Economics · May / June 2022 · Paper 21 · Question 2
0455
As printed in the paper
The question as text
Australia’s foreign exchange rate fluctuates. The value of Australia’s exports is regularly greater than the value of its imports. Australia is Papua New Guinea’s main trading partner. In 2019, the government of Papua New Guinea increased income tax to reduce its inflation rate. It used other policy measures to increase its economic growth rate.
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2(a)[2]
Define foreign exchange rate. The price / value of a currency (1)
in terms of another currency / currencies (1).
2(b)[4]
Explain two reasons why the value of a country’s exports may be greater than the value of its imports. Logical explanation which might include: Price of exports may be lower than price of other countries’ products (1)
due to e.g., devaluation / depreciation / weaker currency / higher productivity / lower inflation (1). Quality of exports may be higher than the quality of other countries’ products (1)
due to e.g., more investment / better education / specialisation (1). Incomes abroad may have increased (1)
enabling foreigners to buy more of the country’s products (1). Protective measures (1)
restrict imports / subsidise domestic firms or exports (1). May have high value exports e.g., oil (1)
with high (global) demand (1). Recession / low demand at home (1)
results in fewer imports / encourages firms to export (1). 4 One mark for each of two reasons identified and one mark for each explanation.
2(c)[6]
Analyse how an increase in income tax can affect a country’s inflation rate. One mark for a simple explanation that an increase in income tax can reduce the rate of inflation Coherent analysis which might include: An increase in income tax will reduce disposable income / purchasing power (1)
this may reduce consumer spending (1)
lower total demand (1)
this may encourage firms to reduce prices / reduce price rises (1)
lower demand-pull inflation (1). Increase in income tax may encourage workers to press for wage rises (1)
increase costs of production (1)
cause cost-push inflation (1). Income tax revenue can be used to provide e.g., subsidies to certain goods and services (1)
reducing prices (1).
2(d)[8]
Discuss whether or not governments should aim for a high rate of economic growth. In assessing each answer, use the table opposite. Why it should:
economic growth can raise incomeshigher incomes can raise living standardseconomic growth can reduce unemploymenteconomic growth can increase tax revenue allowing the government to spend more on e.g., education. Why it should not:may deplete non-renewable resources which can reduce future growthmay result in pollutionmay put other demands on workers who may have to work long hoursmay lead to a deficit on current account of the balance of paymentmay result in greater inequalityrisk of inflation 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 Guidance Level Description 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.
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