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Cambridge International Examinations Cambridge International General Certificate of Secondary Education

ECONOMICS 0455/11

Paper 1 Multiple Choice May/June 2014

45 minutes

Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended)

READ THESE INSTRUCTIONS FIRST

Write in soft pencil.

Do not use staples, paper clips, glue or correction fluid.

Write your name, Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you.

DO NOT WRITE IN ANY BARCODES.

There are thirty questions on this paper. Answer all questions. For each question there are four possible answers A, B, C and D.

Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet.

Read the instructions on the Answer Sheet very carefully.

Each correct answer will score one mark. A mark will not be deducted for a wrong answer.

Any rough working should be done in this booklet.

2

© UCLES 2014 0455/11/M/J/14

1 A power station was built to provide electricity to rural villages in Namibia.

What was its opportunity cost?

A the cost of producing the electricity

B the school which could have been built instead

C the time given up by the architect to design the power station

D the wages of the workers who built the power station 2 Using all available resources, an economy produces different combinations of two types of

goods, clothes and food, shown by the production possibility curve (PPC) below.

O 50 units

100 units

clothes

food

What does the PPC indicate?

A It is more efficient to produce more of clothes than food.

B It is only possible to increase the output of clothes by reducing the output of food.

C The best situation is to produce equal units of clothes and food.

D The cost of producing a unit of clothes is always higher than that of food. 3 What is most likely to reduce the supply of factors of production in an economy?

A increasing the age of retirement

B introducing new methods of irrigation

C lowering the cost of borrowing from banks

D raising the rate of tax on profits

3

© UCLES 2014 0455/11/M/J/14 [Turn over

4 The government of a developed country subsidises local private businesses, and encourages large foreign companies to locate in the country.

Which type of economic system is this?

A free market

B mixed

C planned

D subsistence 5 What would cause a movement down the demand curve for cars?

A a fall in the price of cars

B a fall in the price of petrol

C a rise in the price of car insurance

D a rise in the price of public transport 6 An area attracts tourists to see rare animals but the tourists have few hotels in which to stay. The

local government has given permission for a developer to build a hotel. Conservationists say that the area will be ruined as the animals will move away and the nature of the area will be changed.

What is likely to happen as a result of this decision to the private benefit of the tourists and the external cost?

private benefit external cost

A increase increase

B decrease decrease

C uncertain increase

D uncertain decrease

7 Russia is the world’s third largest exporter of grain but much of the country’s farmland was

damaged by fire in 2010.

How would this be represented on demand and supply diagrams for the Russian grain market and for a country importing Russian grain?

Russian grain market market for Russian grain in the importing country

A demand curve shifts to the left demand curve shifts to the right

B demand curve shifts to the right supply curve shifts to the right

C supply curve shifts to the left supply curve shifts to the left

D supply curve shifts to the right demand curve shifts to the left

4

© UCLES 2014 0455/11/M/J/14

8 What may cause an individual to save a higher proportion of their income?

A a belief that the price of goods will rise in the future

B a fall in the rate of interest paid by the country’s banks

C a fear that income will fall in the future

D a rise in the individual’s wish to enjoy higher consumption immediately 9 Why are unskilled workers paid less than skilled workers?

A There is a higher demand for unskilled labour than skilled labour.

B There is a larger supply of unskilled labour than skilled labour.

C Unskilled labour belong to trade unions.

D Unskilled labour is more productive than skilled labour. 10 Between 2009 and 2010 the number of potential jobs for qualified law students fell by 16%.

During the same period the total number of applicants for places on law courses increased.

What is the most likely explanation for this?

A an economic recession and an increase in general unemployment

B an increase in crime rates and the possibility of high salaries in the legal profession

C an increase in the retirement age for existing lawyers and an increase in law course fees

D the merger of law firms and the closure of law courses 11 A trade union is negotiating a wage rise for its members.

What will increase the chance of the wage rise being granted?

A The company’s product has many substitutes.

B The economy is entering a period of recession.

C The government has made strike action illegal.

D Wages are a small part of the company’s costs. 12 Which type of economy of scale results from a firm producing a diverse range of products?

A buying

B financial

C risk bearing

D technical

5


13 A market changes from perfect competition to monopoly.

What is likely to happen in this market?

barriers to

entry economies

of scale the size of

the firm

A decrease decrease increase

B decrease increase decrease

C increase decrease decrease

D increase increase increase

14 The diagram shows the fixed costs, variable costs and total costs of a firm.

P

Q

R

S

costs

outputO

Which distance represents the firm’s fixed costs?

A PS B QR C QS D RS 15 When it produces 100 units, a firm’s total variable cost is $300 and its total fixed cost is $2700.

What is the average cost?

A $3 B $24 C $27 D $30 16 Which are two aims that a Government normally pursues when managing the performance of the

whole economy?

A to encourage an increase in production and to prevent high inflation

B to ensure no one is unemployed and to reduce exports

C to give everyone equal incomes and to increase government revenues

D to protect the environment and to reduce interest rates

6

© UCLES 2014 0455/11/M/J/14

17 The Mexican government has passed a law which prevents any monopoly charging a price significantly above its production costs. Any monopoly that breaks the law is fined.

Which type of policy measure is this?

