User interface language: English | Español

Date May 2022 Marks available 2 Reference code 22M.3.HL.TZ0.1
Level Higher level Paper Paper 3 Time zone Time zone 0
Command term Calculate Question number 1 Adapted from N/A

Question

Burundi is a landlocked country in Central Africa. Its economy is heavily reliant on the agricultural sector, which employs 92 % of the labour force but contributes only 40 % of gross domestic product (GDP). Most of the 11.5 million population live in poverty, especially in rural areas. The level of food insecurity (people without access to enough food) is almost twice as high as the average for sub-Saharan African countries with more than 60 % of the population living below the poverty line.

Infrastructure in Burundi is poor. There are no railroads and only three major routes through the country, two of which involve water transport, across Lake Tanganyika. Access to clean water is low, while fewer than 5 % of the population have access to electricity. The literacy rate for those aged 15 and over is 61.6 %, while only 1 % of secondary schools have access to the internet.

Table 1: Labour market data for Burundi (2019)

Government finance

The budget deficit of Burundi increased in 2019, partly due to an inefficient system for collection of taxes. Tax rates in Burundi are given in Table 2.

Table 2

* Top rates of personal income tax in other countries are often much higher,
such as 57.2 % in Sweden and 35 % in Mexico.

A firm in Burundi paid 32 000 Burundi francs (Fbu), including VAT, in order to purchase a piece of industrial equipment. The rate of VAT for this equipment is 20 %.

Gender inequality in Burundi

Table 3 illustrates selected indicators of gender inequality in Burundi compared with Mexico and Sweden.

Table 3

Approximately 92 % of the labour force are employed in agriculture, which contributes 40 % of Burundi’s GDP.

Trade
The main exports of Burundi in 2018 were gold (41.4 %), coffee (17.3 %) and tea (9.5 %), while refined petroleum (17.3 %) was its main import. Although the current account deficit was reduced to 10 % of GDP in 2019, there remains a huge imbalance between exports and imports. Reserve assets do not cover more than one month of imports, while the economy relies on foreign aid and foreign direct investment (FDI) to finance the deficit. The low level of foreign aid is likely to be insufficient to finance the deficit.

On the upside, Burundi has an abundance of minerals, including 6 % of the world’s nickel reserves. It is the only African country producing rare-earth minerals, which are used in many hi-tech products, such as smartphones. The United States (US) has been keen to diversify its supply of rare-earth minerals because of its trade dispute with China.

Figure 1 shows the market for gold in Burundi. Dd and Sd represent the yearly domestic demand and supply functions for gold, while Sw and Sw1 represent the world supply of gold in 2019 and 2020 respectively. The price of gold is measured in US dollars (US$) per ounce (oz). The world price increased from US$1500 per oz to US$1800 per oz between July 2019 and July 2020.

Figure 1

[Source: United Nations Development Programme, 2020. The Next Frontier: Human Development and the Anthropocene [online] Available at: http://hdr.undp.org/sites/default/files/Country-Profiles/BDI.pdf [Accessed 20 April 2020]. Source adapted.

The World Bank, n.d. Population, total – Burundi [online] Available at: https://data.worldbank.org/indicator/SP.POP.
TOTL?locations=BI [Accessed 20 April 2020]. Source adapted.

United Nations Development Programme, n.d. Human Development Reports [online] Available at:
http://www.hdr.undp.org/en/countries/profiles/BDI [Accessed 20 April 2020]. Source adapted.]

Using the information provided in Table 1, calculate the rate of unemployment for Burundi in 2019.

[2]
a.i.

Explain why dependence on primary sector production may be considered a barrier to economic development.

[4]
a.ii.

Using the information in Figure 1, calculate the price elasticity of demand for gold in Burundi when price increases from US$1500 per oz to US$1800 per oz.

[2]
a.iii.

Using the information in Figure 1, calculate the change in the value of Burundi’s gold exports resulting from the increase in the price of gold from US$1500 per oz to US$1800 per oz.

[2]
a.iv.

Define the term progressive tax.

[2]
a.v.

Calculate the amount of VAT which was paid on the purchase of this equipment.

[2]
a.vi.

Sketch an AD/AS diagram to illustrate the possible effect on the Burundian economy in the long run if the government reduces the rate of corporate income tax from 30 % to 26 %.

[2]
a.vii.

With reference to the data in Table 3, explain two ways in which gender inequality might act as a barrier to economic development in Burundi.

[4]
a.viii.

Using the text/data provided and your knowledge of economics, recommend a policy which could be introduced by the government of Burundi to reduce income inequality in Burundi.

[10]
b.

Markscheme

747504908500+74750×100

Any valid working should be rewarded with [1].

= 1.5%

An answer of 1.5 or 1.5% without working is sufficient for [1].

N.B. An answer of 1.52 arises because of incorrect working and so should be awarded [0].

a.i.

