Explain one way that import tariffs could improve the US economy. [2] (d) Explain two reasons why the US inflation rate fell in 2020. [4] (e) Draw a demand and supply diagram to show the effect of an increase in the price of a complement on the market for ice cream. [4] (f) Analyse the relationship between government spending and unemployment. [5] (g) Discuss whether or not a central bank should aim for a low inflation rate. [6] (h) Discuss whether or not economic growth benefits everyone in the US. [6]

30 marks

Mark scheme: Question Answer Marks Guidance 1(a) Calculate the value of US imports from China in 1 Accept the correct figure without the $ sign. 2020. 560 000 000 000. 5.6  10^11 $560bn (1). 1(b) Identify two causes of the increase in the quantity 2 If more than two causes given, consider the first three. of US factors of production. Accept increase in labour for increase in the labour force. Land reclamation (1) increase in the labour force (1). 1(c) Explain one way that import tariffs could improve 2 One mark for a way identified and one mark for an explanation. the US economy. If more than one way identified, consider the first two. Could improve the current account / trade in goods / To gain two marks, one mark must come from improving the trade in goods and services / balance of payments (1) current account, increase output or raise tax revenue. by reducing imports / making domestic goods more competitive with imports / raising the price of imports Could raise more revenue is not sufficient – need more tax (1) revenue or more government revenue / income. Could increase output / cause economic growth (1) by increasing demand for US goods / raise employment (1). Could raise tax revenue (1) allowing the government to spend more on (e.g. education) / improve the (government budget position) (1). 1(d) Explain two reasons why the US inflation rate fell 4 One mark each for each of two reasons identified and one mark in 2020. each for each of two explanations. Logical explanation which might include: If more than two reasons given, consider the first three. Fall in consumer expenditure (1) lower total demand / reduce demand-pull inflation (1). Reduction in bargaining power may also be linked to lower total Reduction in workers’ bargaining power (1) fall in demand. wage rises / wages / fall in rise in costs / fall in costs / reduce cost-push inflation (1). Higher unemployment (1) reduces confidence / lower total demand / fall in consumer spending (1). Fall in (real) GDP (1) lower incomes / purchasing power / lower total demand (1). Current account deficit (1) lower total demand / reduce demand-pull inflation (1). 1(e) Draw a demand and supply diagram to show the 4 effect of an increase in the price of a complement on the market for ice cream. Demand and supply diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). Demand curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 1(f) Analyse the relationship between government 5 Alternatively, some candidates may argue that changes in spending and unemployment. unemployment, could lead to changes in government spending. Credit both responses. Coherent analysis which might include: Overview: Inverse relationship / negative relationship (1) generally, the higher government spending, the lower the unemployment rate (1). Supporting evidence: E.g. 2015 to 2019, government spending increased and unemployment fell / 2015 to 2017 government spending increased and unemployment fell (1) processing / interpreting of data e.g. between 2015 to 2019, government spending rose by $700bn and unemployment fell by 1.6% (points) (1). Analysis of the expected relationship: • higher government spending will increase total demand (encouraging firms to expand and employ more workers) (1) • higher government spending may be on e.g. education, training, infrastructure, subsidies which could increase workers’ chances of gaining jobs (1) • higher employment will provide more tax revenue for the government to spend / lower employment will reduce tax revenue for the government to spend (1). Exception: 2020 (1) both government spending and unemployment rose / government spending and unemployment both at their highest (1). 1(f) Analysis of the exception: • government spending on unemployment benefits may have increased / rise in government spending not enough to stop GDP / consumer expenditure falling / GDP fell / there may be a time delay before higher government spending reduces unemployment (1). 1(g) Discuss whether or not a central bank should aim 6 May approach the answer from the point of view of the for a low inflation rate. disadvantages of high inflation. 2nd side should examine either the possible negative effects of Award up to 4 marks for logical reasons why it should, what the central bank may do to reduce the inflation rate or the which may include: possible loss of any beneficial effects of high inflation. • can increase international price competitiveness (1) improve the current account balance / No marks for possible effects on the exchange rate. increase exports (1) increase employment / reduce unemployment (1) Apply this example to all questions with the • can create certainty (1) which may increase command word DISCUSS confidence (1) which may encourage investment / (1g, 1h, 2d, 3d, 4d and 5d) attract MNCs (1) which may increase output / result in economic growth (1) Each point may be credited only once, on either side of an • can prevent a random redistribution of income (1) argument, but separate development as to how / why the outcome e.g. protect savers (1) may differ is rewarded. • may protect purchasing power (1) by promoting price stability (1) Generic example Mark • maintain / increase living standards (1) if wages rise by more than the price level (1) Tax revenue may decrease… 1 • can avoid fiscal drag (1) prevent people being put in higher tax brackets (1) ...because of reason e.g. incomes may be lower. 1 • can reduce menu / shoe leather costs (1) reduce firms’ costs of production (1). Tax revenue may increase because incomes may be 0 higher i.e. reverse of a previous argument. Award up to 4 marks for logical reasons why it should not, which may include: Tax revenue may increase because of a different 1 • increases in the rate of interest (1) contractionary reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may monetary policy (1) can reduce consumer stimulate the economy more than spending on expenditure / can reduce investment (1) can education. reduce total demand (1) 1(g) • lower total demand can increase unemployment (1) cyclical unemployment (1) reduce economic growth (1) • low inflation can turn into deflation (1) leading to a recession (1) • makes it harder to pay off debt (1) increasing the risk of firms going out of business / households getting into difficulties (1) • central bank may aim for economic growth / low unemployment (1) higher demand-pull inflation may provide more encouragement to firms to expand (1). 1(h) Discuss whether or not economic growth benefits 6 everyone in the US. Award up to 4 marks for logical reasons why it might, which may include: • economic growth increases output / GDP (1) increases income per head / higher incomes / higher wages (1) enables more purchasing power / people to enjoy more goods and services (1) • economic growth can increase employment (1) raise living standards (1) may reduce poverty (1) • economic growth can increase tax revenue (1) enabling the government to spend more on e.g. education and healthcare (1) • economic growth may introduce better working conditions (1). Award up to 4 marks for logical reasons why it might not, which may include: • there may be an increase in unemployment due to lack of skills / some industries declining / greater use of capital / capital-intensive production (1) structural unemployment may occur (1) • income is unevenly distributed (1) those on low incomes e.g. the sick may not benefit (1) • higher output may result in external costs (1) e.g. pollution (1) people living near factories may suffer (1) • higher output may be the result of more resources being devoted to capital goods (1) may take time for consumers to benefit from more consumer goods (1) 1(h) • higher output may reduce natural resources (1) reducing future generations’ ability to benefit from them / reduce sustainability (1) • higher output may be the result of workers working longer hours (1) in poor working conditions (1) • may cause inflation (1) adversely affecting the poor / savers (1).