A minimum price

B regulation

C subsidy

D tax 18 Governments aim to encourage stable prices because inflation can result in a current account

deficit on the balance of payments.

How does high inflation contribute to a current account deficit?

A Countries have to barter manufactured goods for raw materials.

B Goods manufactured for export lose their competitiveness.

C Numbers of foreign visitors increase.

D Spending on imported goods is reduced. 19 A government collects the following revenue in a year.

$m

taxes on goods 30

taxes on income 500

taxes on services 20

customs and excise duties 50

What is the amount of indirect tax revenue?

A $30 m B $70 m C $100 m D $500 m 20 What is the definition of inflation?

A an increase in demand

B an increase in output

C an increase in the general price level

D an increase in wages

7


21 It was reported in 2011 that an economy had negative economic growth for six months in a row.

What would be evidence for such a situation?

A an increase in GDP

B an increase in profit levels

C an increase in the level of unemployment

D an increase in the standard of living 22 The diagram shows the rate of unemployment and the periods of recession in Britain between

1978 and 2012.

12

10

8

6

4

2

0

Britain’sunemploymentrate %

1980 1990 2000 2010

keyrecession years

What can be concluded from the diagram?

A Each recession lasted for more than two years.

B Recessions occurred at regular intervals.

C The unemployment rate peaked in a recession period.

D The unemployment rate rose during recession periods. 23 In which case is success for the government in achieving the first aim likely to cause problems in

achieving the second?

first aim second aim

A full employment price stability

B high economic growth full employment

C price stability stable balance of payments

D stable balance of payments more even distribution of income

8

© UCLES 2014 0455/11/M/J/14

24 Which statement about poverty is correct?

A Absolute poverty occurs when income falls below what is needed for survival.

B An advanced economy is likely to have a higher level of absolute poverty than relative poverty.

C It is impossible for relative poverty to rise as absolute poverty falls.

D Relative poverty measures the same goods and services in all countries. 25 Developing countries often wish to prevent the population in rural areas moving to the towns.

Investment grants are given to companies if they set up their businesses in rural areas.

What is this policy intended to achieve?

A decreased transport costs

B decreased external cost

C increased economies of scale

D increased use of labour 26 The table shows data collected in 2010 for the average number of children a woman gave birth to

and the education she received during her lifetime.

education received average number

of children

none 4.5

primary school level 3.0

secondary school level 2.0

university level 1.7

What can be concluded from this information?

A Average fertility was 2.8 in 2010.

B Most girls do not go to school.

C Providing more education for girls would reduce fertility rates.

D There is no relationship between education and fertility rates.

9


27 The table gives information about four countries.

Which country has the lowest standard of living?

life

expectancy

GDP per head (US $)

% of labour force in

agriculture

A 48 120 80

B 48 250 70

C 54 350 75

D 60 380 60

28 The Sri Lankan government decides to offer financial support to local firms.

Of what is this an example?

A a quota

B a subsidy

C a tariff

D exchange control 29 In 2012 the UK held the Olympic Games which attracted a large number of visitors from foreign

countries.

Which item of the UK’s current account balance will have benefitted directly from this event?

A export trade in goods

B export trade in services

C import trade in goods

D import trade in services

10

© UCLES 2014 0455/11/M/J/14

30 Countries in Europe were in a recession in 2012. Usually a recession would mean oil prices fall. In fact in 2012, oil prices rose.

Which international events might have explained these changes?

possible causes of an oil price fall in the recession

possible causes of an oil price rise in 2012

A European industrial production declined

China increased its car production

B India invested huge amounts in road building

Japan’s economy had negative growth

C Middle East conflicts made oil supplies uncertain

Saudi Arabia increased oil production

D new oil exploration in Poland was successful

demand for alternative fuels increased

11

© UCLES 2014 0455/11/M/J/14

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12

Copyright Acknowledgements:

Question 22

Question 30

© The Office for National Statistics; 2012; Open Government Licence.

© Telegraph Business; Telegraph Media Group Ltd; 5 March 2012.

Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity.

Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.

© UCLES 2014 0455/11/M/J/14

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ECONOMICS 0455/12


45 minutes












2

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1 What is the cause of economic scarcity?

A limited wants with limited resources

B limited wants with unlimited resources

C unlimited wants with limited resources

D unlimited wants with unlimited resources 2 How is an immediate effect of an increase in unemployment illustrated on a production possibility

curve diagram?

A a movement of the production point closer to the curve

B a movement of the production point further inside the curve

C a shift of the production possibility curve inwards

D a shift of the production possibility curve outwards 3 What is a factor of production?

A a semi-skilled, young worker

B direct taxes received by a government

C shares in a manufacturing company

D stocks of money held a bank 4 A supply curve shows the link between the quantity supplied and

A demand.

B equilibrium output.

C the price of the product.

D the scale of production. 5 Which headline could apply to a mixed economy but not a free market economy?

A ‘Cheap imports put domestic producers out of business.’

B ‘Local government planning decision angers residents.’

C ‘Many fish die as a company pollutes a river with waste material.’

D ‘Small shops close as large supermarkets open in the area.’

3


6 In 2012 the local government of a city decided to increase parking charges for motorists. It was intended to raise money to correct a deficit in the local government’s budget. The local government said if they did not increase charges they would not be able to provide all their current services. Businesses complained about the likely loss of revenue if parking charges were increased.

