| Date | November 2019 | Marks available | 4 | Reference code | 19N.3.HL.TZ0.2 |
| Level | Higher level | Paper | Paper 3 | Time zone | Time zone 0 |
| Command term | Explain | Question number | 2 | Adapted from | N/A |
Question
The information in Table 1 refers to Country A (base year: 2011).
Table 1
The central bank of Country A aims to achieve price stability, defined as “inflation below but close to 2 % annually”.
The information in Table 2 refers to Country B, an economically less developed economy.
Table 2
Calculate the inflation rate for 2014 and for 2015. Enter your results in Table 1.
Calculate the unemployment rate for 2012 and for 2013. Enter your results in Table 1.
Explain two reasons why low and stable inflation is desirable.
State two functions of a country’s central bank.
Using the data in Table 1 to support your answer, identify two reasons why many economists would consider Country A’s economy to be performing poorly in 2012.
State one reason why monetary policy is considered to have limited effectiveness in increasing aggregate demand if an economy is in a deep recession.
Explain two reasons why fiscal policy may prove effective in lifting an economy out of a deep recession.
Outline the meaning of the natural rate of unemployment, with reference to the long-run Phillips curve and types of unemployment.
Using the information in Table 2 for Country B calculate nominal GDP in 2014. Enter your result in Table 2.
Using the information in Table 2 for Country B calculate nominal GNI in 2015. Enter your result in Table 2.
Using the information in Table 2 for Country B, determine real GDP in 2014 and in 2015. Enter your results in Table 2.
Using the information in Table 2 for Country B, calculate the rate of economic growth between 2014 and 2015.
The data in Table 2 suggest that Country B may have attracted significant foreign direct investment (FDI).
Outline one possible disadvantage of foreign direct investment (FDI) for economically less developed countries.
Markscheme
2014: 1.95
2015: 4.89
Award [1] for each correct answer.
No workings are required.
N.B. Responses written either in Table 1 or in the answer boxes provided should be fully rewarded
2012: 7.34
2013: 5.33
Award [1] for each correct answer.
No workings are required.
N.B. Responses written either in Table 1 or in the answer boxes provided should be fully rewarded
For a limited explanation of one reason, award a maximum of [1].
For an accurate explanation of one reason or a limited explanation of two reasons,award a maximum of [2].
For providing an accurate explanation of one reason and a limited explanation of a second reason, award a maximum of [3].
For providing two accurate reasons, award a maximum of [4].
NB A response which only states the correct data without specifying that there is high unemployment and deflation may be awarded a maximum of [1].
Answers may include:
- Interest rates are already close to zero.
- Spending depends on confidence/indebtedness as well as interest rates.
- Money demand may be highly sensitive (elastic/flat) with respect to interest rates.
- Investment/consumption may not be sensitive to changes in interest rates.
Any other valid reason.
Award [1] for one possible reason.
For a limited explanation of one reason, award a maximum of [1].
For an accurate explanation of one reason or a limited explanation of two reasons, award a maximum of [2].
For providing an accurate explanation of one reason and a limited explanation of a second reason, award a maximum of [3].
For providing two accurate reasons, award a maximum of [4].
NB A response that refers to the types of unemployment that are not cyclical may be rewarded.
351.70 is sufficient for [1].
No workings are required.
NB Responses for (h) and (i) written either in Table 2 or in the answer boxes provided should be fully rewarded.
292.56 is sufficient for [1].
No workings are required.
NB Responses for (h) and (i) written either in Table 2 or in the answer boxes provided should be fully rewarded.
2014: 351.70
2015: 355.84
Award [1] for both correct figures.
No workings are required.
OFR applies for 2014 figure.
NB Responses for (h) and (i) written either in Table 2 or in the answer boxes provided should be fully rewarded.
No workings are required.
1.18 % or 1.18 is sufficient for [1].
OFR applies.
Award [1] for stating one possible disadvantage without any outline.
Award [2] for stating one possible disadvantage with a brief outline.
Disadvantages may include:
- Repatriation of profits and royalties may lead to balance of payments problems.
- Importation of intermediate goods and capital goods may lead to balance of payments problems.
- Domestic firms may be hurt as they may be small and not able to compete.
- Technology employed may be inappropriate so that employment decreases.
- Income inequality may widen between rural and urban areas where most MNCs locate.
- The tax contributions may be less than expected because of tax concessions and/or transfer pricing.
- MNCs may use their economic power to adversely influence markets/government policies.
- Production by MNCs may result in negative externalities/exploitation of resources.
Any other valid disadvantage outlined.
