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ECONOMICS HIGHER LEVEL PAPER 1

1. (a) Explain why a monopoly might be inefficient. [10 marks] Define eff (allocative and prod) – 2p Assumptions of mon model, 2p Clear and correct diag illustrating P = MC and Q = ACmin, 4p Explanation that mon sets P higher than MC, 2p Expl that mon will not necessarily set P and Q at ACmin, 2p

(b) Discuss the extent to which competitive markets are always preferable to monopolies. [15 marks]

Assumptions of PCM, 1p Diags comparing mon to PCM and no EoS exist – mon is sub-opt, up to 4p Expl linked to diags above, up to 3p Any ONE of the following done in depth can earn up to 8p (diags + expl) while two done

somewhat shallower can earn up to 4p each: o EoS…lower P and higher Q in mon…o Nat mon and π-maxo Nat mon and AC-pricing o Existence of neg exts in prod

Note: “…abn π and R&D…” max 2p

2. (a) With the aid of appropriate diagrams, explain why producers and not consumers might bear the greatest incidence of a subsidy. [10 marks] Def of subs, 1p Def/expl or clear use in reference to “inc”, 1p Clear diag showing either elastic demand and clear incid of subs…OR…inelastic S…

OR…that there is a Sw (probably the best), up to 5p Expl that there is a total cost of subs (ref to diag!) and that this is “divided” between

consumers and producers, up to 4p

(b) Evaluate the statement that “Subsidies are a cost-effective method to increase consumer welfare!” [15 marks] Def of consumer welfare, i.e. SS, 2p Clear use of diag to show the change in CS, PS and thus SS in diag, up to 5p Ref to cost for govt and linked to arrow in diag, up to 3p Any of the following (or any valid point!), up to 5p:

o There is a DW los…BUT…the change in SS might be larger than the DW loss o The subsidy costs govt money – plus the opp cost o Expl that all govt funding ultimately hits HHs via taxes o Any viable alternative to increase supply without using tax monies, i.e. lower

taxes on firms (but less govt rev)… policies aimed to increase productivity in the economy (S-side)…etc…

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3. (a) Explain how fiscal policies might be used to decrease the unemployment rate in an economy. [10 marks] Def of fiscal pol, 1p Def of U as a %-age of TLF, 1p Solid use of AS-AD model…up to 4p …OR…solid use of ASL model, up to 4p Clear links to diags plus expl’s of how fiscal stimulation increase AD and/or ADL, up to

4p For full marks there must be a clear link between policies given and the rate of U

(b) Evaluate demand-side policies with reference to their long run effectiveness in addressing different types of unemployment. [15 marks]

Def and expl of D-side policies, 2p Outline of unemployment types (frictional…etc), up to 4p Clearly linking policies to types of U, i.e. increased G to lower cyclical U, up to 3p each,

max 6p Evaluation; up to 4p each (max 8p) for any of the following…

o Lags in application of D-side policies – poss exacerbation of cycles o Trade-off issues (i…U…growth…external bal) o K vs Mon debate (diseq U…shape of LRAS…etc) o Possible crowding out o LRPhC – no trade-off acc to mon school o Merits of S-side in combatting structural U o Any valid argument merits marks, as usual

4. (a) Explain two ways in which inflation might arise and two methods which might be used to decrease the rate of inflation. [10 marks] Def of infl, 1p D-pull, cost push, excess money supply, up to 2p each Diag showing D-pull, cost-push, excess money supply, up to 2p Use of fiscal policies linked to diag illustration, up to 3p Use of monetary policies linked to diag, up to 3p Clearly explaining/showing deflation or disinflation resulting from policies, up to 3p For full marks there MUST be clear ref to “decrease in infl rate”!