Which concepts does this statement involve?

A inflation and the private sector

B opportunity cost and public expenditure

C private benefit and the free market

D unlimited resources and a centrally planned economy 7 In 2011 the US Government declared that the country must increase the manufacture of fuel from

crops such as corn that have previously only been used for food.

What is likely to happen in the market for corn?

A a movement along the demand curve for corn

B a movement along the supply curve for corn

C a shift to the left in the demand curve for corn

D a shift to the left in the supply curve for corn 8 What may cause an individual to save a higher proportion of their income?




D a rise in the individual’s wish to enjoy higher consumption immediately 9 In a particular industry, male workers on average are paid more than female workers.

What might explain this?

A Female workers are less likely to take time off work.

B Female workers are more likely to be in trade unions.

C Male workers have higher qualifications.

D Male workers live nearer to their place of work.

4

© UCLES 2014 0455/12/M/J/14

10 In South Africa, the rate of consumer spending is relatively high compared with other developing countries. However, the unemployment rate is high at 25% and only 27% of students complete the 12 years of basic education.

As a result, what is also likely to be found in South Africa?

A a high average standard of living

B a high current rate of savings

C a high level of debt among consumers

D a high supply of skilled workers 11 A trade union is negotiating a wage rise for its members.





D Wages are a small part of the company’s costs. 12 When a shoe manufacturer doubles all factors of production output more than doubles.

Which economic concept does this illustrate?

A diseconomies of scale

B economies of scale

C increasing profits

D opportunity cost 13 Which market conditions apply to firms that operate in perfect competition and which to a

monopoly?

perfect competition monopoly

A demand influenced by advertising demand not influenced by advertising

B many barriers to entry no barriers to entry

C no influence on price strong influence on price

D sales of branded products sales of unique products

5


14 The diagram shows the fixed costs, variable costs and total costs of a firm.

P

Q

R

S

costs

outputO


A PS B QR C QS D RS 15 When it produces 100 units, a firm’s total variable cost is $300 and its total fixed cost is $2700.


A $3 B $24 C $27 D $30 16 Which policy is an example of an expansionary monetary policy?

A lower interest rates

B lower money supply growth

C lower public sector spending

D lower taxation 17 What is not a public sector expenditure?

A claims paid on travel insurance for cancelled flights

B collections of rubbish by a local council to meet regulations on recycling waste

C grants from central funds to compensate people whose property has been damaged by storms

D the establishment of a national database to assist the police in finding criminals 18 Which pair of government actions combines a fiscal policy with a supply-side policy?

A changing government spending with changing interest rates

B cutting tax rates with providing information on job vacancies

C limiting bank lending with the privatisation of industry

D restricting credit with less control over labour markets

6

© UCLES 2014 0455/12/M/J/14

19 A government collects the following revenue in a year.

$m

taxes on goods 30

taxes on income 500




A $30 m B $70 m C $100 m D $500 m 20 Which type of unemployment occurs when the total demand for goods and services in the

economy falls?

A cyclical

B frictional

C seasonal

D structural 21 Why is the Human Development Index (HDI) often considered to be better than GDP per head as

a measure of living standards?

A GDP per head excludes economic growth.

B GDP per head ignores population growth.

C HDI includes more than the production of goods and services.

D HDI is calculated by the national government. 22 In 2013 there was a period of low interest rates and high inflation in an economy.

Who would be most likely to benefit and who most likely to lose during such a period?

benefit lose

A borrowers savers

B consumers on fixed incomes firms wishing to invest

C credit card companies sellers of luxury goods

D exporters banks

7


23 In which case is success for the government in achieving the first aim likely to cause problems in achieving the second?






24 Which combination of influences must have occurred for a population to be falling when there is

no migration?

birth rate death rate fertility rate

A falling falling falling

B falling rising falling

C falling rising rising

D rising falling falling

25 Developing countries often wish to prevent the population in rural areas moving to the towns.






D increased use of labour 26 Increasing numbers of qualified medical workers from developing economies migrate to

developed economies.

What explains this migration?

A There are better working conditions in hospitals and clinics in developed economies.

B There are fewer patients requiring medical treatment in developing countries.

C There is a lack of training opportunities for medical staff in developed economies.

D There is an oversupply of qualified medical workers in developing countries.

8

© UCLES 2014 0455/12/M/J/14



life

expectancy

GDP per head (US $)


agriculture

A 48 120 80

B 48 250 70

C 54 350 75

D 60 380 60

28 The citizens of a country which avoids international trade may benefit from

A an increase in specialisation.

B better political and cultural ties.

C competitive pressure to improve the quality of goods.

D more employment in their industries. 29 In 2012, Nokia, a mobile phone manufacturer, produced 18% of Finland’s exports.

Why might this be undesirable for Finland?

A Foreign demand for mobile phone firms may grow continuously.

B Nokia may introduce new technology which raises total costs by less than output.

C There may be a reduction in trade restrictions on mobile phones.

D There may be an industrial dispute at Nokia.

9

© UCLES 2014 0455/12/M/J/14

30 The table shows the values of the items in a country’s current account in two years.

item year 1 ($m)

year 2 ($m)

balance of goods and services –30 0

net income –30 –20

net transfers ? ?

balance of current account –50 +10

How did the value of the net transfers change between year 1 and year 2?