This question in 0455/22 Feb/March 2023

4 Safiye Ali became the first female doctor in Turkey in 1923. By 2020, 40% of Turkish doctors were women. Over this period, labour productivity increased. Turkey also experienced advances in technology, a change in the current account balance on its balance of payments and a significant increase in the size of its population. (a) Identify two causes of an increase in labour productivity. [2] (b) Explain two reasons why someone may choose to become a doctor. [4] (c) Analyse how advances in technology may improve the current account balance on a country’s balance of payments. [6] (d) Discuss whether or not a country with a high population growth rate is likely to experience a high economic growth rate. [8]

20 marks

Mark scheme: 4(a) Identify two causes of an increase in labour 2 Nothing for more motivated – TV. productivity. Two from: • improved education • improved training / higher skills • improved healthcare • higher pay / bonuses / lower income tax • better quality capital equipment / advances in technology • shorter working hours / longer holidays • better working conditions / better (fringe) benefits • increased experience • higher unemployment • specialisation 4(b) Explain two reasons why someone may choose to 4 One mark each for each of two reasons identified and one mark become a doctor. each for each of two explanations. Logical explanation which might include: If more than two reasons given, consider the first three. High pay (1) resulting in high living standards / caused by low supply / high demand / high number of job vacancies / strong bargaining power / high qualifications / high skills (1). Vocation (1) wanting to help people (1). Interest / job satisfaction (1) enjoying the challenges involved (1). Status (1) doctors are highly regarded (1). Family tradition (1) parents may have been doctors (1). High pensions (1) enabling high living standards during retirement (1). May be good working conditions (1) working inside (1). Job security (1) difficult to replace / essential service (1). (Fringe / non-wage) benefits (1) e.g. pension schemes (1). 4(c) Analyse how advances in technology may 6 Reward but do not expect reference to gaining a comparative improve the current account balance on a advantage. country’s balance of payments. Coherent analysis which might include: Raise productivity / increase efficiency / increase speed of production / increase output (1) reduce costs of production (1) lower prices (1) raise quality (1) create new products (1) increase international competitiveness (1) increase exports (1) reduce imports (1) increase export revenue (1) reduce import expenditure (1) improve trade in goods (and services) balance / reduce a current account deficit / create a surplus / increase a surplus (1). Increase access to information about goods and services (1) promote sales (1). Increase foreign tourism (1) easier to book foreign holidays (1) increase speed of transport (1). Make it easier to keep in contact with branches abroad (1) encourage setting up branches in other countries (1) receive profits from other countries (1) increase primary income (1). 4(d) Discuss whether or not a country with a high 8 Level Description Marks population growth rate is likely to experience a high economic growth rate. 3 A reasoned discussion which accurately 6–8 examines both sides of the economic In assessing each answer, use the table opposite. argument, making use of economic information and clear and logical analysis Why it might: to evaluate economic issues and • may have an increasing labour force, capable of situations. One side of the argument may producing a higher output have more depth than the other, but • likely to have higher demand, encouraging higher overall, both sides of the argument are output considered and developed. There is • larger markets can enable greater advantage to thoughtful evaluation of economic be taken of economies of scale concepts, terminology, information and / • may have higher tax revenue, enabling the or data appropriate to the question. The government to spend more on e.g. education discussion may also point out the which can promote economic growth possible uncertainties of alternative decisions and outcomes. Why it might not: 2 A reasoned discussion which makes use 3–5 • may have an increase in the number of of economic information and clear dependents, reducing resources which can be analysis to evaluate economic issues devoted to increasing productive capacity and situations. The answer may lack • rise in birth rate may reduce the size of the labour some depth and development may be force as people leave the labour force to bring up one-sided. There is relevant use of children economic concepts, terminology, • resources may be depleted, reducing productive information and data appropriate to the capacity question. • external costs e.g. congestion and pollution may increase which may reduce productivity. 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.

This question in 0455/22 Feb/March 2023

3 Germany’s death rate is higher than some other countries, including Sweden, Cuba and the Maldives. Germany’s labour force increased in size between 2011 and 2021 and has become even more productive. The country has also experienced low inflation and a growing surplus on the current account of its balance of payments. (a) Identify two reasons why death rates may vary between countries. [2] (b) Explain two causes of an increase in the size of a country’s labour force. [4] (c) Analyse how an increase in labour productivity in a country can increase a surplus on the current account of its balance of payments. [6] (d) Discuss why some countries may experience lower inflation in the future and some may not. [8]

20 marks

Mark scheme: 3(a) Identify two reasons why death rates may vary between countries. Two from differences in:  income / standard of living  healthcare  education  nutrition  lifestyles / suicide rates  average age  spread of Covid / infectious diseases  war / conflict  natural disasters  air pollution / water pollution  conditions of work  level of crime 2 Do not accept differences in population size as these affect number rather than rate. If more than two reasons are given, consider the first three. 3(b) Explain two causes of an increase in the size of a country’s labour force. Logical explanation which might include: Change in the birth rate (1) rise will mean more people of working age in the long run / fall will enable more parents to be in the labour force (1). Immigration (1) many immigrants are of working age (1). Rise in retirement age (1) people will work for longer (1). Fall in school leaving age (1) people will be in education for a shorter period (1). Fall in the death rate / rise in life expectancy (1) fewer people dying before reaching retirement age (1). Changes in social culture (1) allowing more women to work (1). Increase in size of population of working age (1) reason (1). Rise in wage levels (1) attracts people to re-enter the labour market (1). 4 One mark each for each of two causes identified and one mark each for each of two explanations. Question Answer Marks Guidance 3(c) Analyse how an increase in labour productivity in a country can increase a surplus on the current account of its balance of payments. Coherent analysis which might include: Output per worker (hour) increases (1) may reduce average cost of production (1) lower prices (1) may increase the quality of exports (1). These changes may increase international competitiveness of exports / make exports cheaper (1) demand for exports may increase (1) export revenue may rise (1). Higher relative prices of imports (1) lower relative quality of imports (1) these changes may decrease international competitiveness of imports (1) demand for imports may decrease (1) import expenditure may fall (1). Output increases (1) allowing more exports (1) and less imports (1). 6 Question Answer Marks Guidance 3(d) Discuss why some countries may experience lower inflation in the future and some may not. In assessing each answer, use the table opposite. Why some might:  advances in technology may reduce costs of production  increases in education and healthcare could raise labour productivity  globalisation may increase international competition  trade union power may fall, lowering wage increases  successful government policy measures e.g. reducing demand Why some might not:  consumers may become optimistic and spend more  governments may increase their spending  the rate of interest may fall  total demand may increase  raw materials may run out  rising cost of energy and rising food prices. 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

This question in 0455/21 May/June 2023

5 In 2019, China’s economic growth rate was 6.1% and Chinese households increased their spending. More Chinese people attended sports events and the earnings of top sportspeople increased. China exported more despite a rise in tariffs on some of its products. For example, the US imposed higher tariffs on the imports of Chinese tea and coffee. (a) Identify the opportunity cost of households spending their income and the opportunity cost of Chinese firms exporting goods and services. [2] (b) Explain two reasons why some top sportspeople have high earnings. [4] (c) Analyse the reasons for imposing tariffs on imports. [6] (d) Discuss whether or not a country with a high economic growth rate will have a deficit on the current account of its balance of payments. [8]

