Economics 9708/23 October/November 2019: question paper and mark scheme

Mark scheme

1(a)(i) Using Table 1.1, compare the rate of inflation for China and India 2 To score both marks available here the candidate between 2012 and 2015. must manipulate the data to provide a comparison. If the data is simply repeated then • very mild increase for China (6%); much greater for India no marks are scored. (25%) • rate of increase more variable for India up to 2 marks for a developed point or accept two separate undeveloped points for 1 mark each 1(a)(ii) Explain two possible reasons why the CPI might not be an 4 Each reason must be explained to gain both accurate measure of inflation in a BRICS economy such as India. marks. Possible reasons include: • a large informal economy, not all • identifies of a valid reason (1 mark) transactions are monetarised • explains of why this means that the CPI might not be an • some transactions may be illegal/not accurate measure of inflation (1 mark) recorded • problems of collecting meaningful data on 1+1 marks per reason and explanation, for 2 reasons expenditure patterns • there may be a large subsistence economy in India 1(b) Explain one possible aggregate demand reason and one 4 All the economies in Table 1.1 experience possible aggregate supply reason for the differing rates of continuous inflation over the period but the rates inflation in the BRICS economies since 2012. differ, with China’s rate being the lowest. • identifies one factor that will change aggregate demand and Inflation can be caused for example by an cause a rise in the rate of inflation in a BRICS economy (1 increase in aggregate demand not matched by mark) an increase in aggregate supply or a fall in • explains why this will cause the rate of inflation to be different aggregate supply greater than the fall in to other BRICS economies (1 mark) aggregate demand. • identifies one factor that will change aggregate supply and Aggregate Supply reasons include the effects of cause a rise in the rate of inflation in a BRICS economy (1 a currency depreciation leading to rising import mark) prices, a fall in supply of essential raw materials • explains why this will cause the rate of inflation to be different and above inflation wage increases. to other BRICS economies (1 mark) Aggregate Demand reasons include any causes of an increase in AD such as falling interest rates that stimulate consumption and investment expenditure, increases in government spending or a rise in net exports. For full marks the answer must be framed in the context of differing rates of inflation in the economies shown. 1(c)(i) Using Fig. 1.2, describe how China’s terms of trade changed 2 China’s terms of trade have deteriorated as from the high point in 2015 to the end of 2016. shown by a fall in the terms of trade index. • for stating that the terms of trade have deteriorated / worsened / Candidates may calculate the % fall in the terms fallen (1 mark) of trade (21%) or they might state that it has • for valid use of the data in Fig. 1.2 to describe the change (1 fallen by approx. 24.5 index points. mark) Simple reference to the data without interpretation fails to score the mark for description. 1(c)(ii) Explain one possible reason for this change. 2 Possible reasons include: • depreciation of currency • a fall / deterioration in the terms of trade means a fall in export • fall in demand for exports prices relative to import prices (1 mark) • increased price of imported raw materials • explains one possible reason for the fall (1 mark) 1(d) With the help of the information, discuss what is likely to be the 6 The answer needs to consider one or more most important factor that will determine how successfully India factors that are likely to determine how can compete with China when trading in world markets. successfully India can compete with China. These might include the relative rates of inflation, • analysis that makes valid use of the data to explain the changes in the terms of trade of each economy importance of the factor(s) (up to 4 marks) or quality of product. • comment and conclusion on why the factor chosen is the ‘most important’ (up to 2 marks) A full answer needs to go on to make some evaluative judgement on why this should be Maximum 2 marks if a valid factor is chosen that makes no use of considered the most important factor and arrive the information provided at a conclusion.