A decreased by $10m

B decreased by $20m

C increased by $20m

D increased by $30m

10

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ECONOMICS 0455/13


45 minutes












2

© UCLES 2014 0455/13/M/J/14

1 The government of a developed country subsidises local private businesses, and encourages large foreign companies to locate in the country.

Which type of economic system is this?

A free market

B mixed

C planned

D subsistence 2 What is most likely to reduce the supply of factors of production in an economy?

A increasing the age of retirement

B introducing new methods of irrigation

C lowering the cost of borrowing from banks

D raising the rate of tax on profits 3 Using all available resources, an economy produces different combinations of two types of

goods, clothes and food, shown by the production possibility curve (PPC) below.

O 50 units

100 units

clothes

food

What does the PPC indicate?

A It is more efficient to produce more of clothes than food.

B It is only possible to increase the output of clothes by reducing the output of food.

C The best situation is to produce equal units of clothes and food.

D The cost of producing a unit of clothes is always higher than that of food.

3


4 A power station was built to provide electricity to rural villages in Namibia.

What was its opportunity cost?

A the cost of producing the electricity

B the school which could have been built instead

C the time given up by the architect to design the power station

D the wages of the workers who built the power station 5 Russia is the world’s third largest exporter of grain but much of the country’s farmland was

damaged by fire in 2010.

How would this be represented on demand and supply diagrams for the Russian grain market and for a country importing Russian grain?

Russian grain market market for Russian grain in the importing country

A demand curve shifts to the left demand curve shifts to the right

B demand curve shifts to the right supply curve shifts to the right

C supply curve shifts to the left supply curve shifts to the left

D supply curve shifts to the right demand curve shifts to the left

6 An area attracts tourists to see rare animals but the tourists have few hotels in which to stay. The

local government has given permission for a developer to build a hotel. Conservationists say that the area will be ruined as the animals will move away and the nature of the area will be changed.

What is likely to happen as a result of this decision to the private benefit of the tourists and the external cost?

private benefit external cost

A increase increase

B decrease decrease

C uncertain increase

D uncertain decrease

7 What would cause a movement down the demand curve for cars?

A a fall in the price of cars

B a fall in the price of petrol

C a rise in the price of car insurance

D a rise in the price of public transport

4

© UCLES 2014 0455/13/M/J/14

8 When it produces 100 units, a firm’s total variable cost is $300 and its total fixed cost is $2700.


A $3 B $24 C $27 D $30 9 The diagram shows the fixed costs, variable costs and total costs of a firm.

P

Q

R

S

costs

outputO


A PS B QR C QS D RS 10 A market changes from perfect competition to monopoly.

What is likely to happen in this market?

barriers to

entry economies

of scale the size of

the firm

A decrease decrease increase

B decrease increase decrease

C increase decrease decrease

D increase increase increase

11 Which type of economy of scale results from a firm producing a diverse range of products?

A buying

B financial

C risk bearing

D technical

5


12 A trade union is negotiating a wage rise for its members.





D Wages are a small part of the company’s costs. 13 Between 2009 and 2010 the number of potential jobs for qualified law students fell by 16%.

During the same period the total number of applicants for places on law courses increased.

What is the most likely explanation for this?

A an economic recession and an increase in general unemployment

B an increase in crime rates and the possibility of high salaries in the legal profession

C an increase in the retirement age for existing lawyers and an increase in law course fees

D the merger of law firms and the closure of law courses 14 Why are unskilled workers paid less than skilled workers?

A There is a higher demand for unskilled labour than skilled labour.

B There is a larger supply of unskilled labour than skilled labour.

C Unskilled labour belong to trade unions.

D Unskilled labour is more productive than skilled labour. 15 What may cause an individual to save a higher proportion of their income?




D a rise in the individual’s wish to enjoy higher consumption immediately 16 In which case is success for the government in achieving the first aim likely to cause problems in

achieving the second?






6

© UCLES 2014 0455/13/M/J/14

17 The diagram shows the rate of unemployment and the periods of recession in Britain between 1978 and 2012.

12

10

8

6

4

2

0

Britain’sunemploymentrate %

1980 1990 2000 2010

keyrecession years

What can be concluded from the diagram?

A Each recession lasted for more than two years.

B Recessions occurred at regular intervals.

C The unemployment rate peaked in a recession period.

D The unemployment rate rose during recession periods. 18 It was reported in 2011 that an economy had negative economic growth for six months in a row.

What would be evidence for such a situation?

A an increase in GDP

B an increase in profit levels

C an increase in the level of unemployment

D an increase in the standard of living 19 What is the definition of inflation?

A an increase in demand

B an increase in output

C an increase in the general price level

D an increase in wages

7


20 A government collects the following revenue in a year.

$m

taxes on goods 30

taxes on income 500




A $30 m B $70 m C $100 m D $500 m 21 Governments aim to encourage stable prices because inflation can result in a current account

deficit on the balance of payments.

How does high inflation contribute to a current account deficit?

A Countries have to barter manufactured goods for raw materials.

B Goods manufactured for export lose their competitiveness.

C Numbers of foreign visitors increase.

