State two functions of the World Trade Organization (WTO) (paragraph [1]).

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

Using a Lorenz curve diagram, explain the possible impact on the distribution of income in the Philippines when “the income tax for the highest income earners has been raised from 30 % to 35 %” (paragraph [4]).

Using an AD/AS diagram, explain the impact on the potential output of the Philippines of the government increasing its “spending on new airports, roads and bridges” (paragraph [4]).

Using information from the text/data and your knowledge of economics, evaluate the use of export promotion as a means of achieving economic development in the Philippines.

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

For the vertical axis, the label may be cumulative percentage of (national) income or percentage of (national) income (GDP and GNI are valid alternatives to income but wealth is not acceptable). For the horizontal axis, the label may be cumulative percentage of population/people/households or percentage of population/people/households. A title is not necessary.

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

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

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.

Answers may include:

• Definitions of economic development, export promotion.
• The link between export-led growth and economic development.

Advantages of export promotion may include:

• The PEDP 2017–2022 wants to boost the export of services, which could bring in more export revenue due to its higher value, increasing incomes of workers in numerous services, allowing for a better standard of living and higher tax revenue for the government (paragraph [3]).
• Increased exports of processed foods rather than unprocessed foods will increase farm incomes (paragraph [2]).
• If boosting exports and increasing export competitiveness (such as the standards, testing and certification) is successful, then more export revenue should come in (paragraph [3]), providing the government with more tax revenue which could be spent on development objectives.
• Removing regulations should make it easier for exporters to run their business and to export their products (paragraph [3]).
• Investment in the production processes and supply chains (paragraph [3]) should reduce the costs of production over time and make the goods more export competitive.
• Exploiting existing and new opportunities from trade agreements (paragraph [3]) should increase export revenues in sectors that are competitive.
• If more is exported, then more can be imported and the tariffs on rice can be lowered, benefitting low-income families (paragraph [1]).

Disadvantages/limitations of export promotion may include:

• Export promotion could favour economic activities in urban areas which could lead to higher prices and wages in these areas, especially in Manila (paragraph [2]); higher domestic prices and inflation, affecting all families negatively as real incomes and purchasing power falls, and therefore lower income families are most negatively affected, lowering standards of living, and possibly increasing inequality and poverty.
• Export promotion will be difficult to achieve when investment in much-needed irrigation systems that would improve productivity in farming as well as infrastructure to help farmers connect to export markets, is discouraged (paragraph [2]).
• There is a lack of access to export markets due to the lack of infrastructure, which would also hamper export promotion.
• The Philippines lacks the infrastructure needed to attract export-oriented manufacturing (paragraph [4]) from overseas.
• Other countries may resist increased exports from the Philippines.
• Reliance on a narrow range of exports (such as processed food) may be risky.
• More will be spent on infrastructure by the government. Although the budget may have more income from an increase in income tax, poorer households may suffer due to a higher indirect tax on a range of goods (paragraph [4]).

Any reasonable evaluation.

Candidates may argue that export promotion may lead to economic growth. As long as they have established a clear link between economic growth and economic development, such arguments should be fully rewarded.

Candidates struggled to give two valid functions of the WTO. A significant number of candidates thought that trade liberalization is a function of the WTO. Although this might be the ultimate objective, the WTO does not of itself take action to lower protectionism.

On the other hand, inflation was often well defined, with most achieving level 2. Some answers were confined to level 1 for omitting 'persistent/sustained'.

Most candidates achieved full level 2. Some missed a mark due to poor labelling of axes (mostly missing '%' or reserved axes) or because they did not explain how a tax on high-income earners would make the distribution of income more equal. A number of candidates used 'wealth' and 'income' interchangeably, suggesting they did not know the difference between the two concepts.   

Answers to this question were variable. Many candidates correctly shifted the LRAS or Keynesian AS curve to the right and correctly explained that potential output would increase. A significant number provided irrelevant explanations linked to a shift of the SRAS and/or AD. Candidates who use the Keynesian AS curve need to be careful about where they label the potential output. Generally, candidates seemed to be confused between factors which bring about a shift of the SRAS curve and those that bring about a shift of the LRAS curve.  

The majority of responses to this question were in level 2. Most understood the concept of export promotion as a trade strategy but did not make the necessary connections between export promotion and economic development. Responses also tended to focus on the advantages of the trade strategy and were, therefore, rather one sided. They needed to explain both how development could be improved and how it could be hindered. Those who were confined to level 1 or low level 2 often did not seem to know that export promotion was more than a boost in a component aggregate demand. It seemed as though export promotion as a growth and development strategy had not been studied as much as other topics.