20 marks

Mark scheme: 5(a) Identify the opportunity cost of households spending their income and the opportunity cost of Chinese firms exporting goods and services. Saving (1) selling the products at home / consuming the products (1). 2 5(b) Explain two reasons why some top sportspeople have high earnings. Logical explanation which might include: High demand / inelastic demand for top sportspeople (1) large crowds watch top sportspeople / events (1) top sports events can be sold to TV firms for large fees (1) high merchandise sales / sponsorship deals / high gate receipts / can generate high profits for firms (1). Low supply / inelastic supply of sportspeople / lack of substitutes (1) high bargaining power (1) top sports people are skilled / talented (1) it may take years of training (1) high level of experience (1) some sports are dangerous (1). 4 Reasons may be linked in different ways. Also allow explanation of two reasons for high demand or two reasons for low supply. Reward but do not expect high mrp of labour and derived demand for labour. Question Answer Marks Guidance 5(c) Analyse the reasons for imposing tariffs on imports. Coherent analysis which might include: To improve the current account balance (1) make imports more expensive (1) reduce demand for imports / increase net exports (1) increase total demand (1). To protect domestic industries / infant industries / sunrise industries (1) protect sunset / declining industries (1) protect strategic industries (1) to increase economic growth (1) reduce unemployment / increase employment (1) encourage people to switch from buying imports to buying domestically produced products (1). To raise revenue (1) which the government can spend on e.g. education / reduce a budget deficit (1). To discourage the imports of harmful products / demerit goods (1) example (1). To prevent dumping / unfair competition (1) the selling of products at less than cost price / the selling of products produced by child labour (1). To retaliate (1) against another country’s tariffs (1). To prevent a fall in the exchange rate (1) to prevent switch from domestic to foreign currency (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not a country with a high economic growth rate will have a deficit on the current account of its balance of payments. In assessing each answer, use the table opposite. Why it might:  incomes will rise and consumers may buy more imports  firms may switch products from foreign markets to the growing home market  firms may import more raw materials and capital goods  the country may experience inflation which may reduce its international price competitiveness Why it might not:  the economic growth may be export-led  economic growth may encourage more investment, this could raise the quality of domestically produced products and lower their prices  higher tax revenue may result in improvements in education and healthcare which could increase productivity  the country may impose trade restrictions / reduce exchange rate. 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

This question in 0455/22 May/June 2023

5 In 2020, Singapore experienced a decrease in both its population size and its labour force. 2020 was a year of great change in a number of Singaporean markets. Some moved from disequilibrium to equilibrium. Despite all these changes, Singapore managed to increase its exports of goods and services. (a) Identify two benefits of a decrease in a country’s population size. [2] (b) Explain how a market moves from disequilibrium to equilibrium. [4] (c) Analyse, using a production possibility curve (PPC) diagram, the effect of a decrease in the size of a country’s labour force on its economy. [6] (d) Discuss whether or not an increase in exports will benefit an economy. [8]

20 marks

Mark scheme: 5(a) Identify two benefits of a decrease in a country’s 2 population size. Two from: • may be fewer dependents • less pressure on resources • less food needed • move population towards the optimum level / reduce overpopulation • reduce overcrowding / more land space • reduce pollution / less negative externalities • lower imports • lower government expenditure (on healthcare/education) • less unemployment / less unemployment benefit • may increase GDP per head. 5(b) Explain how a market moves from disequilibrium to 4 One mark for reference to a change in price. equilibrium. Maximum of 2 marks for diagrams which show initial Logical explanation which might include: disequilibrium and change in price which restores If demand is greater than supply / there is a shortage / equilibrium. excess demand (1) price will rise (1). If supply is greater than demand / there is a surplus / excess supply (1) price will fall (1). Demand will again equal supply / demand would not initially have been equal to supply (1). 5(c) Analyse, using a production possibility curve (PPC) 6 diagram, the effect of a decrease in the size of a country’s labour force on its economy. Up to 4 marks for the diagram: Axes correctly labelled with different outputs (1). Initial curve drawn as a curve/line sloping downward to the axes (1). New curve drawn as a curve/line sloping downward to the axes (1). Shift to the left indicated by arrow or letters (1). Up to 2 marks for coherent analysis which might include: A decrease in the size of the labour force reduces resources / factors of production available (1) this lowers productive capacity / the maximum output that can be produced (1). Note to gain the marks for the curves, these must be drawn to the axes. 5(d) Discuss whether or not an increase in exports will 8 Level Description Marks benefit an economy. 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 analysis • may increase export revenue, improve the current to evaluate economic issues and account balance situations. One side of the argument may • may increase total demand have more depth than the other, but • may increase investment overall, both sided of the argument are • may increase output / economic growth considered and developed. There is • may reduce unemployment thoughtful evaluation of economic • may increase incomes. concepts, terminology, information and/or data appropriate to the question. The Why it might not: discussion may also point out the • may cause demand-pull inflation possible uncertainties of alternative • opportunity cost of selling more products on the home decisions and outcomes. market 2 A reasoned discussion which makes use 3–5 • may lead to shortages on the home market of economic information and clear • may deplete resources analysis to evaluate economic issues • may push up the exchange rate, reversing the increase and situations. The answer may lack in exports in the long run some depth and development may be • may make the economy more subject to external one-sided. There is relevant use of shocks. economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

This question in 0455/22 Oct/Nov 2023

1 (a) Calculate Montenegro’s budget deficit as a percentage of its GDP. [1] (b) Identify two examples of capital goods in Montenegro. [2] (c) Explain one way price elasticity of demand may influence firms’ decision making. [2] (d) Explain two ways the pattern of employment has changed in Montenegro in recent years. [4] (e) Draw a demand and supply diagram to show the effect of a minimum price set above the equilibrium price on the market for oranges. [4] (f) Analyse the relationship between countries’ trade in goods and services balances and their current account balances. [5] (g) Discuss whether or not privatisation is likely to have benefited consumers in Montenegro. [6] (h) Discuss whether or not deflation would benefit the Montenegro economy. [6]

30 marks

Mark scheme: 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.

This question in 0455/23 Oct/Nov 2023

1 (a) Calculate the average wage paid in Denmark in 2020. [1] (b) Identify two possible opportunity costs of a Danish person using their leisure time to cycle. [2] (c) Explain one way that living standards are measured in Denmark. [2] (d) Explain two reasons why the supply of ships is price-inelastic. [4] (e) Analyse the relationship between government spending and GDP in Denmark. [4] (f) Analyse, using a demand and supply diagram, how an increase in the birth rate would affect the market for toys. [5] (g) Discuss whether or not a surplus on the current account of its balance of payments would benefit the Danish economy. [6] (h) Discuss whether or not more people working from home will benefit an economy. [6]

30 marks

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

This question in 0455/22 Feb/March 2024

5 New Zealand is a high-income country with a low unemployment rate and a surplus of imports over exports. Recently, its government has made some important economic decisions. In 2022, it banned everyone born after 2008 from buying cigarettes. A year before, it gave permission for firms to explore for oil in the country. (a) Define unemployment rate. [2] (b) Explain two reasons why a government may discourage cigarette smoking. [4] (c) Analyse why a country’s exports may decrease. [6] (d) Discuss whether or not the discovery of oil in a country will benefit its economy. [8]

20 marks

Mark scheme: 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.