D Spending on imported goods is reduced. 22 The Mexican government has passed a law which prevents any monopoly charging a price

significantly above its production costs. Any monopoly that breaks the law is fined.

Which type of policy measure is this?

A minimum price

B regulation

C subsidy

D tax 23 Which are two aims that a Government normally pursues when managing the performance of the

whole economy?

A to encourage an increase in production and to prevent high inflation

B to ensure no one is unemployed and to reduce exports

C to give everyone equal incomes and to increase government revenues

D to protect the environment and to reduce interest rates

8

© UCLES 2014 0455/13/M/J/14

24 Countries in Europe were in a recession in 2012. Usually a recession would mean oil prices fall. In fact in 2012, oil prices rose.

Which international events might have explained these changes?

possible causes of an oil price fall in the recession

possible causes of an oil price rise in 2012

A European industrial production declined

China increased its car production

B India invested huge amounts in road building

Japan’s economy had negative growth

C Middle East conflicts made oil supplies uncertain

Saudi Arabia increased oil production

D new oil exploration in Poland was successful

demand for alternative fuels increased

25 In 2012 the UK held the Olympic Games which attracted a large number of visitors from foreign

countries.

Which item of the UK’s current account balance will have benefitted directly from this event?

A export trade in goods

B export trade in services

C import trade in goods

D import trade in services 26 The Sri Lankan government decides to offer financial support to local firms.

Of what is this an example?

A a quota

B a subsidy

C a tariff

D exchange control

9




life

expectancy

GDP per head (US $)


agriculture

A 48 120 80

B 48 250 70

C 54 350 75

D 60 380 60

28 The table shows data collected in 2010 for the average number of children a woman gave birth to

and the education she received during her lifetime.

education received average number

of children

none 4.5

primary school level 3.0

secondary school level 2.0

university level 1.7

What can be concluded from this information?

A Average fertility was 2.8 in 2010.

B Most girls do not go to school.

C Providing more education for girls would reduce fertility rates.

D There is no relationship between education and fertility rates. 29 Developing countries often wish to prevent the population in rural areas moving to the towns.






D increased use of labour

10

© UCLES 2014 0455/13/M/J/14

30 Which statement about poverty is correct?

A Absolute poverty occurs when income falls below what is needed for survival.

B An advanced economy is likely to have a higher level of absolute poverty than relative poverty.

C It is impossible for relative poverty to rise as absolute poverty falls.

D Relative poverty measures the same goods and services in all countries.

11

© UCLES 2014 0455/13/M/J/14

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12

Copyright Acknowledgements:

Question 17

Question 24

© The Office for National Statistics; 2012; Open Government Licence.

© Telegraph Business; Telegraph Media Group Ltd; 5 March 2012.



© UCLES 2014 0455/13/M/J/14

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This document consists of 5 printed pages, 3 blank pages and 1 insert.

DC (LK) 73094/3© UCLES 2014 [Turn over

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ECONOMICS 0455/21

Paper 2 Structured Questions May/June 2014

2 hours 15 minutes

No Additional Materials are required.


An answer booklet is provided inside this question paper. You should follow the instructions on the front cover

of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet.

Section A

Answer Question 1.

Section B

Answer any three questions.

The number of marks is given in brackets [ ] at the end of each question or part question.

Cambridge International ExaminationsCambridge International General Certificate of Secondary Education

2

0455/21/M/J/14© UCLES 2014

Section A

Answer this question.

1 A bright future for Mongolia?

Economists predict that the Asian economy of Mongolia will be the fastest growing economy between 2015 and 2020. In 2011, the country’s economic growth rate was 21%. The forecast annual growth rate for 2015 to 2020 is 24%.

The country is rich in a range of minerals including coal, copper, gold, silver and uranium. China purchases large quantities of these minerals. In 2011, there was a significant rise in the world demand for a range of minerals including copper. Some economists have pointed out that there are a number of risks attached to an economic boom caused by a rise in demand for minerals. One is the so-called ‘resources curse’. This refers to the disadvantage that can arise as natural resources are used. High international demand for minerals can push up the exchange rate and reduce the competitiveness of other industries. The extraction of minerals can also cause pollution. This is certainly the case in Mongolia. The capital city, Ulaanbaatar, is one of the most polluted cities in the world.

The Mongolian economy faces a number of other problems. Its inflation rate is relatively high, reaching 10.6% in 2011, driven up by increases in food prices and rises in government spending. Its unemployment rate, at 10% in the same year, was above that of some of its Asian neighbours. This led it to being placed relatively high in the region’s ‘misery index’. This index, developed by the American economist Arthur Okun, adds together the unemployment rate and the inflation rate. Table 1 shows the unemployment rate, misery index and the interest rate for a number of Asian economies.

Table 1: The unemployment rate, misery index and interest rate for selected Asian economies in 2011

CountryUnemployment rate

(%)

Misery index (%)(unemployment rate

+ inflation rate)Interest rate (%)

China 6.1 11.7 3.4

India 10.8 19.8 8.4

Japan 4.5 4.2 1.0

Malaysia 3.1 6.4 3.0

Mongolia 10.0 20.6 12.3

Nearly 40% of Mongolia’s population lives below the poverty line. However, with rising economic growth, income levels are increasing. Indeed, some economists are predicting that Mongolians will become very rich. Tax revenue will also rise, which will enable the government to increase its spending on, for instance, education. Higher spending on education will make it possible for children to spend more years in school.

