Define the term debt servicing indicated in bold in Table 1.

Define the term Gini coefficient indicated in bold in Table 2.

Sketch a demand and supply diagram to show the effect on revenue earned by Vietnamese farmers with improved access to the Japanese market (Text B, paragraph [1]).

Using information from Table 1, calculate the change in the surplus on Vietnam’s balance of trade in goods with Japan between 2015 and 2019.

Explain two economies of scale which may not be available to smaller farms (Text A, paragraph [2]).

Using a production possibilities curve (PPC) diagram to show comparative advantage, explain why Vietnam would export seafood to Japan while Japan would export machinery to Vietnam (Text B, paragraph [1]).

Using a demand and supply of money diagram, explain the likely effect on interest rates of a reduction in the minimum reserve requirement for banks (Text C, paragraph [1]).

Using an exchange rate diagram, explain how the central bank in Vietnam could prevent the dong from depreciating by using its reserve assets (Text C, paragraph [2]).

Using information from the texts/data and your knowledge of economics, discuss the view that trade with Japan is more beneficial for Vietnam’s economic development than foreign direct investment (FDI) from Japan.

The diagram has three requirements:

• correctly labelled demand and supply diagram
• a shift of the demand curve to the right
• effect on revenue correctly indicated on diagram.

Candidates who incorrectly label diagrams can be awarded a maximum of [2].

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.

The increase in revenue could alternatively be indicated by labelling the corners of the revenue boxes or by referring in writing an increase in revenue from P x Q to P₁ x Q₁.

2015: (15 141 − 12 531)             2610
2019: (22 475 − 16 484)             5991

any valid working should be rewarded with [1]

(Change in surplus) (US)$ 3381 million

An answer of 3 381, without workings or without units, is sufficient for [1].

Own figure rule applies.

N.B. Alternatively, if a student answers in terms of the economies of scale that large farms can get, the answer may be fully rewarded.

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

For a diagram showing comparative advantage, the PPC lines could be linear or curved and they could intersect or be non-intersecting. They should show that Japan has a comparative advantage in machinery production while Vietnam has a comparative advantage in seafood production. However, the labelling could be reversed from the examples below. Either one of the examples below is satisfactory or two diagrams can be drawn, with one for Vietnam and one for Japan, but the PPCs should have different slopes that correctly convey the comparative advantages. A title is not necessary.

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

For a money demand and supply diagram, the vertical axis should be labelled interest rate, i, ir or r. The horizontal axis may be labelled Quantity (Q) or Q of Money. A title is not necessary.

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

For an exchange rate diagram, the vertical axis may be exchange rate, price of dong in another currency, other currency/dong or other currency per dong. The horizontal axis should be quantity, or quantity of dong. A title is not necessary.

Alternatively, a candidate may draw a diagram showing the dong depreciating (due to S shifting right or D shifting left) and the D curve then shifting right to restore the exchange rate to its initial level. If explained properly, this can be fully rewarded.

Answers that only deal with trade or only deal with FDI should be rewarded a maximum of level 3.

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.

Answers may include:

• definition of development
• definition of trade
• definition of foreign direct investment.

Economic models / theories may include:

• AD/AS
• poverty cycle
• PPC
• trade creation / diversion
• comparative advantage
• free trade / protectionism.

Points that support the view that trade is more beneficial:
Benefits of trade with Japan:

• trading based on comparative advantage enables Vietnam to consume beyond its production possibilities curve therefore could increase living standard in Vietnam (Text B, paragraph [1])
• create more employment in export industries leading to improved living standard for the workers employed in these industries (Table 1)
• more exports of agricultural goods enable farms to earn and invest more, leading to more efficiency (Text A, paragraph [2] or Text B, paragraph [1])
• incomes are rising and will rise more in rural areas ( Text B, paragraph [1] or Table 1).

Costs of FDI from Japan:

• because Japanese factories tend to locate in urban areas, inequality is increasing as shown by the rise in the Gini coefficient (Table 2)
• Japanese firms are taking advantage of low-cost labour (Text B, paragraph [2])
• environmental impact of more factories and coal-fired power plants and its effects on economic development (Text A, paragraph [3] or Text B, paragraph [2])
• foreign firms are getting preferential tax treatment and the government is spending on infrastructure, which has an opportunity cost of possibly less government spending on health and education (Text A, paragraph [4]).

Points that support the view that FDI is more beneficial:
Benefits of FDI from Japan:

• more jobs are available leading to improving indicators for health and life expectancy (Table 2) and rising incomes (Text A, paragraph [1] and Table 1)
• Japanese FDI also results in Japanese aid directed at required infrastructure. This improves Vietnam's economic capacity (Table 2 and Text A, paragraph [5])
• Japanese firms are introducing more technology leading to improved human capital and enabling more exports of manufactured goods leading to more growth and consequential improvement in economic development (Text B, paragraph [2])
• FDI enables Vietnam to add more value to the primary products it produces. This helps avoid economic problems attached to specializing in primary product exports and therefore may increase living standards in rural areas (Text B, paragraph [2]).

Costs of trade with Japan:

• because Vietnam is specializing in primary goods, trade with Japan may be disrupted by supply shocks (particularly due to the climate) and volatile prices (due to inelastic demand and supply) restricting economic development in rural areas (Text A, paragraph [3] and Text B, paragraph [1])
• land and fisheries and forests are being unsustainably used (Text A, paragraph [3]).

Synthesis of relative benefits of trade vs FDI:

• trade and FDI are not substitutes for each other but together may have a significant impact on economic development, because more FDI allows Vietnam to start exporting manufactured and higher value-added goods (Text B, paragraph [2])
• both are contributing to development, but both have drawbacks.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Many were unable to get full marks for the definition of debt servicing as they did not identify either or both principal/initial amount and interest so were only awarded one mark.

This was often partially answered, with students simply stating it was a measure of inequality. A minority provided a complete description.

Most candidates sketched the demand and supply diagram and showed a shift in the demand curve to the right. However, a large number of candidates forgot to highlight the change in revenue in the diagram. Many offered extensive explanations, which were not asked for and wasted valuable time.

Most candidates were able to perform well on this question, showing their workings, although some ignored the currency or million in their final answer and so lost a mark.

A limited number gave a clear, applied explanation of two economies of scale. Answers were often too vague and imprecise. Some misread the question, focusing on the benefits to large firms, rather than economies of scale not available to small firms. Those students who were well prepared scored well.

Most candidates were able to perform well on the diagram, but many were not able to explain the comparative advantage theory in terms of opportunity cost.

This question was generally well understood and answered effectively. The significance of the minimum reserve ratio in terms of lending by the banks, coupled with the effect on the money supply and interest rates, was well understood but many students were unaware of the perfectly interest inelastic nature of supply, so lost a mark for the diagram. A minority confused reserved assets and minimum reserve requirements.

Exchange rate diagrams were generally drawn correctly, although there were still too many labelling errors of the vertical axis. Most students were able to effectively explain how reserve assets could be used to prevent depreciation. This is an area of the syllabus where understanding of the question has improved.

A large number of students’ answers strayed away from what was being asked and did not clearly focus on economic development.

Often the evaluation was very superficial, especially for some who found it difficult to identify the separate impact on economic development of trade and FDI as these are heavily interwoven.

In several of the responses, the students understood the effect that trade and FDI might have on Vietnam's economy in general, they used diagrams, theories and terminologies, but focused entirely on economic growth and so were not awarded beyond 6 marks as these responses do not clearly indicate an understanding of the “specific demands of the question”.

In some instances, some appeared to present pre-prepared answers and thus the work matched the descriptor for 1-3 marks.