N.B. A response that links only to growth can be awarded a maximum of [3]. Similarly, if development is merely stated, but not linked, then a maximum of [3] is awarded.

a.ii.

PED=%Δ𝑄d%Δ𝑃=-2020

Any valid working (correct %Δ Qd or %Δ P, provided the formula is not inverted) is sufficient for [1]

= −1 or 1

An answer of −1 or 1 without any valid working is sufficient for [1].

N.B. A response in which the formula is inverted should be awarded [0].

a.iii.

Initial value = 1000 (70 − 25) × 1500 = 67 500 000

New value = 1000 (85 − 20) × 1800 = 117 000 000

Any valid working (initial or final value) is sufficient for [1].

Change in value = US$117 million − US$67.5 million

= US$49.5 million or US$49 500 000

An answer of 49.5 or 49.5 million or $49.5 million without any valid working is sufficient for [1].

N.B. For full marks to be awarded the response must provide valid working and include correct units.

a.iv.

a.v.

(32 000/1.2) × 0.2

Any valid working should be rewarded with [1].

= Fbu 5333.33

An answer of 5333 without workings is sufficient for [1].

N.B. For full marks to be awarded the response must provide valid working and include correct units.

a.vi.

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 abbreviation of the previous terms is acceptable. A title is not necessary.

N.B. A Keynesian diagram with AS shifting to the right and showing a higher (full employment/potential) output level is also acceptable.

A diagram which is not fully labelled may be awarded a maximum of [1].

a.vii.

a.viii.

Refer to paper 3 markbands, available under “your tests”  tab > supplemental materials.

Possible policies may include (but are not restricted to):

N.B. If more than one policy is recommended, only the best policy should be rewarded, unless the policies are shown to be complementary or if they are compared/contrasted with the student’s one chosen policy.

b.

Examiners report

Although stronger candidates were able to calculate the rate of unemployment accurately, it was surprising to see so many errors. Candidates often divided the number of unemployed by the number of employed or by the size of the population – or even inverted the formula.

a.i.

Many candidates neglected to focus on the difficulties of over-reliance on the primary sector or made unsupported assertions, such as that in the primary sector “economies of scale are not possible”, “there is no innovation”, “prices are low” or “there is no infrastructure”. Such responses also tended to imply an impact on economic activity/growth without referring to development. Stronger candidates were able to link price volatility to income, living standards and development or to explain the significance of a low YED for many primary products.

a.ii.

Many candidates produced an answer of 1.25 as a consequence of using the final quantity as the denominator for the calculation of the percentage change.

a.iii.

Responses to this question were extremely poor. It was evident that some candidates were not familiar with the identification of exports on a trade diagram (as introduced in the new syllabus). Furthermore, some candidates who were able to calculate the quantity of exports were not able to multiply by the price in order to calculate the value. It was common to see responses in which candidates had merely calculated the changes in the value of domestic output or where the quantity of gold demanded had been multiplied by the price.

a.iv.

It was disappointing to see so many responses in which candidates referred to those on higher incomes paying “more tax” rather than referring to the percentage of income paid as tax. Additionally, a significant number of candidates referred to “richer households paying more tax than “poorer”, thus mixing wealth with income.

a.v.

It is clear that many candidates had not been prepared adequately for this question. Such candidates incorrectly multiplied the level of expenditure by the tax rate. This calculation is specified in the subject guide, and illustrated in the specimen paper, thus it was disappointing that candidates in many centres were unable to perform the calculation accurately.

a.vi.

This question was answered poorly. The question required candidates to recognize that such a market-orientated supply-side policy would shift the LRAS (or the Keynesian AS) curve to the right. However, many candidates shifted the AD curve and/or the SRAS curve.

a.vii.

Although candidates were generally able to identify data relating to income inequality, many struggled to explain the link to economic development. Weaker responses suggested that less educated females cannot work or that those without bank accounts cannot receive income or spend. The significance for development of health, education or access to banking services was not explained well by many candidates. Marks were also lost for neglecting to make explicit reference to the data or to link to development. Furthermore, some responses presented a correlation between indicators and the HDI or GNI without attempting to explain causality.

a.viii.

A wide range of approaches were adopted for the “policy question”. Responses which scored well mostly:

Responses were able to achieve full marks with a fairly concise answer which met these requirements. Diagrams, although not expected/required) were often used effectively to support the theory/explanation.

Candidates who did not score highly tended to demonstrate some of the following weaknesses:

b.

Syllabus sections

First exams 2022 » Unit 3: Macroeconomics » 3.3 Macroeconomic objectives » 3.3.2 Low unemployment
Show 21 related questions
First exams 2022 » Unit 3: Macroeconomics » 3.3 Macroeconomic objectives
First exams 2022 » Unit 3: Macroeconomics
First exams 2022

View options