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(a) Define ‘economic growth’. [3]

(b) Using information from the extract, explain why Mongolia’s Human Development Index value is likely to increase in the future. [2]

(c) Using information from the extract, draw a demand and supply diagram to show what is likely to have happened to the price of copper in 2011. [4]

(d) Explain why countries with high inflation rates tend to have higher interest rates than those with lower inflation rates. [3]

(e) Analyse whether the information in Table 1 supports the view that countries with high inflation rates have higher interest rates than those with lower inflation rates. [5]

(f) Discuss whether a rise in a country’s exchange rate will reduce its international competitiveness. [6]

(g) Using information from the extract, explain why the social costs of mining are higher than the private costs of mining in Mongolia. [2]

(h) Discuss whether a rise in incomes in a country will always increase tax revenue. [5]

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Section B

Answer any three questions from this section.

2 In 2012, the Indian Prime Minister announced that the Government was going to spend US$90 million on sending a spaceship to the planet Mars. Some economists argued that it would be better to use the factors of production, such as land and labour, to improve education or to build more roads.

(a) Describe two ways in which land is different from labour. [4]

(b) Explain the significance of opportunity cost for a government when making its spending decisions. [4]

(c) Using a production possibility curve diagram, analyse the impact of an increase in resources on an economy. [5]

(d) Discuss whether the building of more roads will benefit an economy. [7]

3 Many governments seek to discourage people from smoking cigarettes, whilst encouraging them to eat more fruit, including bananas and apples. The government’s ability to influence people’s consumption is determined, in part, by the price elasticity of supply and the price elasticity of demand of the products, and by changes in market conditions.

(a) Define ‘price elasticity of supply’. [2]

(b) Explain three reasons why the supply of bananas may decrease. [6]

(c) Analyse what effect a rise in the price of apples, which are a substitute for bananas, will have on the market for bananas. [4]

(d) Discuss whether a government should increase the tax on cigarettes. [8]

4 Co-operatives play a key role in the Kenyan economy, accounting for 43% of the country’s output. They operate in a number of industries, some of which come close to a monopoly and some of which are more competitive. There are many co-operative farms growing cotton. The Kenyan Government is seeking to develop a vertically integrated textile industry.

(a) Describe two characteristics of a co-operative. [4]

(b) Explain three ways in which monopoly differs from perfect competition. [6]

(c) Analyse the advantages of vertical integration. [4]

(d) Discuss what impact a rise in output is likely to have on a farmer’s profit. [6]

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5 Walmart, the US multinational retailer, is the world’s largest company. It allows its customers to pay for their purchases by cash and by using a variety of other forms of money. The company is the third largest employer in the world. Most of its workers do not belong to a trade union.

(a) Describe two influences on the amount people spend. [4]

(b) Explain why an item has to be generally acceptable and divisible for it to carry out the functions of money. [4]

(c) Explain two advantages of working for a large company. [4]

(d) Discuss whether a firm will benefit from encouraging its workers to join a trade union. [8]

6 Over time the determinants of population size, including the birth rate and the fertility rate, change. It is predicted that the world population will rise to 9 billion by 2050. Some countries, including Italy and Japan, however, are expected to experience a fall in population size. It is also predicted that average incomes will rise in most countries.

(a) Describe how the birth rate differs from the fertility rate. [4]

(b) Analyse how an increase in average incomes may influence a country’s population size. [6]

(c) Discuss whether a government should be concerned about a fall in the country’s population size. [10]

7 Algeria’s exports have been increasing in recent years. The country has experienced low inflation, in part, because of the fiscal and supply-side policy measures the government has introduced. In 2012, the Algerian Government stated its main objective was to reduce unemployment.

(a) Describe two reasons why a country’s exports may increase. [4]

(b) Explain why governments aim for low unemployment. [6]

(c) Discuss whether a government should increase or decrease taxes to reduce inflation. [10]



*0735718117*

ECONOMICS 0455/22


2 hours 15 minutes



An answer booklet is provided inside this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet.

Section AAnswer Question 1.

Section BAnswer any three questions.



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Section A


1 The challenges facing Angola

Angola is one of the fastest growing economies in the world and also one of the most specialised. It had an average annual growth rate of 11% between 2002 and 2012. In 2010, the country’s capital city, Luanda, was the most expensive capital city in the world. The average fare charged by the only taxi (cab) firm in the city was high at US$50, and a standard house cost more than US$1m to buy.

Oil production plays a key role in the economy. The country produces 1.9m barrels of oil a day and this is expected to double by 2020. There is the possibility that Angola could overtake Nigeria to become Africa’s largest oil producer. The oil industry accounts for most of the country’s output, provides 97% of its export revenue and 75% of government tax revenue.

Economists have expressed concern that the country is too dependent on oil. Sonangol, the state-owned oil enterprise, is seeking to diversify. It is already involved in banking and it also owns an airline and a football team. The government is trying to develop other industries. One of these is the diamond industry. World demand for diamonds increased in 2012.

The Angolan Government faces a number of challenges in promoting other industries. One of these is a lack of capital equipment in its manufacturing industries, and another is that much of its agriculture is in the form of subsistence farming.