(c) Evaluate the extent to which government and/or central bank policies aimed at dealing with inflation always involve some form of “trade-off”. [15 marks]

Outline plus diags showing trade-offs of increased r, up to 5p each – max 10p o i↔U, i.e. PhC trade-offo i ↔ Y o i ↔ curr acc worseningo i ↔ exchange rate issues o r ↔ fixed exchange rate issue

Outline of S-side policies illustrating that the i↔U or i↔Y trade-off does not arise, up to 5p

Evaluation, up to 5p for reasonable iteration ofo S-side costs…i.e. “other forms of trade-offs” o S-side takes time to “filter down” in the economy

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ECONOMICS HIGHER LEVEL PAPER 2

Question 1 (a) (i) Define the term fixed exchange rate indicated in bold in the text. [2 marks]

P of one curr pegged to another (1p)…adjusted by r and OMO on forex market (1p)(ii) Define the term appreciation indicated in bold in the text. [2 marks] The value of one currency (i.e. the P) rises in terms of another curr (1p)…floating exchange

rate (1p) (b) Using a diagram, explain how “…the sudden appreciation of the Indian rupee has affected

exporters’ profits…” (paragraph ③) [4 marks] Diag showing AS-AD and ↓AD due to higher Px, 2p Expl that appr of rupee means ↑Px → ↓X and Xrev…which is part of AD, 2p

(c) Using a diagram, explain why increased debt in Euro countries might cause a “…drop in the Euro…” (paragraph ④). [4 marks] Diag showing € and ↓D for €, 2p Expl that a “weak” economy does not attract FDI or portfolio inv → ↓D for €, 2p

…………OR………. That debt is associated with ↑G and poss increased infl → ↑ Px and thus lower D for €

(d) Using information from the text/data and your knowledge of economics, evaluate the extent to which a strong rupee (paragraph ⑥) and low growth in Euro countries (paragraph ⑦) will have negative effects on the Indian economy. [8 marks] Neg effects (up to 5p for clear iteration):

o Strong rupee → Px↑…etc o Low ΔY in €-land → ↓Dm → ↓D Indian X…etc

Eval (“maybe not so negative”), up to 4p: o M-L and/or J-curve issues o Indian firms see ↓cost of imported FoPs

Well used AS-AD diag for India, up to 2p Max 6p for no ref to data!

Question 2(a) (i) Define the term trade barriers indicated in bold in the text. [2 marks]

Any govt action that ↑ratio of Pm relative to Pm (1p) for example taxes on M…etc (1p) (ii) Define the term subsidies indicated in bold in the text. [2 marks] Gift/grant of money to firms (1p) lowering production costs/MC (1p)…OR…

incentivising firms to produce (1p) (b) Using a diagram, explain how subsidies in the US and EU affect US and EU imports

(paragraph ⑤). [4 marks] Diag showing US or EU economy with Sw and shifting SUS/EU to the right – no change in

P! – and change in M clearly shown, 2p Expl that the subsidies lower domestic costs in US/EU so that a portion of M goods

become relatively more expensive, leading to ↓M in US/EU, 2p (c) Using a diagram, explain why subsidies in the US and EU lower growth

rates in India (paragraph ⑦). [4 marks] Diag showing ↓AD in India, 2p Expl that subsidies ↓US and EU imports → ↓X from India and that since X are part of

Ad…2p

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(d) Using information from the text/data and your knowledge of economics, evaluate the effects of EU trade barriers on stakeholders in the EU. [8 marks] Clear use of diag well referred-to, up to 3p Effects on stakeholders, up to 2p each, max 4p

o Consumers might pay more o Poss govt tax rev o Costs of subsidies to govt + opp costs o Loss of choice o Domestic firms gain…o Positive effects on AD, Y and U

Evaluation, up to 4po Poss LR effects (reciprocal BTT…inefficiency…etc) o Winners/losers (domestic EU firms win…importers lose…) o Poss that EU imports have low PED o Subsidies actually do NOT affect CS o Efficiency losss…cost of subsidies…

Max 6p for no ref to data!

