| Date | November 2021 | Marks available | 4 | Reference code | 21N.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 data in Table 2 refer to Kanyaland, a small, open, developing economy in 2019. All data are in billions of Kanyaland dollars (K$).
Table 2
Assume that the level of GDP in Kanyaland in 2009 was K$455 billion and government expenditures were K$205 billion. For each additional Kanyaland dollar earned as income, it had been estimated that K$0.60 was spent on domestic goods and services, K$0.10 was saved, K$0.21 was paid in taxes and K$0.09 was spent on imported goods and services.
Table 3 shows the values of the consumer price index (CPI) between 2016 and 2020 in Kanyaland.
Table 3
Table 4 shows the income tax rates in Kanyaland.
Table 4
Rufus and Sammy are citizens of Kanyaland. Rufus earns K$23 000 annually whereas Sammy earns K$46 000 annually.
Using the data in Table 2, calculate factor income sent (paid) abroad in 2019.
If the government increased expenditures by K$21 billion, calculate the new level of GDP achieved.
Explain two possible positive consequences of economic growth in Kanyaland.
In many developing countries GNI figures are lower than GDP figures. Outline how this may be due to the high levels of foreign direct investment (FDI) in developing countries.
Kanyaland specializes in and exports a narrow range of agricultural products. Outline one negative consequence of this strategy in achieving economic growth.
Explain how unemployment benefits and progressive taxation may help decrease economic fluctuations in Kanyaland.
Using Table 3, calculate the rate of inflation in 2017 and in 2018.
With reference to the CPI data in Table 3, describe the most likely monetary policy response adopted at the end of 2018 by the central bank of Kanyaland.
Using Table 4, identify the marginal tax rate for Rufus.
Using Table 4, calculate the average tax rate for Sammy.
The Gini coefficient in Kanyaland changed from 0.35 in 2010 to 0.52 in 2020. Outline what this change indicates for the economy.
Markscheme
Factor income sent (paid) abroad = 1098 + 68 − 982
Any valid working is sufficient for [1].
= $184 billion
An answer of $184 billion or 184 without any valid working is sufficient for [1].
multiplier =
Identification of the value of the multiplier = 2.5 is sufficient for [1].
= 2.5 × 21 = 52.5
Any valid working is sufficient for [1].
= 455 + 52.5
= $507.5 billion
An answer of $507.5 without any valid working is sufficient for [1].
OFR applies if the multiplier is calculated incorrectly and the resulting incorrect number is applied correctly to calculate the new level of GDP.
2017: × 100 = −1.19 %
2018: × 100 = −0.75 %
Award [1] for each correct answer.
No workings are necessary. The % sign is not necessary.
Any answer which refers to easy (expansionary) monetary policy or an increase in the money supply or a decrease in interest rates is sufficient for [1].
For an answer of 0.26 or 26 % award [1].
Valid working (i.e. three of the four in parentheses correct) is sufficient for [1].
ATR = × 100 = 26.35 %
OR
ATR = = 0.26
An answer of 26.35 or 0.26 without any valid working is sufficient for [1].
Examiners report
A common error was to add income from abroad to GNI and subtract from GDP — giving a result of $48 billion. Candidates also forfeited a mark for omitting “billions” or “K$”.
This part was done quite poorly. Lower-achieving responses appeared confused by the wordy nature of the question and hence were not able to calculate the multiplier. A significant number were able to benefit from the Own Figure Rule although many incorrectly multiplied both the initial and the increase in government spending by the multiplier.
Generally well-answered. Lower-achieving responses stated rather than explained, providing responses such as “unemployment will fall”. Also, a minority of candidates suggested that an increase in output would be a consequence (rather than a cause/condition).
The question was generally well-answered. Lower-achieving responses did not refer to the repatriation of profits or explained that some output “did not belong to the host country” — resulting in a Level 1 mark awarded.
Although the question was generally well-answered, some responses did not refer to a consequence for growth but simply explained over-specialization.
A significant number of candidates found difficulty with this question. Lower-achieving responses understood “economic fluctuations” to mean “inequality”. Of those who understood the question and the appropriate learning outcome, a large number referred to the idea that unemployment benefits would allow consumers to spend more, without explaining how this would slow down a decline in real GDP. For full marks, candidates were expected to refer to expansionary and contractionary periods — and some did not do this.
There was a surprising number of rounding errors presented here.
Very well-answered.
Lower-achieving responses took an average of 22 % and 26 % - or gave an answer of 4 % as the increase in the marginal rate.
After successfully calculating the total tax paid through each band, quite a few students did not complete the calculation of the average tax rate (i.e. total tax divided by income).
Well-answered.
