Economics 9708/22 February/March 2021: question paper and mark scheme
Cambridge AS & A Level Economics (9708), Paper 2 Data Response and Essay, February/March 2021. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
Challenges for the Japanese economy.
Table 1.1 Japan: Selected Economic Indicators 2014–2019
Content removed due to copyright restrictions.
Source: Cabinet Office of Japan in IMF World Economic Outlook, April 2019
Extract 1: Japanese consumer prices rose by only 1.0% in 2018
Japan is the world’s third-largest economy and continues its long battle to boost weak inflation. The
Content removed due to copyright restrictions.
In an attempt to boost inflation, the BOJ has persevered with low interest rates, and has repeatedly said it is not going to stop using this strategy, even as other central banks around the world begin raising interest rates.
Source: The Japan Times, 18 January 2019
Extract 2: Japan’s government ready to use fiscal policy to offset economic risks
Japan’s government has signalled its readiness to increase government spending next year if it is necessary to offset risks to the economy that are likely to arise from the trade war between the United
States and China. These risks could add to the pressure on Japan’s government to increase its spending ahead of a planned increase in sales tax in October 2019.
In a long-term fiscal policy plan, the government said it is ready to use macro-economic policy ‘without hesitation’ if a downturn in foreign economies poses risks to Japan’s economy. Despite this, the
Japanese government plans to raise the sales tax to 10% from 8% in October, and this would reduce consumption spending, which makes up roughly 60% of Japan’s aggregate demand, at a time of slower demand from abroad. The previous sales tax rise to 8%, from 5%, in 2014 hit consumption and was blamed for a slump in the Japanese economy.
Source: The Daily Times, 16 July 2019
(a) Calculate the rate of inflation in Japan from 2014 to the estimate in 2019. [1]
(b) With reference to Table 1.1 identify one piece of evidence that suggests that Japan has not been using an expansionary fiscal policy before 2019. [1]
(c) Explain why deflation, as experienced by Japan, discourages consumption spending. [2]
(d) Use a diagram to explain what you would expect to happen to the Yen : US dollar exchange rate if the Bank of Japan continued with low interest rates, ‘even as other central banks around the world begin raising rates’. [4]
(e) Discuss how continuing with an expansionary monetary policy is expected to boost inflation and consider whether it is likely to be successful. [6]
(f) Discuss whether increases in government spending can offset risks to Japan’s economy if a downturn in foreign economies occurs. [6]
Section B
Answer one question
Mark scheme
1(a) Calculate the rate of inflation in Japan from 2014 to the estimate in 1
2019.
2.6% (1)
1(b) With reference to Table 1.1 identify one piece of evidence that 1
suggests that Japan has not been using an expansionary fiscal
policy before 2019.
Government expenditure as a % of aggregate expenditure is falling over
the period or is not increasing. (1)
OR
Budget deficit as a % of aggregate expenditure is falling over the period.
(1)
1(c) Explain why deflation, as experienced by Japan, discourages 2 Consumption is discouraged because as the
consumption spending. expectations of price falls takes hold
consumers hold back purchases because they
For a clear understanding that deflation refers to a fall in the general expect prices to fall in the future.
price level (1)
Also, the general air of uncertainty encourages
For explaining why, a fall in the general price level will discourage consumers to save for the future.
consumption. (1)
(Up to 2 marks)
1(d) Use a diagram to explain what you would expect to happen to the 4 The diagram should be correctly labelled and
Yen : US dollar exchange rate if the Bank of Japan continued with show a change in the exchange rate and a
low interest rates, ‘even as other central banks around the world change in the quantity traded. There must be
begin raising rates’. some accompanying explanation for full marks.
For a diagram that shows either an increased supply of yen onto the
forex market (1) as interest rates rise abroad and the change in the price
of the yen and quantity traded (1)
or
a decrease in the demand for the yen on the forex market (1) as interest
rates rise abroad and the change in the price of the yen and quantity
traded (1)
(Up to 2 marks)
For an accompanying explanation of reason for the shift shown (either an
increased supply of yen or reduced demand for yen) (1) and a conclusion
that it would be expected that the yen would depreciate (or fall) (1)
(Up to 2 marks)
1(e) Discuss how continuing with an expansionary monetary policy is 6 An expansionary monetary policy means
expected to boost inflation and consider whether it is likely to be cutting interest rates and/or increasing the
successful. money supply. We allow quantitative easing as
expansionary monetary policy.