SECTION BQuestion 3

(a) (i) Define the term globalization indicated in bold in the text. [2 marks] This gets hazy but “…increased interconnectivity between nations…increased trade in

goods and services….often via MNCs that produce in one country and sell in another…” (ii) Define the term import substitution indicated in bold in the text. [2 marks] Using BTT to decrease M (1p) and divert demand towards domestic firms and production

(1p) (b) Using a diagram, explain the effects on an LDC of tariff reduction in more developed

countries (paragraph ④). [4 marks] Diag showing AS-AD for LDCs, increased AD due to ↑X, 2p Expl that lower tariffs in MDCs means ↑M in MDCs…increased X from LDCs…which

are a component of AD…so AD and Y increase, 2p (c) Using a diagram, explain why developing countries might benefit from having a comparative

advantage in the production of primary goods. [4 marks] Standard-issue “1048” diag showing that an LDC with a comparative advantage can

consume outside its PPF, 2p Explanation that since opp costs of primary goods will be lower in LDCs, free trade can

increase the ability to consume via trade under acceptable ToT, 2p (d) Using information from the text/data and your knowledge of economics, evaluate the use of

infant industry trade barriers as a method of economic development. [8 marks] Def and explanation of “infant” – i.e. that govt can protect domestic industries with scant

EoS to allow them to “grow up” and meet Sw, up to 2p Use of LRAC + Sw diag and examples (tariffs…subsidies…) to explain the barriers, up to

3p Evaluation, up to 4p in total:

o Ref to examples that “worked”; UK, US…most industrialised countries, up to 2p o Ref to examples that “failed”, i.e. India and China pre-1980s, up to 2p o Risk that the BTT are not removed, 2p o Govts suck at picking winners, do not seem to know where comp adv lies, 2p

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o LR effects such as monopolies, ineff, national champions…(India), up to 2p Max 6p for no ref to data!

Question 4 (a) (i) Define the term development indicated in bold in the text. [2 marks]

Increase in SoL (1p) as defined/measured by HDI or other index (1p) (ii) Define the term ODA indicated in bold in the text. [2 marks] Official Development Assistance (1p) comes from the govt budget (1p) rather than NGOs

or private individuals (b) Explain how a “…huge financing gap…” might affect the ability of LDCs

to meet development goals (paragraph ②). [4 marks] For expl that S → I, 1p That low Y and low S → low I, 1p Expl that this “gap” disenables I…thus Δ↑ productivity → negative for ΔY…etc, 2p

(c) Using a diagram, explain how preferential trade agreements increase income in LDCs (paragraph ③). [4 marks] Alt I: Diag showing AS-AD in LDC…increased AD, 2p Alt II: Diag showing S&D diag including Sw+tar in MDC → lower tariff and thus lower

Sw+tar means increased M (M0 to M1) → increased X in LDCs, 2p Explanation that PTAs increase intra-area trade and that LDCs should benefit from

meeting lower BTT – and referring appropriately to your diag, 2p (d) Using information from the text/data and your knowledge of economics, evaluate the use of

trade vs. aid as a development strategy. [8 marks] Outline of trade as part of AD and examples of aid stimulating an economy, up to 2p Expl + examples of countries that focused on trade and saw growth (e.g. Asian Tigers),

up to 2p Expl + ex’s…aid monies accounting for huge proportions of GDP or G in the HIPC’s, up

to 2p Evaluation – up to 4p in total:

o Aid mostly SR and does not really deal with structural issues, 2p o Aid can lead to dependency, 2p o Aid monies dry up in bad times, uncertain in LR, 2p o Trade has been shown empirically to have benefits to growth and dev, 2p o Open economies can lead to U in LDCs as MDCs enter the market, 2p

Max 6p for no ref to data!

ECONOMICS HIGHER LEVEL

P

Q160 560

50

400

90

-25

10

72080

Pmin80

520160

100

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PAPER 3

1. (a) The market for corn is given by the following two functions: Qd = 800 – 8P Qs = 200 + 4P

(i) Calculate Qd and Qs at a price of $60. [2] Qd: 800 – 8 * 60 = 320 Qs: 200 + 4 * 60 = 440

(ii) Calculate the price at which supply would be 300 bags per week. [2] 200 + 4P = 300 → 4P = 100 → P = $25

(iii) Calculate equilibrium price and quantity. [2] 800 – 8P = 200 + 4P → 600 = 12P → P = $50 800 – 8*50 → Q = 400

(iv) Draw the supply and demand curves in the diagram below using a price range of $10 to $90 per bag. Label the curves. [4]

Qs: 200 + 4 * 10 = 160 and 200 + 4 * 90 = 560 Qd: 800 – 8*10 = 720 and 800 – 8*90 = 80

