Economics 9708/22 February/March 2022: question paper and mark scheme

Mark scheme

1(a) With reference to Fig 1.1 describe how Turkey’s current account 2 This is the only appropriate answer. Do balance has changed between August 2019 and April 2020. not reward references to positive and / or negative figures / worsening etc. Equally, It has gone/changed/moved from a surplus (1 mark) to a deficit (1 mark) chronological descriptions of each year should not be credited even if references to surplus and/ or deficit are made throughout. The only exception is if it is clear that the candidate recognises the correct change over the time period e. g as a summative comment. 1(b) How could the data in Fig 1.2 be used to explain the changes in the 2 The data clearly shows that prices have terms of trade between August 2019 and April 2020 as shown in Fig risen consistently over the time period and 1.3? that terms of trade have risen from a value of 103.47 to 110.32. The rate of inflation in Turkey suggests that there is a rise in Turkey’s export prices (1 mark), if import prices will rise by less this will lead to a rise in the terms of trade as shown (1 mark) 1(c) ‘Consumer price inflation was 8.6% per annum in October 2019 and is 4 It is necessary for candidates to have a now 11.4%, reducing the international competitiveness of Turkey’s sound grasp of the core concepts goods and services.’ especially the terms of trade, PED, and the Marshall-Lerner condition. Explain, using the concept of price elasticity of demand, how the increase in inflation has caused the change in Turkey’s current The change from a surplus to a deficit will account of the balance of payments between October 2019 and April only occur if the Marshall-Lerner condition 2020 as shown in Fig 1.1. is fulfilled. Clear understanding of PED either by means of a formula or explanation The understanding of PED may be implicit based on % changes or responsiveness (1 mark) based on the explanations of how the value of PED will affect export revenue Recognition that the data (TOT) shows that export prices have increased and import expenditure and the first mark more than import prices and an explanation of how the value of PED will can therefore be awarded. affect export revenue (1 mark) and import expenditure respectively (1 mark) If the answer only considers the impact on For reference to the Marshall-Lerner condition needing to be fulfilled to turn export revenue OR import expenditure, the current account surplus to a deficit (1 mark) then a maximum of 2 marks may be awarded. 1(d) Explain how a negative real rate of interest in Turkey will affect the function of money as: 1(d)(i) a standard of deferred payment. 3 If interest rates are negative, it means that borrowers will pay back less than they for explaining what is meant by a ‘standard of deferred payment’ (1 mark) have borrowed in real terms. for explaining how this function of money will be affected by negative rates of interest i.e. who might be affected e.g., borrowers (1 mark) and how e.g., they will pay back less than they borrowed in real terms (1 mark) (Up to 2 marks) 1(d)(ii) a store of value. 3 If interest rates are negative, it means that savings are losing value in real terms. for explaining what is meant by a ‘store of value’. (1 mark) for explaining how this function of money will be affected by negative rates of interest i.e. who might be affected e.g., savers (1 mark) and how e.g., the value of their savings would be reduced in real terms (1 mark) (Up to 2 marks) 1(e) Discuss, with the help of an aggregate demand and aggregate supply 6 Cuts in the rate of interest are expected to diagram, whether further cuts in Turkey’s interest rate are likely to increase consumption and investment. In ‘generate inflation’ or ‘speed up the economic recovery’. addition, the exchange rate will fall causing a rise in net exports. Aggregate For an accurate aggregate demand/aggregate supply diagram showing demand will rise, but the impact upon equilibrium national income and price level (1 mark). prices and output and employment will be determined by the position of equilibrium For an explanation using the diagram (1 mark) of the impact of a cut in national income. interest rates upon aggregate demand (up to 2 marks). If there is no diagram or an inaccurate For evaluative comment that considers whether the interest rate cut will diagram, then the maximum mark is 4 i.e. impact upon prices/employment/economic growth. 0,2,2. (Up to 2 marks) with 1 mark reserved for a valid conclusion