Mark scheme

2(a) It has been reported that the world demand for chocolate is 8 A simple market demand and supply diagram is increasing at a time when the supply of cocoa beans, the raw required showing a shift to the right of the ingredient required to produce chocolate, is not as large as demand for chocolate. This will show an increase expected. in price and an increase in the quantity traded. Explain, with the help of a diagram, the likely effects of these For elaboration for example, the rise in price of changes on the world market for chocolate products. the two changes will be determined by the extent of the shifts in demand and supply and factors • accurate diagram showing demand and supply curves for such as the relative elasticities of supply and chocolate (1 mark) demand. • with equilibrium price and quantity (1 mark) (KU: up to 2 marks) Since the increase in demand and the decrease in supply have an opposite impact upon the • a separate diagram (or a development of the simple supply equilibrium quantity, this is clearly indeterminate. and demand diagram) showing that there will be a shift to the left of the supply curve for chocolate (1 mark); as a result of the fall in the supply of cocoa beans and a rise in price (1 mark) • a separate diagram (or a development of the simple supply and demand diagram) showing that there will be a shift to the right of the demand curve for chocolate (1 mark); as a result of the increased demand for chocolate and a rise in price (1 mark) • elaboration that considers the overall impact on the market price and quantity of the two changes together (up to 2 marks) (APP: up to 6 marks) 2(b) Very high consumption of chocolate can lead to health problems 12 One policy would be to increase the sales tax on such as obesity and diabetes, especially amongst young chocolate and reduce the tax on healthier children in developed economies. substitutes such as sugar free sweets. Another method would be to run an information Discuss what is likely to be the most effective policy to reduce campaign, say on social media, to warn of the these problems. consequences of excessive sugar consumption. • explains one policy to reduce these problems with due The evaluation should make some judgement the reference to the strengths and weaknesses of this policy (up relative effectiveness of such policies, given the to 4 marks) addictive nature of chocolate. • explains (at least) one further policy to reduce these problems with due reference to the strengths and weaknesses of the(se) policy(ies) (up to 4 marks) (AN: up to 8 marks) • evaluation that compares the policies to arrive at a conclusion on which is ‘most effective’ (up to 3 marks); and a conclusion of which is ‘most effective’ (1 mark) (EV: up to 4 marks)

Mark scheme

3(a) In March 2017, the Indian government announced a new five year 8 The AD/AS diagram should show a shift to the programme of investment in the country’s nationalised railway right of AD, assuming no change in AS. It should system. therefore be recognised that this is due to the increase in the ‘I’ component of AD. Explain, with the help of an aggregate demand and aggregate Investment in railways is likely to shift both AS as supply diagram, how this investment is likely to affect India’s well and hence affect output, prices and output, prices and employment. employment. In turn, there should be an explanation of how • a diagram with correctly labelled axes showing aggregate this will increase employment in the railway demand and aggregate supply (1 mark) construction industry and subsequent wider • with equilibrium price level and national output (1 mark) impact on job creation. (KU: up to 2 marks) • shows the effect of an increase in investment upon aggregate supply and the impact on output, prices and employment (up to 2 marks) • shows the effect of an increase in investment upon aggregate demand and the impact on output, prices and employment (up to 2 marks) • elaboration that shows the impact on output, prices and employment of the combined effects of the changes in aggregate demand and aggregate supply (up to 2 marks) (APP: up to 6 marks) 3(b) Discuss whether a nationalised or a privatised system is likely to 12 This question requires an answer that looks at generate a better market for rail travel. whether such investment is best provided by the government or the private sector within the • analysis that considers the advantages and disadvantages of context of enterprise and opportunity cost. The state provision of rail transport (up to 4 marks) cases for nationalisation and privatisation should • analysis that considers the advantages and disadvantages of be analysed with particular focus on the provision private provision of rail transport (up to 4 marks) of funds for new investment but also in the (AN: up to 8 marks) broader sense of public vs market provision. • evaluative judgement that makes clear which is likely to best at providing new investment funding (up to 3 marks) with a conclusion (1 mark) (EV: up to 4 marks)

Mark scheme

4(a) Explain the likely causes of a deficit on the current account of 8 Possible causes that might be explained include: the balance of payments for an economy that relies heavily on agricultural products. • A higher rate of inflation in an economy than in other trading economies • meaning of the current account of the BoP (1 mark) • Decline in competitiveness of an economy’s • meaning of a deficit (imports > exports) (1 mark) industry because of lack of innovation (KU: up to 2 marks) • A rise/fall in the exchange rate with due reference to elasticities • explains one reason that might cause a deficit in the current • An increase in trade barriers account of the balance of payments (up to 2 marks) • explains (at least) one further reason that might cause a deficit in the current account of the balance of payments (up to 2 marks) • elaboration that relates the deficit to dependence on agricultural products (up to 2 marks) (APP: up to 6 marks) 4(b) The largest economy in the world, the United States (US), 12 Policies could be a range of expenditure records a persistent deficit on its current account of the balance switching policies such as competitive of payments. depreciation of the currency, tariffs, quotas and so on Discuss what is likely to be the most effective way to reduce this deficit. Or expenditure reducing policies such as tax rises, cuts in government spending or • explains one policy to reduce the deficit with due reference to deflationary monetary policy such as a rise in the the strengths and weaknesses of this policy (up to 4 marks) rate of interest, or tighter control the money • explains (at least) one further policy to reduce this deficit with supply due reference to the strengths and weaknesses of the(se) policy(ies) (up to 4 marks) The candidate needs to refer to the strengths and (AN: up to 8 marks) weaknesses of the policies and these need to be compared to arrive at a conclusion on which is likely to be most effective. • Evaluative judgement that compares the effectiveness of the policies (up to 3 marks); conclusion regarding which is ‘most effective’ (1 mark) (EV: up to 4 marks)