(v) Calculate the effects of government minimum price scheme setting a minimum

price at $80 per bag and draw this in the diagram. [4] Qs: 200 + 4 * 80 = 520 and Qd: 800 – 8*80 = 160 so XS S = 360 units

(vi) Using the values from question (v) and your diagram, calculate the cost of the minimum price scheme for government and explain why this cost arises. [4] XS supply is 360 bags….x $80 = $28,800

(vii) Calculate the change in consumer spending on corn due to the minimum price. [3] Initial spending is $50 x 400 = $20,000 and then $80 x 160 = $12,800 so diff is $7,200

(viii) Calculate remaining consumer surplus after the minimum price. [4] Pint of D-curve is $100, CS is ((100-80) x 160) /2 = $1,600

Question 2. (a) Table 1 below gives figures for various macro indicators in an economy. Use the figures to answer the questions below. (This table will be used for all questions in (a) and will be at the top of each following page.)

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Year

GDP nominal (billions)

Property income from

abroad (billions)

Property income paid

abroad (billions)

GDP deflator

Population (million)

Labour force (millions) Unemployed

2002 $20 bn $4 bn $3 bn 110 20 11 700,000

2003 $21 bn $4 bn $4 bn 115 20.2 11.5 650,000

2004 $23 bn $5 bn $6 bn 125 20.5 11.8 680,000

2005 $22 bn $6 bn $8 bn 120 21 12 710,000

(i) Calculate real GDP for 2004. [2] 23 bn / 1.25 = 18.4 bn

(ii) Calculate nominal GDP per capita for 2005 [2] 22 bn / 21 mn = $1,047.6

(iii) Calculate real GDP per capita for 2003 [2] (21 bn / 1.15) / 20.2 mn = $904

(iv) Calculate nominal and real GNP per capita for the year 2002. [4] Nom: (20 bn + 4 bn – 3 bn) / 20 mn = $1050 Real: ((20 bn + 4 bn – 3 bn) / 1.1) / 20 mn = $954.5

(v) Explain, using calculations to support your answer, what is happening to the rate of inflation over the years 2002 to 205. [4]

Infl: ’02 – ’03 = 4.54% ’03 – ’04 = 8.7% ’04 – ’05 = -4%...thus rising rate and then defl.

(b) Use the data in the table to answer the questions.

Economy

Initial GDP before fiscal policy

(billions) Increase in govt

spending (billions)

Final GDP after expansionary fiscal policy

(billions)

Ausland 55 $2 bn $57.5 bn

Utland 250 $? bn $300 bn

Homeland 450 $23 bn $?? bn

(i) Calculate the value of the Keynesian multiplier for Ausland. [2] ΔG is 2 and ΔY is 2.5; thus k = 1.25

(ii) Calculate the marginal propensity to consume (MPC) for Ausland. [2] k = 1 / 1-MPC, thus 1.25 = 1 / (1 – MPC); MPC = 0.2

(iii) Utland has a MPC of 0.3. How large was the increase in government spending (‘?’ in Table 2)? [3]

k = 1/0.7; 1.429 – which means ΔG x 1.429 = 50 bn…so ΔG = 35 bn(iv) Homeland has a marginal propensity to leak (MPL) of 0.9. What will final GDP

be (‘??’ in Table 2) after the increased government spending of $23 billion? [4] 1/0.9 = 1.111…thus 23 x 1.1111 = 25.555 bn….so final Y = 475.555 bn

Question 3. (a) Diagram 1 below shows the cost curves for a competitive market firm. Refer to the values in the diagram and answer the questions below.

AFC

AVC

4

400

P, cost ($)

7

800

6

Q/week

8

1,6001,400

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(i) Calculate total fixed costs and explain your answer. [3] $4 x 400 or $2 x 800 = $1,600

(ii) Calculate AFC at a quantity of 1,600 units. [2] $1,600 / 1,600 = $1

(iii) Calculate ATC at a quantity of 1,400 units. [2] $1,600 / 1,400 = $1.14….plus $8 = $9.14

(iv) What is the marginal cost (MC) of the 800th unit? Explain your answer. [2] $6 – since MC intercepts at AC min

(b) Table 3…(i) Fill in the missing values at ‘X’. [2]Quantity AFC AVC ATC

300 4 3 7

400 3 1 4

500 2.4 2.6 5

(ii) Calculate total profit at a quantity of 500 units assuming that MR = $7. [3] MR = P = AR…$7 – 5 = $2….times 500 units = $1,000

(iii) Would the firm be productively efficient at an output of 350 units? Explain your answer and refer to the data in Table 3. [3]

No since ATC is still falling at Q = 400. ATCmin is prod eff.