This question in 0455/22 Feb/March 2024

5 In 2020, the price of gold fell in Vietnam. That year, Vietnam was one of Asia’s best performing economies. Unlike some Asian economies, Vietnam did not experience a recession. Its total output, exports and imports all increased. Unemployment did increase from 2.0% to 2.3% but remained very low. One of the aims of fiscal policy can be to achieve full employment. (a) Identify how the effect of a fall in the price of gold would be shown on a demand curve for gold. [2] (b) Explain two disadvantages of a recession. [4] (c) Analyse why a country may demand more imports. [6] (d) Discuss whether or not fiscal policy can achieve full employment. [8]

20 marks

Mark scheme: 5(a) Identify how the effect of a fall in the price of gold would be shown on a demand curve for gold. A movement down the demand curve (1) from left to right / extension (1). A movement along the demand curve (1). down the demand curve. Allow one mark for the idea that demand will rise. 5(b) Explain two disadvantages of a recession. Logical explanation which might include: Lower output / lower GDP (1) lower living standards / higher poverty / less income / less consumer spending (1). Higher unemployment / lower employment (1) higher cost of unemployment benefit (1). Lower investment (1) due to reduction in confidence (1). Firms shutdown (1) due to lower profits (1). Lower tax revenue (1) may cause budget deficit / reduce ability to spend e.g. on education / increase in national debt (1). 4 One mark each for each of two disadvantages identified and one mark for each of two explanations. Question Answer Mark Guidance 5(c) Analyse why a country may demand more imports. Coherent analysis which might include: Price of imports may fall (1) due to a fall in costs of production (1) a rise in the exchange rate (1). Quality of imports may rise (1) foreign workers may be less skilled (1) investment in foreign countries may have decreased (1). Incomes may have increased (1) raising the purchasing power of buyers (1) increasing the country’s’ need for consumer goods (1) which the country cannot produce (1) due to specialisation (1). Trade restrictions may be removed or reduced (1) e.g. lower tariffs / quotas / subsidies / embargoes will make it easier to import (1). Country needs more raw materials / lacks the technology to produce certain goods (1) to enable growth of domestic industries (1). Failure of harvest /natural disaster e.g. rice (1) means need to import the good instead (1). 6 Do not expect, but reward reference to absolute or comparative advantage. A maximum of three marks for only identifying the reasons. Question Answer Mark Guidance 5(d) Discuss whether or not fiscal policy can achieve full employment. In assessing each answer, use the table opposite. Why it might:  higher government spending and/or lower taxation may increase total (aggregate) demand which could reduce cyclical unemployment  government spending on education and training could raise workers’ skills could increase their mobility and may reduce frictional unemployment  government spending on the provision of labour market information may reduce frictional unemployment  government spending on subsidies may lead to firms increasing job opportunities. Why it might not:  government spending may not be raised enough / a cut in taxation may not be sufficient  consumer spending and investment may fall if there is a lack of confidence  net exports may fall if there is a global recession  there may still be some labour immobility due to e.g. differences in house prices in different parts of the country so structural unemployment  increased government spending on benefits may be an encouragement not to work and stay unemployed. 8 See Guidance table at the end of the mark scheme. Do not reward a simple reversal of policies in why it might achieve full employment in the why it might not part of the response. 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

This question in 0455/21 May/June 2024

1 (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 Tunisian government aimed to achieve. [2] (c) Explain one reason why the Tunisian government regulates the price of flour and milk. [2] (d) Explain two ways the Tunisian government tried to reduce frictional unemployment. [4] (e) Analyse the relationship between the change in Tunisia’s average wage and inflation rate. [4] (f) Analyse, using a demand and supply diagram, how an increase in wage costs would affect the market for shoes. [5] (g) Discuss whether or not the Tunisian government should continue to subsidise electricity production. [6] (h) Discuss whether or not a rise in the value of the Tunisian dinar would benefit the Tunisian economy. [6]

30 marks

Mark scheme: 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.

This question in 0455/22 May/June 2024

4 In 2021, the US had a trade in goods deficit on the current account of its balance of payments. The US has many firms in a wide range of industries. Import tariffs are used to protect some of these industries. The US government’s higher spending on healthcare, which reached $797bn that year, also affected many of the country’s industries. (a) Define a trade in goods deficit. [2] (b) Explain two ways firms can be classified. [4] (c) Analyse why a government may protect its country’s industries from foreign competition. [6] (d) Discuss whether or not a government should increase its spending on healthcare. [8]

20 marks

Mark scheme: 4(a) Define a trade in goods deficit. Expenditure on imports (of goods) exceeds revenue from exports (of goods) (2). Imports exceed exports (1). 2 4(b) Explain two ways firms can be classified. Logical explanation which might include: By stage (1): primary / secondary / tertiary (1) according to the product produced (1). By sector (1) private sector / public sector (1) according to who owns the firm (1). By size (1) according to amount of output produced / number of workers employed (1). By location (1) MNC or domestically-based (1) according to whether operates in more than one country (1). By level of competition (1) may be a monopoly or competitive firm (1). By use of factors of production (1) capital intensive or labour intensive (1). 4 One mark each for each of two ways identified and one mark for each of two explanations. Question Answer Mark Guidance 4(c) Analyse why a government may protect its country’s industries from foreign competition. Coherent analysis which might include: To improve / stop decline of the balance of payments (1) by increasing exports / reducing imports (1) increasing economic growth (1). To protect infant (sunrise) industries (1) allow growth in order to take advantage of economies of scale (1) charge lower prices (1). To protect declining (sunset) industries (1) allow industries to decline gradually (1) unable to replace workers leaving / retiring (1) to protect jobs / avoid rising unemployment (1). To protect strategic industries (1) to ensure supply of e.g. food (1) not disrupted by e.g. economic sanctions (1). To protect industries from unfair competition (1) e.g. dumping (1) government subsidies (1). 6 Question Answer Mark Guidance 4(d) Discuss whether or not a government should increase its spending on healthcare. In assessing each answer, use the table opposite. Why it should:  to prevent illness / the spread of diseases / reduce death rates  may improve productivity  healthcare may be under-consumed  healthcare is a merit good  the poor may not be able to afford healthcare  may increase life expectancy  may increase employment in healthcare  may boost total (aggregate) demand / economic growth  may reduce unemployment  may increase government tax revenues. Why it should not:  increased cost of healthcare may cause a budget deficit  may have to raise taxes  increased spending may cause inflation  opportunity cost e.g. spending on education  private sector provision may be more efficient  doesn't guarantee higher quality healthcare. 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 Question Answer Mark Guidance 4(d) Level Description Marks 0 A mark of zero should be awarded for no creditable content. 0