For clear understanding of the meaning of expansionary monetary policy.
(1) It is expected that this will stimulate investment
and/ or consumption and this will stimulate
aggregate demand and might increase prices.
For an explanation of how this might stimulate aggregate demand and It might also lead to a fall in the exchange rate
‘boost inflation’ (Up to 2 marks for each component of aggregate demand and an increase in net exports.
that is considered) (Up to 3 marks)
This might not work for a number of reasons.
For example, investment might be
For evaluative comment on whether this is likely to be successful. unresponsive to interest rate changes. The
(Up to 2 marks) table also shows that despite loose monetary
policy over the period, investment has stayed
relatively stable. This could contribute to a
conclusion.
1(f) Discuss whether increases in government spending can offset risks 6 If there is a downturn in foreign economies
to Japan’s economy if a downturn in foreign economies occurs. Japan would experience falling exports and
this would decrease aggregate demand. This
For an explanation of the risks to Japan’s economy if a downturn in would result in falling incomes and
foreign economies occurs. (Up to 1 mark) unemployment.
For an explanation of how fiscal policy could be used to offset risks to the Increased government spending could be
economy of Japan (Up to 3 marks) adopted to boost domestic demand if world
trade falls. It could also be used to offset the
impact upon consumption of the sales tax rise
For evaluative comment that reaches a reasoned conclusion that is planned in October.
(2 marks)
(a) Use production possibility curve (PPC) diagrams to explain the effect on an economy’s output of
(i) increased use of its existing labour, and
(ii) an increased availability of natural resources. [8]
(b) Discuss the view that supply side policies to increase the supply of labour to an economy are likely to be more successful than those designed to increase the supply of entrepreneurship.
[12]
Mark scheme
2(a) Use production possibility curve diagrams to explain the effect on 8 An increased use of existing labour will lead to
an economy’s output of a fall in unemployment, and this will result in
(i) increased use of its existing labour, and increased total output as the point within the
(ii) an increased availability of natural resources curve moves closer to the production frontier.
There is improved utilisation of labour
For knowledge and understanding of a production possibility curve and resources.
application to show an increased use of its existing labour.
An increased availability of natural resources
For a diagram of a PPC with appropriately labelled axes (1) showing a will increase the potential output of the
movement from a point within a PPC to a point on or nearer to the PPC economy. It is also likely that total output will
curve (1) rise.
For an explanation of how an improved utilisation of resources results in
the change shown (Up to 2 marks)
(Up to 4 marks)
For knowledge and understanding of a production possibility curve and
application to show an increased availability of natural resources.
For a diagram of a PPC with appropriately labelled axes (1)
showing a shift outward of the curve (1)
For an explanation of how an increased availability of natural resources
results in the change shown (Up to 2 marks)
(Up to 4 marks)
2(b) Discuss the view that supply side policies to increase the supply of 12 Supply of labour: Training to enter the labour
labour to an economy are likely to be more successful than those force, relaxation of immigration controls,
designed to increase the supply of entrepreneurship. reduction of income taxes, raising of the
retirement age etc.
For analysis of at least two supply side measures that are designed to
increase the supply of labour to an economy. If only one measure Supply of entrepreneurship: Training in
considered then 3 maximum management skills, reduction in business
(Up to 4 marks) taxes, subsidies, start-up grants etc
For analysis of at least two supply side measures that are designed to
increase the supply of entrepreneurship to the economy. If only one
measure considered then 3 maximum
(Up to 4 marks)
For evaluative comment on which policies are likely to be successful (3)
that reaches a reasoned conclusion (1)
(a) Explain how you would use the concept of cross-elasticity of demand to measure the impact on the demand for cars when there is a rise in the price of fuel for cars and when there is a rise in the price of public transport. [8]
(b) A government is deciding whether to impose import controls to protect its car manufacturing industry.
