| Date | May 2022 | Marks available | 4 | Reference code | 22M.2.HL.TZ0.2 |
| Level | Higher level | Paper | Paper 2 | Time zone | Time zone 0 |
| Command term | Explain | Question number | 2 | Adapted from | N/A |
Question
Text D — Overview of Malawi
- Malawi is a landlocked country in southern Africa. Its development plans contain 169 targets, based on the Sustainable Development Goals. Ineffective institutions and inequalities, however, make it difficult to reach every target. Although poverty in urban areas has declined, the level of absolute poverty has been increasing in rural areas where 85 % of the population lives. Causes of poverty include land degradation (80 % of the land is eroded or lacks nutrients), poor healthcare and rapid population growth. There is also a lack of human capital, which is often due to the difficulties that households have in obtaining loans for education or training. Approximately 75 % of households do not have access to formal banking services.
- Aid agencies are providing assistance. The World Bank’s Human Capital Project will increase investment and encourage reforms, such as promoting the education of teenage girls. In 2020, the World Bank also approved US$157 million (50 % as a loan and 50 % as a grant) for a government project. This project aims to increase sustainable land management practices and build water-related infrastructure, such as small dams and irrigation schemes.
- The government has encouraged the establishment of microfinance groups that act as rural banks. They provide some finance and guidance for programmes that introduce new types of crops and techniques in order to improve agricultural efficiency.
- Although 2019 was a difficult year due to drought, insect infestations, and a tropical cyclone, Malawi’s real gross domestic product (GDP) grew by 4.5 %. There is a large budget deficit and the amount of government debt (at approximately 60 % of GDP) is considered to be too high. Therefore, the government has announced plans to reduce its spending. Inflation had been forecast to increase to 14 % in 2020. Due to the planned contractionary fiscal policies, however, inflation may fall below 10 % from 2021 onwards.
- Export revenues account for over 30 % of GDP. Malawi aims to increase its exports of cotton, nuts, tea and sugar. Rising exports and lower fuel import prices could reduce the current account deficit. Despite the persistent trade deficit, Malawi is resisting calls for further trade protection. It has signed bilateral trade agreements with both South Africa and Zimbabwe. Tariffs are gradually being reduced, while other indirect and direct taxes are being raised.
Text E — Agricultural Production
- Approximately 80 % of the labour force is employed in agriculture, with few job opportunities available in manufacturing and services. Agricultural productivity is low for many reasons. The government promotes manufacturing industries and cultivation of crops for export by large-scale farms. However, small-scale and subsistence farmers have received little support in the past. Farmers use less fertilizer and irrigation than is typical in other countries. Only 3 % of cultivated land is irrigated, compared to the global average of 21 %. Other challenges are the inadequate road and rail links to markets and the limited availability of electricity and fuel.
- Maize is the most important staple food in Malawi. The government uses price controls when trying to ensure that maize is available at affordable prices for low-income households. However, the maximum price set by the government is often too low to persuade farmers to supply the maize or to provide them with sufficient revenue. In 2020, the maximum price was raised from 250 to 310 kwacha per kilogram. Even at the higher price, shortages remain.
- The government is planning to invest in commercial agriculture to improve productivity and promote diversification. The 2020 budget includes subsidies on fertilizer for 4.3 million small-scale farmers, which could possibly double maize output but may also pollute waterways. The support given to farmers will improve the nutrition of Malawians and stimulate the rural economy.
Text F — Tobacco Exports
Tobacco is Malawi’s major export, providing over 50 % of foreign currency earnings. Due to lower global demand and the purchasing policies of multinational tobacco firms, prices paid to farmers in Malawi are low and falling. To reduce costs, farmers resort to using child labour. Following allegations of labour exploitation, the United States has restricted tobacco imports from Malawi. There is concern that other importing countries might also impose restrictions.