(c) Diagram 2 below illustrates a certain type of firm. Refer to the values in the diagram and answer the questions.

ATC

4

800

P, cost ($)

10.5

400

6

Q/week

MC

300 500

7.58.5

5.8

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(i) Calculate total profit assuming that the firm is profit-maximising. [2] ($10.5 – 6) x 300 = $1,350

(ii) The firm switches to maximising revenue. Calculate the new level of profit. [2] Revmax is where MR = 0, i.e. Q is 400 units. ($8.5 – 5.8) x 400 = $1,080

(iii) Calculate the PED for this operation, i.e. the PED value when the firm goes from profit-maximising to revenue-maximising. Explain why the PED value must be greater than one. [4]

ΔP -2/10.5 = -19% ΔQ +100/300 = +33.33% PED: 33.33/-19 = │1.75│ Expl: the change in price is moving along the elastic portion of the demand curve…towards

where PED = │1│.This is at a price of $8.5, a quantity of 400 units and where MR = 0.

ECONOMICS STANDARD LEVEL

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PAPER 1

1. (a) Carefully distinguish between public and merit goods and explain why both are examples of market failure. [10 marks]

Def and example of public using non-excludable and non-rivalrous, 2p Def and example of merit good, 1p Def/expl of market failure using MSC ≠ MSB, 2p Clear diagrams showing under-provision of public goods (MSC ˂ MSB) and under-

consumption of merit goods (MSB ˃ MPB), up to 6p Expl of above under-provision/consumption with reference to why the price mechanism

and individual choice fails to provide the goods, up to 4p (b) Evaluate the proposition that all goods produced in society are better produced by competitive markets than government provision. [15 marks]

Iteration of market successes in terms of the benefits of competition (lower prices…increased Q…innovation…resource all…etc), up to 6p

Iteration to the effect that markets are notoriously poor at producing merit goods, public goods…over producing de-merit goods…common access resource issues…etc, up to 6p

Good iteration on income distribution issues (equity and equality), up to 4p For using real world examples such as pollution, diminishing fish stocks…etc, up to 4p Max 10p for no answer – you MUST arrive at some form of conclusion, i.e. “…it seems

that it is simply impossible for certain goods to be supplied in societally optimal quantities…”

2. (a) World food prices have risen considerably in the past five years. Using one possible demand factor and one possible supply factor, explain why this price increase might have happened.

[10 marks] For clear use of D factor and link to real world examples - such as rising population - 2p For ditto use of S factor – bad harvests and drought – 2p Clear use of diag showing P increases, 4p Clear reference to diag and links to your real world S&D factors, up to 4p

(b) Evaluate methods governments could use to control the supply and prices of agricultural goods. [15 marks] For clear iteration of Pmax, subsidies, Pmin plus diags…etc, up to 6p For references to secondary outcomes…costs to govt…market distortions…re-

distribution effects…etc, up to 6p For clear evaluation such as winners and losers…effects on global markets…LDCs…

Doha Round issues…up to 6p

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1. (a) Explain how fiscal policies might be used to decrease unemployment in an economy. [10 marks]

Def of fiscal policies (ΔG and ΔT), 1p Def of U as percentage of TLF, 1p Clear ref to AD and effect of G and T, 2p Clear diag showing effects of fiscal policies, up to 4p Clear expl of how increased AD (D-side policies) stimulates ADL and thus affects the

level of U, up to 3p Good use of core terms such as cyclical U…expansionary policies…derived D for

labour…etc, up to 2p

(d) Discuss whether demand-side policies are more effective than supply-side policies in dealing with unemployment. [15 marks]