Mark scheme

2(a) Explain with the help of a production possibility curve diagram(s) how 8 The PPC diagram should show consumer a decision to re-allocate resources in an economy to produce more goods and capital goods on the axes. capital goods and fewer consumer goods would affect consumers in These terms do not have to be used, but it both the short run and the long run. must be clear that the candidate understands the distinction between the For knowledge and understanding of production possibility curves two. The significance of the reallocation showing an accurate diagram labelled consumer goods and capital goods or should be clearly understood. In the short equivalent (up to 2 marks). run the consumer will have less goods and services available to consume. In the long For application showing a movement along the curve in the short run (1 run there may be a shift outward in the mark) meaning fewer consumer goods and services available for PPC as more capital goods are produced consumption (1 mark) leading to less choice / higher prices / lower living and the economy’s capacity expands. standards in the short run (1 mark). An accurate diagram must include For application showing an outward shift of the curve in the long run (1 accurate labels with the PPC touching mark) perhaps leading to more consumer goods and services due to an both axes. expansion of capacity in the economy (1 mark) and an increase in living standards etc (1 mark). 2(b) Discuss whether the transition from a planned economy to a market 12 The transition to a market economy will economy will always be better for consumers. represent a movement towards consumer sovereignty. If there is imperfect For analysis of the potentially positive consequences of the transition for information however there will be an consumers OR the advantages and disadvantages to consumers of a underproduction of merit goods and an planned economy. For an analysis of just one (3 max). overproduction of demerit goods. (Up to 4 marks) Candidates are required to consider the advantages and disadvantages of a For analysis of the potentially negative consequences of the transition for market economy and then to exercise consumers OR the advantages and disadvantages to consumers of a some judgement about whether the market economy. For an analysis of just one (3 max). transition will always be better for (Up to 4 marks) consumers. 8 marks maximum Reverse arguments should not be rewarded twice. For evaluation that considers the ‘will always’ element of the question. (Up to 3 marks) to arrive at a reasoned conclusion. (1 mark)

Mark scheme

3(a) Use examples to explain why the supply of some products is price 8 For full marks there must be an elastic and the supply of other products is price inelastic. explanation of at least two factors that influence elasticity. If the candidate For knowledge and understanding of what is meant by price elasticity of considers only one factor and reverses supply. What it measures (1 mark) and the formula (1 mark). this factor, then 1 maximum for the second application. For example, if a candidate For application that uses valid example(s) to explain price elastic supply (1 suggests that a product is elastic in supply mark) identifies a factor that makes the supply of the product price elastic (1 because there are plentiful resources and mark) and why (1 mark) explanation of a factor that influences the elasticity. then reverses this to explain that price (Up to 3 marks) might be inelastic because of a shortage of resources, this can only be credited For application that uses valid example(s) to explain price inelastic supply once. (1 mark) identifies a factor that makes the supply of the product price inelastic (1 mark) and why (1 mark) explanation of a factor that influences the elasticity. (Up to 3 marks) 3(b) Discuss the ways in which fiscal policy can be used to increase the 12 Cuts in income and business taxes may aggregate supply of products in an economy and consider whether provide incentives and increase the supply this approach is likely to be effective. of labour and entrepreneurship to the economy. The difficulty is that they might For analysis that considers how changes in taxation can influence not stimulate these resources. In addition, aggregate supply with reference to the difficulties associated with this this could lead to a budget deficit and approach. For an analysis of how changes in taxation might work without possible inflation. the possible difficulties (3 max). (Up to 4 marks) Increases in government spending could For analysis that considers how changes in government spending can be directed to improving labour skills. influence aggregate supply with reference to the difficulties associated with Subsidies would also be included in this this approach. For an analysis of how changes in government spending category encouraging for e.g., investment might work without the possible difficulties (3 max). (Up to 4 marks) in R & D. This could also lead to a budget deficit and may take some time before this 8 marks maximum comes to fruition. For evaluation that fully assesses the effectiveness of these approaches in A comparison of fiscal policy with another increasing aggregate supply of products in an economy (up to 3 marks) policy may be relevant within the and arrives at a reasoned conclusion concerning whether fiscal policy is evaluation but is not relevant analysis. likely to be effective. (1 mark)

Mark scheme

4(a) An economy is facing the shutdown of its steel making industry as a 8 Candidates should not be credited for result of cheap foreign imports. simply stating that protectionism is ‘protecting industries’. There must be a Explain what is meant by ‘protectionism’ and describe two ways in developed reference to foreign which this steel industry could be protected competition. For knowledge and understanding of the meaning of protection in terms Accept any valid method of protection for of giving an advantage to domestic industries/protecting domestic industries e.g., tariffs, export subsidies, quotas etc. against foreign competition (1 mark) through interference with the free market / restricting free trade / increasing the price competitiveness of domestic industries against foreign competition. (1 mark) For application that illustrates how industries are protected. Identification of a method (1 mark) and an explanation of how the chosen method works in practice (1 mark) and develops how this bestows advantage on the domestic industry. (1 mark) (Up to 3 marks) 2 methods × 3 marks: 6 maximum 4(b) Discuss the advantages and disadvantages of protecting an industry 12 Advantages include, the infant industry such as steel and consider whether the protection will be of overall argument, anti-dumping and protecting benefit to this economy employment. For analysis of the advantages of protecting the industry. (up to 4 marks) Disadvantages include the fact that resources may not be allocated in their For analysis of the disadvantages of protecting the industry. most efficient use, there might be (up to 4 marks) retaliation and consumers will have to pay higher prices. 8 marks maximum Overall benefit should be fully considered For evaluation that considers the relative effect of the advantages and for evaluation marks. disadvantages of protection (Up to 3 marks) to arrive at a reasoned conclusion on the overall benefit to the economy. (1 mark)