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Economics · Oct / Nov 2022 · Paper 21 · Question 5

0455

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The question as text

Bulgaria is part of the European Union (EU), but it has much lower corporation tax rates than other EU members. However, regulation by the Bulgarian government has discouraged foreign investment into Bulgaria. In addition, Bulgaria’s economic growth rate has decreased in recent years, due in part to a steady fall in its quantity of labour.

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  • 5(a)[2]

    Define regulation. a set of rules or laws (1)

    normally imposed by government / form of government intervention (1)

    to affect behaviour of various economic actors in the economy (1). 2 Award 1 mark for any relevant examples e.g. No smoking for under 16s, not allowed to leave home, no chewing gum, prohibition of alcohol sales, compulsory face masks.

  • 5(b)[4]

    Explain two causes of a fall in the quantity of labour in a country. Logical explanation which might include:

    Negative net migration (1)

    emigration rates higher than immigration rates (1)

    as people search for better job opportunities / higher wages / higher living standards elsewhere (1).

    High death rates (1)

    the ratio of deaths to the population (per thousand people per year) increases (1)

    due to poor healthcare facilities / lack of medicines / diseases (1).

    Ageing population (1)

    average population getting older (1)

    lots of retirees / pensioners (1)

    no longer contributing to the labour force (1).

  • 5(c)[6]

    Analyse how differences in the rates of corporation tax between countries may affect multinational companies (MNCs). Coherent analysis which might include: Lower corporation tax in one country will attract more MNCs into the country (1)

    this is because their potential after tax profits will increase (1). Lower corporation tax will attract more MNCs to reinvest in the economy (1)

    this is because they will be able to get more profits and thus more capital for reinvestments (1)

    this could to an increase in investment in capital which leads to increased productivity (1)

    and increased output of MNCs (1). Lower corporation tax will enable more firms to expand their operations (1)

    and therefore hire more workers (1).

  • 5(d)[8]

    Discuss whether or not a decrease in a country’s economic growth rate will harm its economy. In assessing each answer, use the table opposite. Why a decrease in economic growth rate will harm an economy:

    Less job creation – higher unemployment
    Reduction in consumer confidence in the economy
    Reduction in investor confidence in the economy
    Lower tax revenues – less spending on development
    Reduction in level of increase in living standards. Why a decrease in economic growth rate will not harm an economy:
    Reduce inflation
    Less harm to the environment
    Might reduce level of imports – less deficit in the current account of the balance of payments
    Less stress – lower working hours. 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 Guidance Level Description 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.
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