Clear def + use of examples + diag in D-side policies, up to 6p Clear ditto for S-side, up to 6p Clearly outlining ONE weakness of each (D-side issue of inflation…S-side issue of

inequality), up to 4p For using SOME form of “…it depends on the type of U…”, up to 2p For iteration of different views on the causes of U – the K vs mon/N-C debate, up to 6p Max 10 for not arriving at an answer – e.g. “…S-side policies are generally better at

addressing structural issues since…”

2. (a) Explain two ways in which inflation might arise and two methods which might be used to decrease the rate of inflation. [10 marks]

Def of infl, 1p D-pull infl plus diag, up to 3p Cost-push plus diag, up to 3p Using mon policies; expl plus clear link to AS-AD diag, up to 3p Fiscal pol; expl plus clear ling to diag, up to 3p Max 6 for not referring clearly to diag and the decrease in rate of infl (= disinflation)

(b) Other than the effects on inflation, evaluate other possible effects on the economy of methods used by governments and central banks to control inflation. [15 marks]

For explaining trade-offs such as infl ↔ U…Y ↔ infl…etc, up to 5p each – max 10p For evaluation of trade-offs such as using S-side policies to change LR inflation, winners

and losers of infl/disinflation, effects on govt budget of fiscal policies…etc, up to 5p

ECONOMICS STANDARD LEVEL PAPER 2

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Section A (micro) Question 1(a) (i) Define the term fixed exchange rate indicated in bold in the text. [2 marks]

P of one curr pegged to another (1p)…adjusted by r and OMO on forex market (1p)(ii) Define the term appreciation indicated in bold in the text. [2 marks] The value of one currency (i.e. the P) rises in terms of another curr (1p)…floating exchange

rate (1p) (b) Using a diagram, explain how “…the sudden appreciation of the Indian

rupee has decreased exporters’ profits…” (paragraph ③) [4 marks] Diag showing AS-AD and ↓AD due to higher Px, 2p Expl that appr of rupee means ↑Px → ↓X and Xrev…which is part of AD, 2p

(c) Using a diagram, explain why increased debt in Euro countries might cause a “…drop in the Euro…” (paragraph ④). [4 marks] Diag showing € and ↓D for €, 2p Expl that a “weak” economy does not attract FDI or portfolio inv → ↓D for €, 2p

…………OR………. That debt is associated with ↑G and poss increased infl → ↑ Px and thus lower D for €

(d) Using information from the text/data and your knowledge of economics,evaluate the extent to which a strong rupee (paragraph ⑥) and low growth in Euro countries (paragraph ⑦) will have negative effects on the Indian economy. [8 mark Neg effects (up to 5p for clear iteration):

o Strong rupee → Px↑…etc o Low ΔY in €-land → ↓Dm → ↓D Indian X…etc

Eval (“maybe not so negative”), up to 4p: o M-L and/or J-curve issues o Indian firms see ↓cost of imported FoPs

Well used AS-AD diag for India, up to 2p Max 6p for no ref to data!

Question 2 (a) (i) Define the term trade barriers indicated in bold in the text. [2 marks]

Any govt action that ↑ratio of Pm relative to Pm (1p) for example taxes on M…etc (1p) (ii) Define the term subsidies indicated in bold in the text. [2 marks] Gift/grant of money to firms (1p) lowering production costs (1p)…OR…incentivising

firms to produce (1p) (b) Using a diagram, explain how subsidies in the US affect US

imports (paragraph ⑤). [4 marks] Diag showing Sw and Sdom, shifting Sdom to the right (1p) and decreasing imports (1p) Expl that the subsidies lower domestic producers’ costs (1p) and thus increase supply –

which lowers imports (1p)

(c) Using a diagram, explain why subsidies in the EU decrease aggregate demand in India. [4 marks] Diag showing ↓AD in India, 2p ….OR…diag showing S&D for exports in India and decreased Dx, 2p Expl that subsidies ↓US and EU imports → ↓X from India and that since X are part of

AD…2p (d) Using information from the text/data and your knowledge of economics,

evaluate the effects of EU trade barriers on stakeholders in the EU. [8 marks] Clear use of diag well referred-to, up to 3p

