Economics · May / June 2020 · Paper 22 · Question 3
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The question as text
A number of countries are withdrawing high value banknotes. For instance, Singapore plans to stop issuing its $10 000 note. High value notes were originally intended to act as a convenient store of value. Central banks are concerned some notes are now being used illegally. The Singapore Police Force and the Monetary Authority of Singapore (its central bank) were trying to recruit more workers in 2017. It was expected that the central bank would raise the rate of interest in 2018.
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3(a)[2]
State two functions of money, other than a store of value. One mark each for two from:
medium of exchange, measure of value (unit of account) and standard of deferred payments.
3(b)[4]
Explain two advantages banknotes have as a form of money. Logical explanation which might include: Generally acceptable (1)
people are prepared to accept them in exchange for products and to settle debts (1). Portable (1)
banknotes are light to carry around (1). Divisible (1)
notes of different denominations (1). Recognisable (1)
notes have distinct features on them known to the population (1). Limited in supply (1)
the central bank prints a set number of notes (1). Homogeneous (1)
all banknotes of the same value are identical (1).
3(c)[6]
Analyse the influences on the mobility of workers. Coherent analysis which might include: Occupational mobility is influenced by education (1)
the more qualifications workers have (1)
the more choice of jobs they will have (1). Occupational mobility is influenced by training (1)
the more skills workers have (1)
the easier they will find it to switch jobs (1). Geographical mobility is influenced by the price/availability of housing (1)
The cheaper/more available housing is (1)
the easier will workers find it to work in other areas (1). Geographical mobility is influenced by family ties (1)
people may be reluctant to move because children are at school/partners have job in a particular area (1). Mobility between countries will be influenced by immigration controls (1).
3(d)[8]
Discuss whether or not a central bank should raise the rate of interest. In assessing each answer, use the table below. Level Description A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other but, overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 A mark of zero should be awarded for no creditable content. Why it should:
to reduce demand-pull inflation as a higher interest rate may encourage to spend less as it may discourage borrowing and encourage savingto reduce borrowing if people and firms are building up unsustainable debtto raise the exchange rate if there is downward pressure on a fixed exchange rateto reduce a current account deficit if it is thought that lower spending will reduce imports and may discourage exports. Why it should not:it may increase cyclical unemployment by reducing total (aggregate) demandit may reduce the economic growth rate as it may discourage investment due to the higher cost of borrowing to purchase capital goodsit may raise the exchange rate and make exports less price competitive.
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