Economics 9708/22 May/June 2022: question paper and mark scheme

Mark scheme

1(a)(i) Compare the rate of inflation in Russia in March 2015 with that in 1 Figures are not required March 2020 A reference to ‘the rate of inflation’ is not necessary as this is within the question. The rate is higher in March 2015 / is lower in March 2020 / it has fallen Note: do not allow ‘improved’, ‘become better’, over the time period / disinflation. (1 mark) ‘it is lower’ etc. 1(a)(ii) What has happened to the price level over this period? 1 Specific references to ‘price level’ is not necessary as this is within the question. It / The price level has risen / prices have risen (1 mark) 1(a)(iii) Explain what could have caused real wages in Russia to decline 2 Accept answers that merely state that prices between 2016 and 2018. must be rising faster than wages For an understanding that a decline in real wages means that prices must Valid causes may refer to e.g., high rates of be rising more than the rise in wages (1 mark) inflation, a surplus of labour leading to a fall in For any explanation of a possible valid cause of this decline in real wages etc but must make it clear why real wages (1 mark) wages have declined. Note: No marks should be awarded if there is no understanding at all of what is meant by a decline in real wages. 1(b) Explain whether school lunches provided free of charge by the 4 Candidates should demonstrate clear Russian government would be classified as private goods or public understanding of how public and private goods goods. are distinguished by reference to the terms (non)excludability and (non) rivalry but for the For clear and accurate understanding of what is meant by the term first two marks this does not need to be excludable / non excludable (1 mark) correctly applied to free school meals. For clear and accurate understanding of what is meant by the term rivalry / non rivalry in consumption (1 mark) The final two marks may only be awarded if the For a correct application of both terms to free school meals (1 mark) terms are correctly applied to free school Leading to a conclusion that free school meals must be private and not meals. The conclusion must be based on fully public goods (1 mark) accurate application. 1(c) Assess, using aggregate demand and aggregate supply analysis, 6 The data in table 1.1 shows that the the likely impact of the changes shown in Table 1.1 upon the rate of government budget has moved from a deficit to inflation in Russia. a surplus and the most likely cause will be a cut in government spending and/ or an For analysis of how the move to a budget surplus will affect aggregate increase in taxes. Analysis should consider demand through its impact on at least one component of AD and the how this is likely to impact at least one likely consequence of this on the rate of inflation. (Up to 3 marks) component of AD and therefore reduce AD and control the rate of inflation. For analysis of the likelihood of the rate of inflation being controlled that considers the possible impact on AS resulting from the change from a However, this move may also affect AS and budget deficit to a surplus. (Up to 2 marks) analysis should consider e.g., how reduced subsidies due to a fall in government spending, 1 mark for a valid conclusion possible reduced investment due to a rise in taxes etc. may cause AS to shift to the left. Other government policies such as a cut in interest rates may also have a counter effect and may be accepted. 1(d) Discuss whether the ‘huge decrease in the price of oil’ and the fall 6 The fall in the price of oil is likely to reduce the in the value of the rouble might bring more opportunities than value of Russia’s exports and have a negative threats to the Russian economy. effect on the current account of the balance of payments, but this is only the case if the PeD For analysis explaining why ‘the huge oil price slump and the fall in the is inelastic. A possible opportunity is that costs value of the rouble’ will bring opportunities to the Russian economy of production will fall for domestic firms that (Up to 3 marks) use oil and this may impact the Russian Maximum of 2 marks if only the oil price slump or the fall in the value of economy by making its exports more price the rouble is considered. competitive, For analysis explaining why ‘the huge oil price slump and the fall in the The impact of the fall in the value of the rouble value of the rouble’ will bring threats to the Russian economy could be positive or negative depending upon (Up to 3 marks) the PED of Russia’s imports and exports. Maximum of 2 marks if only the oil price slump or the fall in the value of There is a threat however that will result from the rouble is considered. the possible imported inflation and this may impact the Russian economy by lowering living Maximum of 5 marks in total for analysis standards. Leading to a well-reasoned conclusion whether or not there will be more opportunities than threats to the Russian economy (1 mark)