This question in 0455/23 May/June 2024

1 (a) Calculate the percentage of the population who were foreign nationals living in the UAE. [1] (b) Identify two features of globalisation. [2] (c) Explain one factor that can influence labour mobility between countries. [2] (d) Explain one advantage and one disadvantage of producing a product which is price-inelastic in demand such as oil. [4] (e) Explain the relationship between the oil price and the UAE’s current account balance. [4] (f) Analyse, using a production possibility curve (PPC) diagram, the effect of technological progress on an economy such as the UAE. [5] (g) Discuss whether or not luxury tourism and financial services have helped Dubai achieve economic development. [6] (h) Discuss whether or not having a fixed exchange rate is beneficial for a country such as the UAE. [6]

30 marks

Mark scheme: Question Answer Mark Guidance 1(a) Calculate the percentage of the population who were 1 Accept answer without % foreign nationals living in the UAE. 89% 1(b) Identify two features of globalisation. 2 The increased connection of people from all over the world through migration (1) the trade of goods and services (1) the sharing of ideas (1) technological development (1). 1(c) Explain one factor that can influence labour mobility 2 One mark for a factor identified and one mark for an between countries. explanation. • Good transport helping workers to move (1) availability of flights / development of air travel (1) • Technological progress / development (1) increasing quality / quantity of factors production (1) 1(d) Explain one advantage and one disadvantage of 4 One mark for each effect identified and one mark for each producing a product which is price-inelastic in demand explanation. such as oil. Accept responses that consider perfect price inelasticity Logical explanation which might include: (PED = 0) Advantage: when price increases, there is a less than proportionate fall in quantity demanded (1) revenue generated from the product increases (1) because it’s a necessity / has no substitutes (1) Disadvantage: when price decreases, there is a less than proportionate rise in quantity demanded (1) revenue generated from this product decreases (1) 1(e) Explain the relationship between the oil price and the 4 Responses do not have to be in the format suggested but UAE’s current account balance. they should address the expected / normal relationship, offer supporting evidence of that, and analyse the overall data. Coherent analysis which might include: Expected relationship: Positive / direct relationship (1) the oil price and the current account balance would be expected to move in the same direction (1). Supporting Evidence: As the % change in the price of oil increases, the % change in the current account balance increases (1) (and vice versa). When oil price goes up, the current account balance goes up, e.g. 2016 – 2018, 2020 – 2022 (1) When oil price goes down, the current account balance goes down, e.g. 2019 – 2020 (1). When the % change in the price of oil is highest, the % change in the current account balance is also the highest e.g. 2021 (1). When the % change in the price of oil is lowest, the % change in the current account is also the lowest e.g. 2020 (1) Analysis: Higher oil prices increase export revenue as demand for oil is inelastic (1) increases inflows into current account (1). Exception: There is no exception evident in the figure (1) 1(f) Analyse, using a production possibility curve (PPC) 5 diagram, the effect of technological progress on an economy such as the UAE. PPC diagram: Axes correctly labelled with different outputs (1). Initial curve drawn as a curve / line sloping downward to the axes (1). New curve drawn to the right of the initial curve as a curve / line sloping downward to the axes (1). Shift to the right indicated by arrow or PPC1 to PPC2 (1). Written analysis: Technological progress can increase productive capacity / the economy is able to produce more (1). 1(g) Discuss whether or not luxury tourism and financial 6 Apply this example to all questions with the command services have helped Dubai achieve economic word DISCUSS development. (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it might, which Each point may be credited only once, on either side of an may include: argument, but separate development as to how / why the • they attract foreign tourists (1) who spend on goods and outcome may differ is rewarded. services in Dubai (1) increasing total demand / economic growth (1) Generic example mark • employment is generated (1) increasing incomes (1) and improving living standards (1) Tax revenue may decrease… 1 • increased government’s tax revenues (1) may be spent on public services / infrastructure / education / healthcare because of reason e.g. incomes may be 1 (1) lower. • increased export revenues (1) improve the current account of the balance of payments (1) increase profits Tax revenue may increase because 0 of firms in tourism and financial services (1). incomes may be higher i.e. reverse of a previous argument. Award up to 4 marks for logical reasons why it might not, which may include: Tax revenue may increase because of a 1 • increased pollution (1) environmental damage / external different reason i.e. not the reverse of a costs e.g. health problems (1) high use of water previous argument e.g. government resources (1) spending on subsidies may stimulate the • inequality in the distribution of income (1) some workers economy more than spending on education. may be paid much lower than others (1) • spending on luxury tourism and financial services may change with income (1) depending on them could be risky (1) • workers may lack the skills for these occupations (1) be unable to gain employment to improve living standards (1) 1(h) Discuss whether or not having a fixed exchange rate is 6 Maximum 3 marks for only identifying benefits / disbenefits. beneficial for a country such as the UAE. Award up to 4 marks for logical reasons why it might, that may include: • currency has more stability (1) it will not increase / decrease in value (1) avoiding reduced / increased competitiveness (1) • maintains investor confidence in the economy (1) increasing investments (1) increasing total demand / employment (1) • may maintain consumer confidence (1) by controlling inflation (1) • it can be set at a low rate to gain a competitive advantage (1). Award up to 4 marks for logical reasons why might it not, that may include: • limits the government’s flexibility (1) with monetary policy (1) as interest rate changes (1) may be used to maintain the fixed exchange rate (1) • other macroeconomic objectives cannot be met (1) e.g. if a low exchange rate is fixed, inflation might occur (1) • reserves of foreign currency have to be kept (1) to maintain the exchange rate (1) • the fixed exchange rate might not reflect market conditions (supply and demand) for the currency (1)

This question in 0455/21 Oct/Nov 2024

1 (a) Calculate the percentage of the Jordanian labour force employed in the secondary sector. [1] (b) Identify two components of the current account of Jordan’s balance of payments. [2] (c) Explain the main type of unemployment experienced by Jordan in 2020. [2] (d) Explain two advantages the Jordanian economy may gain from the mergers between its tourism firms. [4] (e) Analyse the relationship between birth rate and average age. [4] (f) Analyse, using a demand and supply diagram, how an increase in population size will affect the market for clothing. [5] (g) Discuss whether or not the Jordanian government should spend more on renewable energy. [6] (h) Discuss whether or not the Jordanian central bank should have raised the rate of interest in 2021. [6]

30 marks

Mark scheme: 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).