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Effects on stakeholders, up to 2p each, max 4p o Consumers might pay more o Poss govt tax rev o Costs of subsidies to govt + opp costs o Loss of choice o Domestic firms gain…o Positive effects on AD, Y and U

Evaluation, up to 4po Poss LR effects (reciprocal BTT…inefficiency…etc) o Winners/losers (domestic EU firms win…importers lose…) o Poss that EU imports have low PED o Subsidies actually do NOT affect CS o Efficiency losses… cost of subsidies…

Max 6p for no ref to data! Section B (macro) Question 3

(a) (i) Define the term globalization indicated in bold in the text. [2 marks] This gets hazy but “…increased interconnectivity between nations…increased trade in

goods and services….often via MNCs that produce in one country and sell in another…” (ii) Define the term import substitution indicated in bold in the text. [2 marks] Using BTT to decrease M (1p) and divert demand towards domestic firms and production

(1p) (b) Using a diagram, explain the effects on an LDC of tariff reduction in

more developed countries (paragraph ④). [4 marks] Diag showing AS-AD for LDCs, increased AD due to ↑X, 2p Expl that lower tariffs in MDCs means ↑M in MDCs…increased X from LDCs…which

are a component of AD…so AD and Y increase, 2p (c) Using a diagram, explain why more developed countries might see

increased aggregate supply (AS) as a result of having lower cost imports of primary goods from LDCs. [4 marks] Diag showing ↑AS, 2p…. …OR…diag showing S&D for imports and ↑Sm, 2p Expl that lower prices on imported FoPs lower production costs (1p) and thus increase

AS (1p)

(d) Using information from the text/data and your knowledge of economics,evaluate the use of export oriented growth as a method of economic development. [8 marks] Def of X orientation (1p), development (1p) plus use of examples (1p) Clear use of how X are linked to AD…Y…growth..U..etc, up to 3p For reference to “successes and failures” (e.g. the empiricism argument) of X orientation,

up to 3p For reference to inward-orientation (M subst) and valid real world examples, up to 3p Max 6p for no ref to data!

Question 4

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(a) (i) Define the term development indicated in bold in the text. [2 marks] Increase in SoL (1p) as defined/measured by HDI or other index (1p) (ii) Define the term foreign direct investment indicated in bold in

the text. [2 marks] Increase in fixed capital (1p) from funds flowing in from abroad (1p)…OR…the building

of factories/sales outlets using monies flowing in from abroad (b) Explain how FDI can increase GDP and growth in LDC. [4 marks]

For clearly linking investment to AD (1p) and explanation that this increases Y (1p) and thus affects the rate of growth (2p)

(c) Using a PPF, explain how climate change and water scarcity affects LDCs’ long run economic development (paragraph ④). [4 marks] For fully labelled PPF shifting “inward”/left, 2p For expl that water scarcity will affect every single industry – not to mention the

sustainability of populations! – and thus will lead to a decrease in LR potential output and possible de facto output, 2p

(d) Using information from the text/data and your knowledge of economics,evaluate the use of trade vs. aid as development strategies. [8 marks] Outline of trade as part of AD and examples of aid stimulating an economy, up to 2p Expl + examples of countries that focused on trade and saw growth (e.g. Asian Tigers),

up to 2p Expl + ex’s…aid monies accounting for huge proportions of GDP or G in the HIPC’s, up

to 2p Evaluation – up to 4p in total:

o Aid mostly SR and does not really deal with structural issues, 2p o Aid can lead to dependency, 2p o Aid monies dry up in bad times, uncertain in LR, 2p o Trade has been shown empirically to have benefits to growth and dev, 2p o Open economies can lead to U in LDCs as MDCs enter the market, 2p

Max 6p for no ref to data!

Grade boundaries 1 2 3 4 5 6 7HL P1 0- 5 6 - 10 11 - 17 18 - 24 25 – 30 31 - 37 38 – 50

1 2 3 4 5 6 7HL P2 0- 5 6 - 10 11 - 15 16 - 20 21 – 24 25 - 29 30 – 40

1 2 3 4 5 6 7HL P3 0- 8 9 - 16 17 - 21 22 - 28 29 – 35 35 - 41 42 – 50