The economy faces other problems and three of these are connected. They are a widening gap between the rich and the poor, a lack of education, and a rapidly growing population. Some people in the country are very rich but 35% of the population live in poverty. Half of the population have no access to health care, the infant mortality rate is one of the highest in the world, and life expectancy is one of the lowest. Most of the population only experience five years of education and a third of adults are illiterate. Between 2005 and 2010, the country had the eighteenth fastest growing population which might have influenced its level of average income – see Table 1.

Table 1: Population growth, Gross Domestic Product (GDP) and GDP per head in selected African countries in 2011

Country Population growth (annual % change)

GDP (US$bn) GDP per head (US$)

Angola 2.92 120 6000

Kenya 2.58 72 1800

Nigeria 2.50 420 2600

South Africa 0.96 562 11 100

Uganda 3.24 47 1300

3


In 2012, Angola was experiencing an overall unemployment rate of 26% and an unemployment rate of 50% among the young. The Angolan Government was considering cutting taxes to reduce unemployment.

(a) Why is the Angolan economy considered to be ‘specialised’? [2]

(b) Using information from the extract, explain why taxi (cab) fares were high in Luanda in 2010. [2]

(c) Using information from the extract, draw a demand and supply diagram to show what is likely to have happened to the price of diamonds in 2012. [4]

(d) Explain why countries with a high population growth rate may have a lower average income than countries with a lower population growth rate. [3]

(e) Analyse whether the information in Table 1 supports the view that countries with a high population growth rate have a lower average income than countries with a lower population growth rate. [4]

(f) Discuss whether an increase in a country’s GDP will reduce poverty in that country. [5] (g) Using information from the extract, explain two reasons why labour productivity is low in

Angola. [4]

(h) Discuss whether a cut in taxes will reduce unemployment. [6]

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Section B


2 A number of economies are devoting more of their resources to the provision of health care. Due to the economic problem, this involves them having to make difficult choices.

(a) What is meant by the ‘economic problem’? [2]

(b) Using a production possibility curve diagram, explain why choices have to be made as to how to allocate resources. [6]

(c) Explain how resources are allocated differently in market and mixed economic systems. [4]

(d) Discuss whether an economy would benefit from an increase in the provision of health care. [8]

3 Despite more cars being sold, world demand for bicycles is increasing. It has been estimated that the world price elasticity of demand for bicycles is –0.18 but this does vary between countries. The indirect taxes imposed on bicycles also differ between countries.

(a) Define ‘demand’. [2]

(b) Explain three likely causes of an increase in demand for bicycles. [6]

(c) Analyse why the demand for a product may be more price elastic in one country than in another country. [6]

(d) Discuss whether a government should impose indirect taxes only on products with inelastic demand. [6]

4 The number of people employed in the banking sector in Turkey is increasing. The sector consists of a number of commercial banks, some of which are growing in size, and the Central Bank of the Republic of Turkey.

(a) Describe two functions of a central bank. [4]

(b) Explain two types of internal economy of scale that a growing bank can enjoy. [4]

(c) Analyse how the spending pattern of high paid workers is likely to differ from the spending pattern of low paid workers. [4]

(d) Discuss whether workers employed in banking are likely to earn more than workers employed in agriculture. [8]

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5 A Zambian copper mine is operated by a foreign multinational company. The company’s main goal is profit maximisation. Its mine creates pollution in the area, which causes diseases and damages crops. Some economists have suggested that the economy would benefit from the mine being operated by the Zambian Government.

(a) Define a ‘multinational company’. [2]

(b) Explain one goal a multinational company may have other than profit maximisation. [3] (c) Explain why pollution is an example of market failure. [5]

(d) Discuss whether a mine operated by the government would be more likely to benefit an economy than one operated by a foreign multinational company. [10]

6 In 2012, Mexico’s monetary policy was successful in keeping the country’s inflation rate low and stable. Fiscal policy measures, including a rise in government spending, contributed to a relatively high economic growth rate of 3.5% and a reduction in the country’s unemployment rate.

(a) What is meant by ‘monetary policy’? [2]

(b) Explain two reasons why governments aim for low and stable inflation. [4]

(c) Analyse how an increase in government spending may cause economic growth. [6]

(d) Discuss whether a reduction in a country’s unemployment rate will always benefit an economy. [8]

7 In March 2012, the Indian Government increased the tariff on imports of gold. It did this to reduce the country’s growing deficit on the current account of its balance of payments.

(a) Describe how a tariff could reduce imports. [4]

(b) Analyse three causes of a current account deficit. [6]

(c) Discuss whether a government should always be concerned about a growing current account deficit. [10]



*5845259419*

ECONOMICS 0455/23


2 hours 15 minutes



An answer booklet is provided inside this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet.

Section AAnswer Question 1.

Section BAnswer any three questions.



2

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Section A


1 Challenges facing the Bahamas

The Bahamas is a relatively rich country in the West Indies, consisting of more than 700 islands. The country has a population of 350 000 and is experiencing a fall in its birth rate. The country has a high average income but in recent years it has experienced fluctuations in its Gross Domestic Product (GDP). These fluctuations have affected its employment rate (see Table 1).