Table 3: Economic data for Malawi
Table 4: Development data for Malawi
Text D United Nations Department of Economic and Social Affairs, 2020. Malawi 2020 Voluntary National Review Report For Sustainable Development Goals (SDGs) [online] Available at: https://sustainabledevelopment.un.org/content/documents/26180Main_Messages_Malawi.pdf [Accessed July 2020]. Source adapted.
The World Bank, 2020. World Bank Approves $157 Million to Protect Malawi’s Watersheds and Improve Rural
Livelihoods [online] Available at: https://www.worldbank.org/en/news/press-release/2020/07/06/world-bank-approves-157-million-to-protect-malawis-watersheds-and-improve-rural-livelihoods [Accessed July 2020]. Source adapted.
Text E Chilunga, Z., 2020. Government increases maize prices from K250 to K310 per kg [online] Available at: https://www.nyasatimes.com/government-increases-maize-prices-from-k250-to-k310-per-kg/ [Accessed July 2020]. Source adapted.
Fabricius, P., 2020. Malawi sets stellar example with push for food security [online] Available at: https://www.
businesslive.co.za/bd/opinion/2020-07-13-peter-fabricius-malawi-sets-stellar-example-with-push-for-food-security/ [Accessed July 2020]. Source adapted.
Text F AFP, 2019. US restricts tobacco imports from Malawi over labour abuses [online] Available at: https://www.
theeastafrican.co.ke/business/US-restricts-tobacco-imports-from-Malawi-over-labour-abuses/2560-5369826-
vhw4q7z/index.html [Accessed July 2020]. Source adapted.
Table 3 World Bank Data Bank, World Development Indicators n.d. [online] Available at: https://databank.worldbank.org/reports.aspx?source=2&country=MW [Accessed July 2020]. Source adapted.
Table 4 World Bank Data Bank, World Development Indicators, n.d. [online] Available at: https://databank.worldbank.org/
reports.aspx?source=2&country=MW [Accessed July 2020]. Source adapted.
List two of the Sustainable Development Goals (Text D, paragraph [1]).
Define the term tariffs indicated in bold in the text (Text D, paragraph [5]).
Sketch a production possibilities curve (PPC) diagram to show the effect of improved human capital on Malawi’s potential output (Text D, paragraph [2]).
Using information from Table 3, calculate real GDP (at 2010 prices) in 2019 using the price deflator.
Using a poverty cycle diagram, explain how an increase in funds for the education of teenage girls could break the poverty cycle (Text D, paragraph [2]).
Using an AD/AS diagram, explain how a reduction in government spending may reduce inflation (Text D, paragraph [4]).
Using an exchange rate diagram, explain how a reduction in the current account deficit could affect the exchange rate for the kwacha (Text D, paragraph [5]).
Using a demand and supply diagram, explain how the rise in the maximum price of maize would change the welfare loss associated with the maximum price (Text E, paragraph [2]).
Using information from the texts/data and your knowledge of economics, evaluate the government’s policies to promote economic growth and economic development in Malawi.
Markscheme
The diagram has three requirements:
- correctly labelled PPC diagram
- two PPC curves drawn
- shift to the right is clearly shown
Candidates who incorrectly label diagrams can be awarded a maximum of [2].
For a PPC diagram, there must be two goods or groups of goods competing for the same resources on the axes. Good X and Good Y are appropriate, but simply X and Y are not sufficient. A title is not necessary.
Clear labelling of the PPC curves such as PPC1 PPC2 is sufficient to indicate the shift to the right.
Labelling PPC diagram with P and Q or PL and RGDP are fundamental errors thus zero marks.
100= 7669.92
Any valid working should be rewarded with [1]
(US)$ 7669.92 million
An answer of 7 669.92, without workings, without units or incorrect units, is sufficient for [1].
If the answer is rounded up, it cannot be awarded [1]. It has to be given correctly to 2 decimal places (in line with the examination “Instructions to candidates”).
The wording in the boxes may be different, so long as it is equivalent. No title is necessary.
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
For AD/AS diagram, the vertical axis may be Average (general) price level or price level. The horizontal axis may be real output, real national output, real national income, real GDP or real Y. Any abbreviation of the previous terms is acceptable. A title is not necessary.
