Define the term recession indicated in bold in the text (paragraph [1]).

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

Using a demand and supply diagram, explain the impact on households of “removing some subsidies on food” (paragraph [5]).

Using a Lorenz curve diagram, explain the likely impact on income distribution of “plans to encourage investment in rural areas”  (paragraph [5]).

Using information from the text/data and your knowledge of economics, evaluate the effectiveness of market-oriented policies in achieving economic development in Angola.

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

For a demand and supply diagram, the vertical axis should be price or P. The horizontal axis should be quantity or Q. A title is not necessary.

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

The two curves may be shown on one graph, or may be shown on two graphs. If using two graphs, it must be clear the curve after investment is closer to the line of equality than the previous one.

The vertical axis may be labelled (cumulative) % 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) % of
population/people/households. A title is not necessary. There must be a diagonal line, but it is not a requirement that it is labelled. There should be labels (or arrow) to indicate the difference between the two Lorenz curves (or direction of the change).

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.

Answers may include:

• Definition of market-oriented policies
• Definition of economic development.

Strengths of market-oriented policies:

• Promotes growth and creates employment and possibly higher wages by attracting foreign investment (paragraph [2])
• Devaluing the exchange rate has reduced the need for foreign exchange reserves (paragraph [3])
• Privatization may lead to competition, lower costs and lower prices and more choice for consumers (paragraph [2])
• Privatization will provide revenue to the government to pay down debt or invest in infrastructure and/or social spending
• Expanding infrastructure projects with private sector involvement encourage FDI (paragraph [2])
• Market-oriented policies may increase long run aggregate supply allowing inflation to fall below 25 % (paragraph [5])
• Tax incentives in rural areas would create jobs and reduce inequalities (paragraph [5])
• Reforms of the banking sector will possibly make it easier for small-scale businesses to get loans (paragraph [2]).

Limitations of market-oriented policies:

• The privatization of railways and telecommunications may lead to higher prices for consumers and more inequality
• Incentive-based policies may not be sufficient to allow for diversification since manufacturing base is small and likely underdeveloped (paragraph [1] and [4])
• Stopping subsidies on food and using ad valorem taxes will raise prices causing inflation and inequality to worsen in the short term (paragraph [5])
• Measures to reduce public debt could worsen income inequality
• Market-oriented policies (e.g. more inward FDI) are unlikely to work without complementary interventionist policies such as the building of infrastructure (paragraph [4]) to support diversification
• Less intervention in the exchange rate may lead to depreciation and higher prices and/or less certainty for foreign investors
• Market-oriented policies may lead to externalities
• Encouraging more inward FDI and other investment will increase private sector debts and debt-servicing costs, leading to less income available to spend on merit goods
• Market-oriented policies tend to lead to higher inequalities (e.g. through lower wages).

Any reasonable evaluation.

Most candidates scored at least Level 2 for this question. 

Privatization proved to be one of the most challenging terms to define in this examination paper. Few explicitly referred to the government selling state-owned/public enterprises to the private sector. 

This question did not seem to pose candidates any problems. The majority could establish that the removal of the subsidy would shift the supply curve to the left and lead to a higher equilibrium price. 

On the other hand, this question proved to be challenging. Candidates either did very well or very poorly here. A significant number of candidates did not seem to fully comprehend what the Lorenz curve measures nor how it should be labelled. Some diagrams even showed curves shifting above the line of perfect equality. For those who were familiar with the concept, 1 mark was often deducted for the use of 'wealth' instead if 'income' on the vertical axis. This suggests that some candidates do not know the difference between the two concepts — this was also an issue in the last examination session. Some answers also missed a mark because the explanation did not establish how the investment might lead to more equality.  

Unfortunately, there were not very many good answers to this question. Candidates did not seem familiar with the concept of market-oriented policies or had a very narrow view of what they constitute. Another problem is that too few answers reflected an understanding of economic development. It would be wise for candidates to define the concept for such questions. That could help them focus on the impact of government policies on the standard indicators of development. Some students discussed the impact on economic growth rather than development and did not establish how growth could lead to development. Candidates need to be more aware of the need to address the actual question asked.