Discuss the factors that should be considered in this decision, and whether these import controls can be justified. [12]
Mark scheme
3(a) Explain how you would use the concept of cross-elasticity of 8
demand to measure the impact on the demand for cars when there
is a rise in the price of fuel for cars and when there is a rise in the
price of public transport.
For knowledge and understanding of cross elasticity of demand. What
it measures (1) Formula (1) (Up to 2 marks)
For application using the concept to explain the impact of a rise in the
price of petrol on the demand for cars
• For stating that since cars and fuel are complements the
coefficient will be negative (1)
• For explaining why a negative coefficient will result when there is
a rise in the price of fuel (1)
• For explaining that the impact will be greater and the coefficient
will be higher the closer the relationship (1)
(Up to 3 marks)
For application using the concept to explain the impact of a rise in the
price of public transport on the demand for cars
• For stating that since cars and public transport are substitutes
the coefficient will be positive (1)
• For explaining why a positive coefficient will result when there is
a rise in the price of public transport (1)
• For explaining that the impact will be greater and the coefficient
will be higher the closer the relationship (1)
(Up to 3 marks)
3(b) A government is deciding whether to impose import controls to 12 Possible reasons include: to save jobs, protect
protect its car manufacturing industry. infant industries, prevent dumping, protect the
current account of the balance of payments
Discuss the factors that should be considered in this decision, and etc.
whether these import controls can be justified.
Factors that should be considered include:
For analysis of the possible reasons for protection of the car industry whether the industries are really infant
(Up to 4 marks) industries, whether the charge of dumping can
be justified etc.
For analysis of the factors that should be considered
(Up to 4 marks)
(8 marks maximum)
For evaluative comment (Up to 3 marks) and 1 mark for a conclusion
(a) Explain what is meant by equilibrium price and quantity in the market for a good and how price and quantity will be affected by both a rise in the wage rate paid to the workers producing the good and a rise in wages paid to all workers in the economy. [8]
(b) Discuss whether government policies to influence the free market price for a good can ever improve the allocation of resources in that market. [12]
Mark scheme
4(a) Explain what is meant by equilibrium price and quantity in the 8
market for a good and how price and quantity will be affected by
both a rise in the wage rate paid to the workers producing the good
and a rise in wages paid to all workers in the economy.
For knowledge and understanding of the meaning of equilibrium price
and quantity.
• For knowledge that this occurs in a market where supply is
equal to demand (1)
• For understanding that equilibrium price and quantity is when
there is no tendency to change (1)
(Up to 2 marks)
For application showing the impact of a rise in the wage rate
• For a diagram (or explanation) showing a shift in the supply
curve to the left (1)
• For an explanation of why this will occur in terms of the rise in
costs (1)
• For explaining (or illustrating) that the equilibrium price will rise
and the equilibrium quantity will fall (1)
(Up to 3 marks)
For application showing the impact of a rise in the wages in the
economy in terms of a shift in the demand curve to the right
• For a diagram (or explanation) showing a shift in the demand
curve to the right (or left in the case of an inferior good) (1)
• For an explanation of why this will occur in terms of the rise in
incomes (1)
4(a) • For explaining (or illustrating) the change in the equilibrium price
and the equilibrium quantity depending upon the type of good
chosen (1)
(Up to 3 marks)
(8 marks maximum)
4(b) Discuss whether government policies to influence the free market 12 Policies include maximum and minimum
price for a good can ever improve the allocation of resources in that prices, indirect taxes, subsidies, information
market. campaigns etc.
For analysis of at least two policies to influence the free market price for The advantages and disadvantages must
a good. If only one measure considered then 3 maximum. relate to the policies chosen. For example,
(Up to 4 marks) maximum prices might lead to shortages,
subsidies might be very expensive as might
For analysis that considers the advantages and disadvantages of using information campaigns.
these policies.
(Up to 4 marks)
For evaluative comment on whether the policies ‘can ever improve’ the
allocation of resources (Up to 3 marks) and 1 mark for a conclusion
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Economics 9708/22 for February/March 2021 is out of 40 marks, with 1 hour 30 minutes to answer it.
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