Define the term concessional long-term loans indicated in bold in the text (paragraph [2]).

Define the term real gross domestic product (GDP) indicated in bold in the text (paragraph [2]).

Explain two possible disadvantages for Bhutan in receiving India’s tied aid (paragraph [3]).

Using a production possibilities curve (PPC) diagram, explain how rising numbers of university graduates will affect Bhutan’s potential output (paragraph [5]).

Using information from the text/data and your knowledge of economics, evaluate the government policies being used to promote economic development in Bhutan.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

For a PPC diagram, there must be two goods or groups of goods competing for the same resources on the axes. Good X and Good Y are appropriate, but simply X and Y are not sufficient.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Do not award beyond level 2 if the answer does not contain reference to the information provided.

Command term
“Evaluate” requires candidates to make an appraisal by weighing up the strengths and limitations. Opinions and conclusions should be presented clearly and supported with appropriate evidence and sound argument.

Responses may include:

• definition of economic development
• definition of any of the government policies mentioned in the discussion (interventionist supply-side policies, diversification, deregulation, etc).

Strengths of policies:

• may reduce market failure through the provision of hydroelectricity (paragraph [1])
• increased power supplies (paragraph [4])
• exploiting hydropower generates government revenue (paragraph [4])
• increasing export revenue, helping to achieve high GDP growth rates of 11.7 % (paragraph [4])
• number of university graduates is growing each year, supporting an increase in quality of labour (paragraph [5])
• creation of government jobs reduces unemployment (paragraph [5])
• government is promoting tourism which may diversify the economy away from over-reliance on hydroelectricity (paragraph [6])
• potential growth of private sector with more graduates (paragraph [6])
• promotion of tourism as an alternative to government employment (paragraph [6])
• deregulation leading to increased FDI (paragraph [6])
• promotion of agriculture as an alternative to government employment (paragraph [6]).

Limitations of policies:

• overdependence on India for funding, creating a significant government debt, 118 % of real GDP (paragraph [2])
• high debt means burden to future generations (paragraph [2])
• overdependence on tied aid and Indian companies leading the work (paragraph [3])
• the provision of government jobs may lead to crowding out in the private sector (paragraph [6])
• returns on investment in human capital may be muted if graduates leave the country due to the lack of employment opportunities (paragraph [5])
• emphasis on agriculture may result in limited growth opportunities for exports in the future, because in competition with many other economies and low income elasticities of demand for primary products.

To reach level 3, students must clearly link their arguments to specific government policies undertaken by the government of Bhutan.

Few candidates provided two meaningful points to reach level 2. Many defined this concept as tied aid.

On the other hand, most candidates could define this term accurately. Some, however, failed to make the connection to the adjustment for inflation and simply defined GDP.

Most candidates were able to identify two disadvantages of tied aid for Bhutan, but a significant number merely described the disadvantages of receiving any form of aid and/or loans- indebtedness and dependency were two common disadvantages identified but those are not specific to TIED aid.

The majority of candidates scored 2 marks for the explanation. Similar questions appeared in past papers and often, candidates could not link the increase in potential output to changesin quantity and/or quality of resources. This was less of a problem in this exam session. PPC curves were often drawn/shifted correctly, the appropriate labelling of axes was the only recurrent problem – we had a lot of “Real GDP”, “Price Level” and “number of university graduates” as labels.

“Evaluate” requires candidates to make an appraisal by weighing up the strengths and limitations. Opinions or conclusions should be presented clearly and supported by appropriate evidence.

Higher achieving responses could establish a clear link between specific policies and economic development – for example, explaining how the promotion of jobs in agriculture could lead to more citizens of Bhutan earning an income or leaving the informal sector. In particular, to achieve a level 3 mark, candidates should critically evaluate the contribution of the policy to economic development. In this case, one could point out that overreliance on the agricultural sector is a common problem of economically less developed countries. A rare few recognised that many of the policies were growth oriented.

It was encouraging that most answers reflected a good understanding of economic development. However, many struggled to add value to what was already in the text and connect the policies to development.