Mark scheme

2(a) With the help of a production possibility curve diagram(s) compare 8 Knowledge and understanding marks may only growth in the productive capacity of an economy and growth that be given for an accurate diagram and not a results from a reduction in the quantity of unused resources in an written explanation. Axes must be labelled economy. Explain one reason that might cause each to occur. correctly for the second KU mark i.e., not P and Q and not X and Y although good X and For knowledge and understanding of a PPC shown through an good Y are acceptable. accurate diagram i.e., a concave or straight-line curve that meets both axes (1mark) with appropriate and correctly labelled axes (1 mark). A growth in the productive capacity of an economy is represented by a shift outward in For application, identification of a reason why there may be a growth in the PPC. It can be caused by an improvement the productive capacity of an economy of technology or an increase in productive (1 mark) clearly explained (1 mark) using a fully accurate diagram to resources. correctly illustrate a growth in the productive capacity of an economy shown by a shift outward in the PPC (1 mark) (3 marks maximum) A reduction in the quantity of unused resources in an economy is represented by a movement For application, identification of a reason why there might be a reduction from within the PPC towards the curve. It can in the quantity of unused resources in an economy (1 mark) clearly be caused for example by increased aggregate explained (1 mark) using a fully accurate diagram to correctly illustrate a demand or by an improvement in the reduction in the quantity of unused resources in an economy shown by a aggregate supply that makes the labour market movement from within the curve to a point nearer the curve or onto the more efficient. curve. (1 mark) (3 marks maximum) This may be illustrated on one diagram or more. 2(b) Discuss the disadvantages of a planned economy and consider 12 Disadvantages of a planned economy may whether the transition to an economy in which many resources are include a lack of consumer sovereignty. A lack allocated by market forces is likely to be of overall benefit. of profit motive which may lead to less efficiency. It may therefore lead to surpluses For analysis of the disadvantages of a centrally planned economy and / or shortages. It may lack incentives e.g., (Up to 4 marks) to invest which may lead to a lack of innovation and a reduction in consumer choice. For analysis of the impact of a change to an economy in which many resources are allocated by market forces with due reference to both the The transition to an economy in which many advantages and the disadvantages (maximum mark of 3 if only resources are allocated by market forces may advantages or disadvantages are analysed) (Up to 4 marks) counter the disadvantages of a planned economy through market forces but it may also For evaluation that considers whether transition is likely to be of overall lead to the overproduction of demerit goods benefit (Up to 3 marks) to arrive at a reasoned conclusion (1 mark) and the underproduction of merit goods together with a lack of public goods. It may lead to greater inequality. Evaluation may include a consideration of the time period. There are no KU marks awarded in part b for merely explaining / defining terms or phrases within the question.