This question in 0455/22 Oct/Nov 2024

1 (a) Calculate Romania’s current account deficit on its balance of payments in $s. [1] (b) Identify two reasons why Romania’s population fell between 1990 and 2022. [2] (c) Explain why immigration into Romania may increase in the future. [2] (d) Explain two reasons why household spending has increased in Romania. [4] (e) Draw a demand and supply diagram to show the effect of setting a maximum price on electricity. [4] (f) Analyse the relationship between GDP per head and average spending on food as a percentage of total household spending. [5] (g) Discuss whether or not foreign MNCs reduce poverty in their host countries. [6] (h) Discuss whether or not a higher proportion of women is likely to enter Romania’s labour force in the future. [6]

30 marks

Mark scheme: Question Answer Marks Guidance 1(a) Calculate Romania’s current account deficit on its balance of 1 Accept 27bn without $. payments in $s. $27 000 000 000. $27  10⁹ $27bn (1). $2.7  10 to the power 10. 1(b) Identify two reasons why Romania’s population fell between 1990 2 and 2022. Fall in birth rate (1) emigration / net emigration / people leaving the country (1). 1(c) Explain why immigration into Romania may increase in the future. 2 1 mark for identification of high economic growth rate, and 1 mark for explanation. High economic growth rate / economic growth (1) higher wages / higher income / more chance of employment / more job opportunities / higher living standards (1). 1(d) Explain two reasons why household spending has increased in 4 Romania. Logical explanation which might include: • Romanians have become wealthier (1) more money to spend / greater purchasing power / higher income / higher GDP per head / can sell assets to get money to spend / more able to borrow / greater confidence (1). • More confident about the future / increased optimism (1) about future job prospects / higher earning / job security / may encourage more borrowing / less saving (1). • Low interest rates (1) encourage borrowing / reduce cost of borrowing / discourage saving (1). • High rate of inflation (1) spending more to maintain living standards (1). 1(e) Draw a demand and supply diagram to show the effect of setting a 4 maximum price on electricity. Coherent analysis which might include: D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Demand and supply curves correctly labelled (1). Maximum price set below the equilibrium price – labelled as max price, P1, PX or any other P. (1). Quantity demanded and quantity supplied at the maximum price identified (1). 1(f) Analyse the relationship between GDP per head and average 5 Responses do not have to be in the format spending on food as a percentage of total household spending. suggested but they should address the expected/normal relationship, offer supporting Relationship (up to 2 marks): evidence of that, highlight any exceptions to Generally, an inverse relationship / negative relationship (1) the higher that, and analyse the overall data. the GDP per head, the lower the average household spending on food as a % of household spending (1). Supporting evidence (up to 2 marks): E.g. the five countries with the lowest GDP per head had the highest % Supporting evidence should involve average household spending on food (1). Ethiopia had the lowest GDP interpretation, not just description but note: per head and the highest average household spending on food as a % of A mark can be given for an implied comparison total spending (1) Cambodia had the second lowest GDP per head and e.g. the second highest spending on food as a % of total spending (1) Egypt after stating that there is a negative relationship had the third lowest GDP per head and the third highest spending on (1): food as a % of total spending (1). e.g. Belgium had a GDP per head of $52 100 and only spent 13% of their total spending on food whereas Romania had a GDP per head of Analysis of relationship (up to 2 marks): $15 000 and spent 26% of their spending on As households get richer, they can afford to spend more in total on food / food (1), higher quality food (1) but can afford to buy more of other items / buy more luxury items / spend less on necessities (1). Rewarding GDP per head (income) but not just GDP. Exception (up to 2 marks): Norway / USA (1) Norway had a higher GDP per head but also a higher % of household spending on food (1). Analysis of exception (up to 1 mark): Food may be more expensive in Norway / Norwegians may have a different diet / buy a higher proportion of high quality food (1). 1(g) Discuss whether or not foreign MNCs reduce poverty in their host 6 Apply this example to all questions with the countries. command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why they might, which may include: Each point may be credited only once, on either • they may increase employment / reduce unemployment (1) which side of an argument, but separate development may increase incomes / increase wages (1) cause economic growth / as to how/why the outcome may differ is raise GDP (1) enabling people to buy more basic necessities / raise rewarded. purchasing power (1). • may train workers (1) increase skills (1). Generic example Mark • they may have lower costs of production / more efficient (1) use more advanced technology (1) may take advantage of economies of Tax revenue may decrease… 1 scale (1) able to charge lower prices (1). • they may pay tax / less may be spent on unemployment benefit (1) ...because of reason e.g. incomes 1 some of this could be spent on e.g. education / healthcare / training may be lower. unemployed (1) income could be redistributed (1). Tax revenue may increase because 0 Award up to 4 marks for logical reasons why it might not, which may incomes may be higher i.e. reverse include: of a previous argument. • they may replace domestic firms / drive domestic firms out of business (1) may employ workers from their own countries (1) Tax revenue may increase because 1 leaving employment / unemployment unchanged (1). of a different reason i.e. not the • they may use capital-intensive methods (1) reducing demand for reverse of a previous argument e.g. unskilled workers (1). government spending on subsidies • they may use up non-renewable resources (1) reducing incomes in may stimulate the economy more the future / raising prices (1). than spending on education. • they may send profits back home (1) making them unavailable for re- investment in the host country (1). Extract from the source material: • may increase relative poverty / not reduce relative poverty (1) may More MNCs may affect poverty because of the widen gap in pay between e.g. skilled and unskilled workers (1). possible effects on unemployment and prices. • may become a monopoly (1) charge high prices (1). 1(h) Discuss whether or not a higher proportion of women is likely to 6 Extract from the source material: enter Romania’s labour force in the future. There is a range of influences on whether women enter the labour force. These include Award up to 4 marks for logical reasons why it might, which may include: social attitudes, female education and whether • there may be an increase in childcare facilities (1) making it easier childcare facilities and part-time work are for women who are parents to work (1) available. • more part-time work / more job opportunities for women / shortage of No marks for just reproducing these words. labour / higher demand for labour (1) lower birth rate (1) which may Interpretation needed e.g. more part-time work. enable women to combine work and child rearing (1) • increase in female education / qualifications / training (1) which may Many of the influences can be given either way increase skills / productivity (1) which may increase wages (1). but only reward identification of the influence • increase in healthcare / family planning (1) reduce size of families (1) once e.g., one mark for there may be increase • may seek to reduce poverty / improve living standards (1) by earning in childcare facilities or a decrease in childcare facilities. an income (1). Award up to 4 marks for logical reasons why it might not, which may include: • discrimination may occur (1) in terms of jobs available / wages (1). • negative social attitudes may continue (1) e.g. other workers may make the working environment uncomfortable for women (1). • women may emigrate (1) leaving the labour force (1) • working hours may increase (1) making it more difficult for women to combine work and home life (1). • An increase in income / higher household income (1) may enable women to work fewer hours / reduce need to work (1).

This question in 0455/22 Feb/March 2025

1 (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] (c) Explain what effect an increase in tourism may have on Gabon’s current account of the balance of payments. [2] (d) Explain two reasons why the Gabonese Government wants to reduce reliance on oil. [4] (e) Draw a demand and supply diagram to show the effect of the discovery of new gold deposits on the market for gold. [4] (f) Analyse the relationship between the literacy rate and the percentage of the labour force employed in agriculture. [5] (g) Discuss whether or not a government should pay private sector firms to give work experience to unemployed young people. [6] (h) Discuss whether or not a growth in the size of firms in Gabon’s textile industry will reduce their average cost of production. [6]

30 marks

Mark scheme: 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).