Table 1: The economic growth rate and employment rate of the Bahamas 2007–2011

YearEconomic growth rate (annual % change in

GDP)

Employment rate (% of the labour force

in employment)

2007 2.8 92.1

2008 –1.5 91.3

2009 –5.4 85.8

2010 0.5 85.8

2011 2.0 86.3

A major reason why the economy experienced a recession in 2008 and 2009 was the downturn in the world economy. The Bahamas is very dependent on tourism. It accounts for 50% of the country’s output and employment. It is very reliant on one country: nearly 80% of the tourists coming into the country come from the United States (US).

The second most important industry in the Bahamas is financial services, particularly commercial banking and insurance. This industry accounts for 36% of the country’s output. In contrast to the tertiary sector, the primary and secondary sectors are less significant, contributing only 10% to the country’s output.

The government is keen to make the economy less specialised. It is seeking to increase the output of a number of other industries, including shipping and fishing. There is the potential for the shipping industry to grow. The country is already a popular destination for cruise ships and currently provides training for sailors. Fishing may be more challenging as fish stocks throughout the world were declining in 2012. The government is also exploring for oil but some economists have argued against exploiting any oil reserves it may find.

To ensure inflation remains low, and to reduce unemployment, the government has introduced a number of supply-side policy measures in recent years. These include privatisation. In 2011, in order to increase competition, the government started to sell Bahamas Telecommunications, a state-owned monopoly.

The government is also seeking to reduce the budget deficit, that is the gap between government spending and tax revenue. It is considering introducing new taxes, whilst possibly cutting unemployment benefit.

3


(a) Name two types of tax. [2]

(b) Using information from the extract, explain why the Bahamas would benefit from an increase in household incomes in the US. [2]

(c) Using information from the extract, draw a demand and supply diagram to show what is likely to have happened to the price of fish in 2012. [4]

(d) Explain why an increase in a country’s GDP is likely to reduce unemployment. [3]

(e) Analyse whether the information in Table 1 supports the view that an increase in GDP reduces unemployment and a decrease in GDP raises unemployment. [4]

(f) Discuss whether a fall in the birth rate will benefit an economy. [5]

(g) Explain how the two supply-side policy measures mentioned in the extract may reduce unemployment. [4]

(h) Discuss whether the Bahamas should exploit any oil reserves it may find. [6]

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Section B


2 In 2012, a few countries experienced a decrease in their factors of production, including labour and enterprise. New Zealand, however, experienced an increase in both the quantity and quality of its factors of production. In the same year, the country exported more agricultural and manufactured goods.

(a) What is the difference between labour and enterprise? [4]

(b) Explain why farmers should consider opportunity cost when deciding how to use their factors of production. [4]

(c) Using a production possibility curve diagram, analyse the effect of a decrease in the supply of labour and enterprise on an economy. [5]

(d) Discuss whether an increase in the quality of a country’s factors of production will always increase its exports. [7]

3 The equilibrium price of food has changed considerably in recent years. Whilst food in general has an inelastic demand, some types of food have elastic demand. To try to reduce food prices, some governments have introduced measures designed to shift the supply curve to the right.

(a) Describe what determines ‘equilibrium price’. [2]

(b) Explain two reasons why the supply curve of a product may shift to the right. [4]

(c) Analyse what effect a fall in price may have on a farmer’s profit. [6]

(d) Discuss whether the price of food is likely to increase in the future. [8]

4 Nollywood, the Nigerian film (movie) industry, is growing in size. More actors are being employed but their wages are currently still low. Wages and other costs of production may alter as the firms in the industry increase further in size. Consumers may also be affected by the growth in the size of the firms.

(a) Describe how fixed costs and variable costs are influenced by a rise in output. [2]

(b) Explain two reasons why someone may be prepared to work for a low wage. [4]

(c) Analyse two ways a bank can help a firm increase in size. [4]

(d) Discuss, using the Nigerian film (movie) industry as an example, whether consumers will benefit from larger firms. [10]

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5 In 2012, India’s price level was still rising, largely because of increases in the costs of production. However, there was a fall in the country’s rate of inflation. This reduction in the inflation rate led some economists to suggest that the rate of interest should be reduced. Other economists opposed this, arguing that inflation causes considerable problems for people.

(a) Explain what is meant by a fall in the rate of inflation. [2]

(b) Explain what can cause an increase in the costs of production. [3]

(c) Analyse why a reduction in the rate of interest may cause inflation. [6]

(d) Discuss whether inflation harms everyone in an economy. [9]

6 Living standards vary between countries. This is due, in part, to differences in productivity and the amount of foreign investment the countries can attract.

(a) Identify four characteristics of a developed country. [4]

(b) Explain two measures of living standards. [4]

(c) Analyse how a rise in productivity may increase living standards. [4]

(d) Discuss whether developed countries are likely to attract more foreign investment than developing countries. [8]

7 Between 2011 and 2012 Russia’s exchange rate was relatively constant. The country continued to have a surplus on the current account of its balance of payments. The main change in its international trade position arose from it joining the World Trade Organisation. In order to do this, the government agreed to move towards free trade.

(a) Describe what is meant by a current account surplus. [4]

(b) Analyse why a country’s exchange rate may rise in value. [6]

(c) Discuss whether engaging in free trade will always benefit an economy. [10]

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