Mark scheme

3(a) With the help of diagrams, use the concept of income elasticity of 8 For a normal good, at a time when incomes demand to explain the impact of a fall in incomes on the equilibrium are falling, demand will be expected to fall price and equilibrium quantity of a normal good and an inferior resulting in a shift to the left of the demand good curve. For an inferior good, at a time when incomes are falling, demand will be expected For knowledge and understanding of the meaning of income elasticity to rise resulting in a shift to the right of the of demand (1 mark) together with an accurate formula (1 mark) demand curve. This will result in a fall and rise respectively in the equilibrium price and Note: the correct KU of the meaning of income elasticity may be quantity demanded which should be clearly rewarded with 1 mark if it is clear within the application even if it was shown on two separate diagrams as required initially incorrect within an opening statement / definition. by the question Do not reward application where one diagram is used to illustrate the For application that explains the meaning of a normal good (1 mark) effects on both types of goods. The and uses a diagram to illustrate that the demand curve will shift to the left maximum mark that this type of response (1 mark) leading to a fall in equilibrium price and quantity demanded could score is [2+3+1] which is clearly shown on the diagram (1 mark). Diagrams showing the relationship between For application that explains the meaning of an inferior good (1 mark) income and q demanded for normal and and uses a separate diagram to illustrate that the demand curve will shift inferior goods must not be rewarded (unless to the right (1 mark) leading to a rise in equilibrium price and quantity solely used as part of the explanation of the demanded which is clearly shown on the diagram (1 mark). meaning of what normal and inferior goods are) as they clearly do not show the changes in equilibrium price and quantity. The only diagrams that may be accepted here are normal supply and demand diagrams that clearly show the appropriate shifts in demand and the resulting changes in equilibrium price and quantity demanded. 3(b) Discuss the difficulties that businesses might have when they try to 12 Factors include whether the good is a control the factors that determine the price elasticity of demand for necessity, whether it is habit forming, the a product and consider whether attempts to control these factors availability, attractiveness of substitutes, the are likely to be successful. proportion of income taken in the purchase of the good, and the time period. For analysis that considers the difficulties a business might have in attempting to control a factor that influences the price elasticity of Responses that simply explain the factors that demand. (Up to 4 marks per factor analysed) (8 marks maximum) determine PeD without any references to the difficulties that business might have in For evaluation that considers whether the difficulties in controlling the controlling these factors should not be factors can be overcome (3 marks) and arriving at a reasoned rewarded. conclusion (1 mark) Candidates must consider at least two factors to score full marks for analysis or they can consider more than two factors and their difficulties in less depth. There are no KU marks awarded in part b for merely explaining / defining terms or phrases within the question.

Mark scheme

4(a) An economy moves from a deficit to a surplus on the current 8 The current account should be defined as account of the balance of payments. trade in goods, services plus other income. Explain what is meant by a surplus on the current account of the For the second mark, a surplus is where balance of payments and consider the possible impact on the level payments received by a country exceed of employment and prices when there is a change from a deficit to a payments made by a country / where income surplus current account balance in an economy. from exports exceeds expenditure on imports. For knowledge and understanding of what the current account of the The cause of the surplus will clearly be an balance of payments measures (1 mark) and what is meant by a surplus increase in exports and / or a decrease in (1 mark) imports. However, there are several reasons why this might occur e.g., For application that explains the impact of the emerging surplus upon increased popularity of Russian exports, employment. (Up to 3 marks) government policy to dampen domestic demand etc. Give 1 mark for identifying a For application that explains the impact of the emerging surplus upon valid cause / reason and then up to 2 marks domestic prices. (Up to 3 marks) for a developed explanation of the impact on employment and use the same criteria to award marks for the impact on domestic prices. 4(b) Discuss whether expenditure-reducing or expenditure-switching 12 Candidates need to have a clear policies are more likely to be of greater overall benefit if adopted to understanding of expenditure reducing and remove a persistent deficit on the current account of the balance of expenditure switching policies together with an payments. understanding of the advantages and disadvantages of each. For analysis that considers the advantages and disadvantages of using expenditure-reducing policies to remove a persistent deficit on the current Examples of expenditure reducing policies account of the balance of payments. (a maximum of 3 marks if only which are designed to reduce domestic advantages or disadvantages are analysed) (Up to 4 marks) aggregate demand to reduce imports and increase goods for export may include: For analysis that considers the advantages and disadvantages of using raising taxes expenditure-switching policies to remove a persistent deficit on the reducing government spending etc. current account of the balance of payments (a maximum of 3 marks if only advantages or disadvantages are analysed) (Up to 4 marks) Examples of expenditure switching policies which are designed to encourage people to For evaluation that compares the advantages and disadvantages of the switch from buying imported goods to buying two approaches (3 marks) to arrive at a reasoned conclusion on which is domestically produced goods may include: to be of greater overall benefit in reducing a persistent deficit on the protectionist policies current account of the balance of payments (1 mark) supply side policies exchange rate policies etc. Analysis and evaluation should focus on how a persistent deficit on the current account may be removed using these policies but may also consider other impacts on the wider economy. There are no KU marks awarded in part b for merely explaining / defining terms or phrases within the question.