This question in 0455/21 May/June 2025

1 (a) Calculate the total financial sector contribution (in $) to Switzerland’s GDP. [1] (b) Identify two microeconomic policy measures. [2] (c) Explain one reason why overdependence on foreign markets is a disadvantage to the Swiss economy. [2] (d) Draw a demand and supply diagram to show how a subsidy to solar energy producers would affect the market for solar energy. [4] (e) Explain two reasons why Switzerland had a current account surplus. [4] (f) Analyse the relationship between the global GDP growth rate and the change in the value of the Swiss franc. [5] (g) Discuss whether or not an increase in interest rates will harm the Swiss economy. [6] (h) Discuss whether or not a bank merger will benefit Swiss consumers and workers. [6]

30 marks

Mark scheme: Question Answer Marks Guidance 1(a) Calculate the total financial sector contribution (in $) to 1 Accept $73 billion or 73 billion. Switzerland’s GDP. $72 720 000 000. 7.27  1010 $72.7 billion 1(b) Identify two microeconomic policy measures. 2 Accept organising mergers. maximum prices (1) If more than two suggested measures are given, consider subsidies (1) the first three. 1(c) Explain one reason why overdependence on foreign 2 One mark for the reason and one mark for an explanation. markets is a disadvantage to the Swiss economy. Makes it more exposed to external shocks (1) as anything that happens in other countries could also affect the Swiss economy, for example reduced exports / increased import prices / potential shortages (1). 1(d) Draw a demand and supply diagram to show how a 4 subsidy to solar energy producers would affect the market for solar energy. 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(e) Explain two reasons why Switzerland had a current 4 One mark each for each of two reasons identified and one account surplus. mark each for each of two explanations. Logical explanation which might include: If more than two reasons are given, consider the first three. • low inflation (1) price of Swiss exports relatively lower, leading to increased exports / price of domestically produced goods relatively lower leading to decreased imports (1) • high-quality products (1) demand for Swiss exports higher, leading to increased exports / demand for domestically produced goods higher, leading to decreased imports (1) • strong currency (1) has kept cost of imported raw materials in Switzerland low, reducing costs of production (1). 1(f) Analyse the relationship between the global GDP 5 Responses do not have to be in the format suggested but growth rate and the change in the value of the Swiss they should address the expected / normal relationship, offer Franc. supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Coherent analysis which might include the following. Expected relationship: generally negative / inverse relationship (1) as the global growth rate falls, the value of the Swiss Franc rises / as the global growth rate rises, the value of the Swiss Franc falls (1). Supporting evidence: fall in global growth rate led to rise in the value of Swiss Franc from 2018–2019 or 2019–2020 (1), rise in global growth rate led to fall in the value of Swiss Franc from 2020–2021 (1). Analysis: Swiss Franc’s status as a “safe haven” currency (1) when investors are unsure about the economy, they usually keep their money in Swiss francs (1). Exception: 2021–2022 (1) where global growth was falling but Swiss Franc was stable / rising only slightly (1). Analysis for exception: Other reasons could affect the value of Swiss Franc (1), for example Switzerland was also affected by the Covid–19 pandemic (1). 1(g) Discuss whether or not an increase in interest rates will 6 Falling profits can only be rewarded once. harm the Swiss economy. Apply this example to all questions with the command Award up to 4 marks for logical reasons why it might, which word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d). may include: Each point may be credited only once, on either side of an • cost of borrowing increases for firms (1) increasing total argument, but separate development as to how / why the costs (1) reducing profits (1) outcome may differ is rewarded. • firms may invest less (1) may have to shut down (1) • unemployment rises (1) decreasing incomes Generic example Mark (1)decreasing total demand (1) decreasing economic growth (1) Tax revenue may decrease… 1 • consumers may borrow less (1) save more (1) less spending (1) demand for goods and services decreases ...because of reason e.g. incomes may be 1 (1) as returns from savings increase (1) decreasing lower. revenues of firms (1) decreasing profits (1) • Government borrowing costs more (1) leaving less Tax revenue may increase because 0 funding available for e.g. education / health (1). incomes may be higher i.e. reverse of a previous argument. Award up to 4 marks for logical reasons why it might not, which may include: Tax revenue may increase because of a 1 different reason i.e. not the reverse of a • hot money inflows strengthen the Swiss Franc (1) previous argument e.g. government reduce cost of e.g. imported raw materials (1) reducing spending on subsidies may stimulate the inflation (1) increasing export competitiveness (1) economy more than spending on education. • reduced demand-pull inflationary pressures (1) as cost of borrowing increases (1) decreasing demand for loans (1) increasing saving / decreasing consumption (1) investment (1) decreasing total demand (1) firms may reduce prices (1) increasing affordability of goods and services for consumers (1). • costs of production may decrease (1) reducing cost- push inflationary pressures (1). 1(h) Discuss whether or not a bank merger will benefit Swiss 6 Award a maximum of 4 marks if candidates only mention consumers and workers. one of consumers or workers. Award up to 4 marks for logical reasons why it might, which Reward, but do not expect reference to inelasticity of may include: demand in monopoly. • to avoid one of them collapsing (1) reducing confidence in the whole banking system (1) greater job security (1) less chance of bank customers losing their savings (1) • economies of scale (1) as output increases (average) costs fall (1) prices may decrease (1) goods and services more affordable for consumers (1) • the merged firm may make higher profits (1) able to pay higher wages to workers who remain employed (1) • workers in merged firm can share skills (1) improving efficiency (1). Award up to 4 marks for logical reasons why it might not, which may include: • monopoly power may increase (1) restricting supply (1) decreasing consumer choice (1) increasing prices (1) decreasing quality (1) • workers may lose their jobs (1) as the bank might shut down some operations / reduce duplication (1) increasing unemployment (1) • the merged firm may be too large / experience diseconomies of scale (1) example (1) reducing efficiency (1).