An answer may alternatively draw a Keynesian AS curve, with the original intersection of AD and AS being in the upward sloping portion of the AS curve. Alternatively, the original intersection may be in the horizontal section of the AS curve and the PL may not fall. This can receive full marks if the explanation states that due to high unemployment/spare capacity in Malawi, contractionary fiscal policy will not be able to reduce inflation.
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 kwacha in other currencies, other currency/ kwacha or other currency per kwacha. The horizontal axis should be quantity or quantity of kwacha. A title is not necessary.
N.B. Acceptable alternatives are the supply curve shifting left or both curves shifting.
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.
Accept any annotation that clearly shows the change in welfare loss.
N.B. Answers that only deal with development or only deal with growth should be awarded a maximum of level 3.
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:
- definition of development
- definition of growth.
Economic Models / theories may include
- an explanation of the links between growth and development
- an AD/AS diagram
- a poverty cycle diagram
- a diagram showing the effects of lowering tariffs
- PPC
- indicators of development.
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
Examiners report
Most could identify 2 SDG areas. However, many could not give precise SDGs. A significant minority offered imprecise or incomplete answers (some very narrow aspects of an SDG such as “provide access to higher education for girls” or broad areas without actual goals such as “education” or “climate”). To be awarded full marks, precise answers are expected with no ambiguity.
Almost all candidates were able to perform well on this question. The vast majority offered correct definitions, but a few failed to recognise that a tariff is a tax.
The majority of candidates sketched the PPC diagram and showed a shift in the PPC curve to the right and labelled the PPC diagram correctly. However, some labelled the diagram inaccurately, in many cases making fundamental errors, rendering the diagram meaningless. Examples of fundamental labelling errors found: “price and output” or “real GDP” or “actual and potential output” or “human capital and growth”.
Also many, probably most, offered a written explanation (sometimes extensive) of the diagram. This was not asked for and wasted a great deal of valuable exam time.
The majority of candidates were able to perform well on this question, although some rounded to a whole number or one decimal place, some ignored the units, and some forgot to multiply by 100.
Better answers gave a thorough appropriate poverty cycle and used the diagram to show where education could break the cycle. Some students provided a “reversed” diagram and so lost a mark for it. Often the diagram and/or explanations were incomplete for human capital and/or productivity were missing.
This was generally well answered. Students constructed accurate diagrams coupled with a full explanation. The possible impact of a decrease in government spending on inflation was well understood. One possible weakness was that students gave too much detail, again wasting valuable time.
Most candidates were able to perform well on this question. Most provided a correct diagram, although there were still cases of incorrect labelling of the vertical axis. The explanations offered by students demonstrated a good understanding of the links between a decreasing current account deficit and the exchange rate. Candidates often lost a mark for not distinguishing increase in exports from decrease in imports.
Some students spent too much time explaining how the deficit came about in the first place. This was not the question.
The identification of the welfare loss on the diagram was rarely accurate, despite the fact that it was clear that students understood the concept. Where candidates did not earn full marks in the diagram, the most common shortcoming was due to the confusion between the welfare loss in the international trade diagram and the welfare loss in the price control diagram.
In general this question was not well answered. However, there were a significant minority of outstanding responses. This question required students to evaluate policies given in the text which are aimed at promoting economic growth and economic development. Clearly, many candidates did not go through the text and pick out the policies being promoted for that purpose by the Government of Malawi.
Some students used strategies/policies that were not designed for the promotion of economic growth and development, such as contractionary fiscal policy, and some students introduced policies that were not in the text, so strayed away from what was being asked. Such parts of the answers were not only considered as irrelevant but wasted time that could have been used on relevant policies.
One of the main weaknesses was a lack of balance, with students focusing primarily on economic growth to the exclusion of economic development.
It is important to stress the importance of analysing policies rather than just describing them and then making appropriate judgments as to their efficacy.
