Economics · May / June 2025 · Paper 21 · Question 5
0455
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The question as text
Australia has a number of firms that operate in other countries. These multinational companies (MNCs) provide several benefits for their home country of Australia. The Australian Government imposes relatively low import tariffs and the country has a floating exchange rate. In recent years, Australia has experienced an increase in investment and a higher Human Development Index (HDI) value.
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5(a)[2]
Identify two benefits an MNC may provide for its home country. Two from:
profits(increased) exportsraw materialsjob opportunity / wages for workersraise country’s income 2 If more than two benefits given, consider the first three. Identify means that the benefit does not have to be explained.5(b)[4]
Explain two disadvantages of import tariffs. Logical explanation which might include:
Reduce (free) trade (1)lower competition (1)
.
Risk of retaliation (1)resulting in trade war / unemployment (1).
Raise price of imports (1)which may raise price of domestically produced goods (because of the lack of competition) (1)
.
Raise the price of imported raw materials / capital goods (1)cause cost-push inflation (1)
.
Reduce quality (1)due to lower competition (1)
Protected industries / infant industries / declining industries may become inefficient (1)if become reliant on tariff (protection) (1).
Reduce output / consumption / less quality / less choice (1)lower living standards (1).
Reduce ability of countries to specialise (1)less efficient use of resources / loss of potential economies of scale (1). 4 One mark each for each of two disadvantages identified and one mark each for each of two explanations. If more than two disadvantages given, consider the first three. Only allow one mark for reference to lower competition.
5(c)[6]
Analyse how an increase in investment can result in a rise in a country’s HDI value. Coherent analysis which might include:
Investment can increase GDP / GNI (1)employment (1)
which may increase GDP/ GNI per head (1)
higher GDP/ GNI may raise tax revenue (1)
enabling the government to spend more on education and healthcare (1).
Higher personal income / wages (1)enabling families to afford sending children to school (1)
pay for private healthcare (1).
An increase in investment in healthcare facilities (1)can increase life expectancy (1).
An increase in investment in education (1)will increase mean / expected and expected years of schooling (1)
increase skills/productivity (1)
which may increase GDP per head (1)
raise awareness about nutrition (1)
increase life expectancy (1).
An increase in investment may introduce more advanced technology (1)which can make work less physically demanding (1)
improving health / life expectancy (1).
5(d)[8]
Discuss whether or not having a floating exchange rate benefits an economy.
In assessing each answer, use the table opposite. Why it might:
may eliminate a current account imbalanceif there is a current account deficit, exchange rate may fall making exports fall in price and imports rise in priceno need to keep reserves of foreign exchangeno need to change interest rates to influence the exchange rateenable government to concentrate on other aims as does not have to keep the exchange rate fixed. Why it might not:may make it difficult for firms to plan, not knowing how much they will have to pay for imports and earn from exportsmay create uncertaintydiscourage investmentspeculation can cause (significant) destabilising changes in the exchange rate.
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