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Date May 2019 Marks available 4 Reference code 19M.2.HL.TZ0.4
Level Higher level Paper Paper 2 Time zone Time zone 0
Command term Explain Question number 4 Adapted from N/A

Question

The World Bank reports on economic growth in Kenya

  1. The World Bank’s recent overview of Kenya has given a positive assessment of Kenya’s growth prospects, based on domestic and international factors. The East African nation of Kenya has a population of approximately 46.1 million, which increases by an estimated one million per year. The World Bank projected 5.9 % economic growth in 2016, rising to 6 % in 2017. This positive outlook is based on continued low oil prices, growth in the agricultural sector, expansionary monetary policy and ongoing infrastructure investments.

  2. The World Bank has identified other key contributing factors to Kenya’s short-term growth. These include an expanding services sector, higher levels of construction, currency stability, low inflation, a growing middle-class and rising incomes, a surge in remittances (money sent by a foreign worker to their home country) and increased public investment in energy and transportation.

  3. Tourism, information and communications and public administration are among the sectors that have registered the highest growth. Inflation has been at an average of 6.3 %, which is within the Kenyan central bank’s target range.

  4. The World Bank also predicted that, of 82 countries investigated, Kenya would have the highest long-term growth and that its real gross domestic product (GDP) in 2050 should be seven times larger than it is today. Fast population growth, a modest improvement in the business environment, urbanization and fast-growing neighbouring countries are all contributing factors to the positive prediction.

  5. While the growing Kenyan economy is creating more jobs now than in the past, these are mainly in the informal services sector and are low productivity jobs. 9 million young people will join the labour market in the next 10 years. Given the scarcity of formal sector jobs, they will continue to find jobs in the informal sector. These jobs are usually in very small businesses, often run from homes.

  6. The World Bank suggests that there is a need to increase the productivity of jobs in the informal sector. It says that this could be achieved by increasing work-related skills through training schemes, increasing communication and learning between formal and informal firms, and helping small-scale firms to become suppliers for firms in the formal sector. To create more and higher-skilled jobs, it is also essential to reduce the cost of doing business.

  7. According to the World Bank, Kenya has made significant structural and economic reforms that have contributed to sustained economic growth in the past decade. However, economic growth does not always mean economic development. The main development challenges facing Kenya include poverty, inequality, climate change, low commodity prices and the vulnerability of the economy to internal and external shocks.

[Source: adapted from The World Bank Country Overview, http://www.worldbank.org/en/country/kenya/overview,
7 March 2017; Kenya in 2050, The Economist Intelligence Unit, https://www.eiu.com/public/topical_report.
aspx?campaignid=ForecastingTo2050, 13 July 2017, data reused by permission of The Economist Intelligence Unit; and World
Bank economic updates, Kenya’s Economy Strong in a Challenging Global Environment, http://www.worldbank.org/en/country/
kenya/publication/kenya-economic-update-economy-strong-challenging-global-environment, March 2016.]

Define the term investment indicated in bold in the text (paragraph [2]).

[2]
a.i.

Define the term productivity indicated in bold in the text (paragraph [5]).

[2]
a.ii.

Using an AD/AS diagram, explain how expansionary monetary policy might lead to economic growth (paragraph [1]).

[4]
b.

Explain the difference between economic growth and economic development (paragraph [7]).

[4]
c.

Using information from the text/data and your knowledge of economics, discuss the extent to which continued economic growth may lead to economic development in Kenya.

[8]
d.

Markscheme

a.i.

a.ii.

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

For AD/AS, the vertical axis may be price level or average price level. The horizontal axis may be real output, real national output, real national income, real Y, or real GDP. A title is not necessary.

 

b.

Responses may include:

c.

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
“Discuss” requires candidates to offer a considered and balanced review that includes a range of arguments, factors, or hypotheses. Opinions or conclusions should be presented clearly and supported by appropriate evidence.

Responses may include:

Economic growth and economic development:

Any reasonable discussion.

To reach level 3, students must show awareness of the ways and to what extent (evaluating) economic growth may or may not lead to economic development – making a very clear link between the two (not just an analysis on economic growth or/and economic development). They must present a balanced evaluative approach on how growth might or might not impact on economic development.

d.

Examiners report

This was surprisingly badly answered, often phrased in uneconomic terms eg ''spending money in order to get a profit''.

a.i.

Again, surprisingly, weak definitions of this important economic term. The best that many candidates could come up with is that involves an increase in efficiency.

a.ii.

This question was well answered overall. Diagrams were generally accurate although a minority of students lost a mark by omitting 'real' when labelling GDP on the horizontal axis. Another limitation on some answers was a failure to explain why AD increased eg explaining the effect of falling interest rates on consumption and/or investment and therefore AD. A small minority failed link the above analysis to economic growth.

b.

Many students lost 1 mark when defining economic growth re: Real GDP by not including 'real'. Also, many students relied on definitions of the terms without making a distinction between the concepts.

c.

Many candidates did not answer this question directly. Some answers were largely generic in nature with minimal reference to the text. Much emphasis was placed on what may cause economic growth and many directed the question to the role of government in generating growth. This was not the question. The extent to which growth will or will not generate development was barely addressed in some cases. The result was that many of the answers were unbalanced at best or irrelevant at worst.

d.

Syllabus sections

Last exams 2021 » Section 2: Macroeconomics » 2.5 Monetary policy » The role of monetary policy » Monetary policy and short-term demand management
First exams 2022 » Unit 3: Macroeconomics » 3.3 Macroeconomic objectives » 3.3.1 Economic growth
Last exams 2021 » Section 2: Macroeconomics » 2.5 Monetary policy » The role of monetary policy
First exams 2022 » Unit 3: Macroeconomics » 3.5 Demand management (demand side policies)—monetary policy » 3.5.2 Goals of monetary policy
First exams 2022 » Unit 3: Macroeconomics » 3.3 Macroeconomic objectives
Last exams 2021 » Section 2: Macroeconomics » 2.5 Monetary policy
First exams 2022 » Unit 3: Macroeconomics » 3.5 Demand management (demand side policies)—monetary policy
Last exams 2021 » Section 2: Macroeconomics
First exams 2022 » Unit 3: Macroeconomics
First exams 2022
Last exams 2021

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