This question in 0455/21 Oct/Nov 2025

5 Some countries engage in dumping by selling their products at less than cost price in Cambodia. The Cambodian Government wants the country to become a high-income economy by 2050. It uses fiscal, monetary and supply-side policies to increase its economic growth rate. Cambodia subsidises some infant industries. The country has one of the world’s largest deficits on the current account of its balance of payments (as a percentage of GDP). Some economists suggest cutting taxes would reduce this deficit. (a) Identify two motives for a firm dumping some of its products in a foreign market. [2] (b) Explain two differences between monetary policy and supply-side policy. [4] (c) Analyse how a government subsidy could help to protect an infant industry against foreign competition. [6] (d) Discuss whether or not cuts in taxes will reduce a deficit on the current account of a country’s balance of payments. [8]

20 marks

Mark scheme: 5(a) Identify two motives for a firm dumping some of its 2 If more than two motives are given, consider the first three. products in a foreign market. • Drive domestic firms out of the market / increase market share / gain monopoly power in (overseas) market (1). • Clear away surplus stock (1) keep price high on the domestic market (1) increase exports / sales / revenue (1). 5(b) Explain two differences between monetary policy and 4 If more than two differences are given, consider the first supply-side policy. three. Logical explanation which might include the following. • Monetary policy is usually implemented by the central bank (1) supply-side policy by the government (1). • Monetary policy may be used to increase or reduce economic activity (1) supply-side policy is only used to increase economic activity (1). • They have different policy measures (1) e.g. monetary policy has the rate of interest whereas supply side policy has privatisation (1). • Monetary policy aims to influence total demand (1) supply-side policy aims to increase total supply (1). • Supply side policies tend to take longer to implement and have an impact (1) than monetary policy which tends to have a more short -term impact (1). 5(c) Analyse how a government subsidy could help to 6 protect an infant industry against foreign competition. Coherent analysis which might include: An infant industry’s costs may initially be high (1) government subsidy is an extra payment to an industry (1) some of the subsidy could be used to buy more capital goods / technological innovation (1) employ skilled workers (1) enable an infant industry to grow in size / increase output (1) obtain economies of scale (1) lower (average) cost / improve productivity (1) lower their prices (1) making their products more (internationally) competitive (1) increase demand for their goods (1) increase exports (1) raise quality (1) increase quality competitiveness (1). 5(d) Discuss whether or not cuts in taxes will reduce a 8 Level Description Marks deficit on the current account of a country’s balance of payments. 3 A reasoned discussion which accurately 6–8 examines both sides of the economic In assessing each answer, use the table opposite. argument, making use of economic information and clear and logical Why it might: analysis to evaluate economic issues • cut in corporation (corporate income) tax may increase and situations. One side of the willingness and ability to invest argument may have more depth than • higher investment may raise quality and reduce costs the other, but overall, both sides of the • increase exports and lower imports argument are considered and • cut in personal income tax may increase workers’ developed. There is thoughtful motivation, raise productivity and cut costs evaluation of economic concepts, • lower corporation (corporate income) tax could be terminology, information and/or data imposed on infant industries appropriate to the question. The • attract MNCs which can increase exports and reduce discussion may also point out the imports possible uncertainties of alternative • cuts in indirect taxes may lead to lower prices which decisions and outcomes. may increase the demand for domestic goods and reduce the demand for imported substitutes 2 A reasoned discussion which makes 3–5 • cuts in tariffs may make it easier for firms to import use of economic information and clear cheaper raw materials from abroad which may enable analysis to evaluate economic issues them to reduce prices increasing export and situations. The answer may lack competitiveness. some depth and development may be one-sided. There is relevant use of Why it might not: economic concepts, terminology, • cut in personal income tax may increase spending information and data appropriate to the which may increase total demand leading to inflation question. reducing international competitiveness • more imports may be purchased • exports may be diverted to the home market • reduce tax revenue and lower government spending • lower government spending on education, healthcare, transport could reduce productivity • lower taxes on imports (tariffs) may increase imports. 5(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.

This question in 0455/22 Oct/Nov 2025

4 The Central African country Chad has a triangle-shaped population pyramid and a high level of poverty. It regularly has an overall deficit on the current account of its balance of payments. Chad usually has a surplus on its secondary income. However, its trade in goods, trade in services and primary income are all usually in deficit. Some economists suggest that the Chadian Government should impose import quotas to reduce its trade in goods deficit. (a) Define primary income. [2] (b) Explain two influences on the shape of a country’s population pyramid. [4] (c) Analyse the causes of poverty. [6] (d) Discuss whether or not imposing import quotas will reduce a trade in goods deficit. [8]

20 marks

Mark scheme: 4(a) Define primary income. 2 Very few candidates understand this term. Component of the current account of the balance of Award one mark if there is any understanding that it relates payments (1). to the balance of payments with other countries. Example of an item: profit / interest / dividends / wages earned abroad (1). 4(b) Explain two influences on the shape of a country’s 4 One mark each for two influences identified and one mark population pyramid. each for two explanations. Logical explanation which might include: If more than two influences are given, consider the first three. • birth rate / fertility rate (1) a high birth rate / fertility rate will result in a wide base for the pyramid (1) Note: accept low birth rate, high life expectancy, emigration • life expectancy / death rate / aging population (1) high with reverse explanation. death rate / low life expectancy will result in a narrow top for the pyramid (1) • migration (1) high immigration of people of working age would result in a wide middle in the pyramid (1) • gender balance (1) example of imbalance in overall shape of pyramid (1). 4(c) Analyse the causes of poverty. 6 Answer requires more than one cause of poverty to get full marks. Coherent analysis which might include the following. Reference to absolute and relative poverty may be relevant • Low quantity / quality of education (1) can reduce job to more than one bullet point but only reward each once. opportunities (1) low skilled jobs (1) low paid jobs (1). • Unemployment (1) lower income (1) reliant on welfare Maximum of three causes can be given a mark. benefits (1). • Illness / disability (1) poor healthcare (1) reduce ability to earn an income (1). • Old age (1) may have low or no state benefits (1) absolute poverty (1). • Uneven distribution of income / wealth (1) resulting in relative poverty (1). • Corruption (1) reducing tax revenue available to spend on reducing poverty (1). • Large families (1) many children (1) trapped in / child poverty (1). • Single parent families (1) parent unable to work (1) reliant on state benefits (1). • Poor housing (1) harms health (1) limited access to employment (1) high cost of living (1). • Natural disaster / conflict (1) causes loss of ability to work / earn income (1). • Geographical immobility (1) prevents access to paid jobs (1). • Work in agriculture (1) where wages are low / not regular income (1). • High inflation (1) cannot afford to buy basic necessities (1). 4(d) Discuss whether or not imposing import quotas will 8 Level Description Marks reduce a trade in goods deficit. 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 analysis • restrict imports to evaluate economic issues and • lower supply may drive up price situations. One side of the argument may • consumers and firms may switch to domestic goods have more depth than the other, but • could reduce gap between import expenditure and overall, both sides of the argument are export revenue. considered and developed. • consumers and firms may switch to domestic substitutes There is thoughtful evaluation of • could reduce gap between import expenditure and economic concepts, terminology, export revenue. information and/or data appropriate to the question. The discussion may also Why it might not: point out the possible uncertainties of • import quotas may be higher than demand alternative decisions and outcomes. • depends on the breadth of goods affected – fewer goods, less effective 2 A reasoned discussion which makes use 3–5 • may not be domestic substitutes of economic information and clear • may be retaliation which could reduce export revenue analysis to evaluate economic issues • smuggling may occur and situations. The answer may lack some depth and development may be • reduction in import spending may appreciate currency one-sided. There is relevant use of value, reducing exports. 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. L1 and up to 2 marks for an understanding of import quotas.

This question in 0455/23 Oct/Nov 2025