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Economics · Oct / Nov 2025 · Paper 21 · Question 3

0455

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Japan has faced significant periods of deflation in recent decades. Despite efforts to stimulate the economy through fiscal policy measures and monetary policy measures, economic growth remains low. Some economists have also argued that the monetary policy used by the central bank is one of the causes of low productivity in Japan.

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  • 3(a)[2]

    Identify two fiscal policy measures.

    government spending (1)
    taxation (1)

    2 If more than two measures are given, consider the first three. Accept two types of spending, or two types of taxes. Allow contractionary (1)

    expansionary (1)

    measures.

  • 3(b)[4]

    Explain two influences on productivity. Logical explanation which might include the following. Quality of factors of production (1)

    better quality improves efficiency / poor quality reduces efficiency (1). Working conditions / wages (1)

    influencing worker motivation (1)

    technology (1)

    machine speed / effects on capital productivity (1)

    education (1)

    skilled workers / effects on labour productivity (1). Healthcare (1)

    healthier workers capable of producing higher output / sick workers take time off work (1). Effectiveness of institutions (1)

    amount of bureaucracy affects efficiency (1)

    use of resources (1)

    whether wasted or used efficiently (1). 4 One mark each for two influences identified and one mark each for two explanations. If more than two influences are given, consider the first three.

  • 3(c)[6]

    Analyse reasons why central banks are important for an economy. Coherent analysis which might include:

    control inflation (1)

    by implementing monetary policy (1)

    such as changes in interest rates (1)

    prevent prices from rising too much (1)

    prevents deterioration of purchasing power / affordability of goods and services (1)

    prevent deflation (1)

    maintain financial stability (1)

    monitoring health of banks (1)

    preventing collapse of banks (1)

    assuring savings are protected (1)

    ensuring consumers have access to credit (1)

    ensuring liquidity of the economy (1)

    provision of economic information (1)

    which can help decision-makers (1)

    buying / selling currency (1)

    to influence exchange rates (1)

    lenders of last resort (1)

    providing liquidity to commercial banks (1).

  • 3(d)[8]

    Discuss whether or not deflation is a problem for an economy. In assessing each answer, use the table opposite. Why it might be a problem:

    decreases confidence in the economy
    deflationary cycle
    loss of jobs
    delays in spending reduce demand
    lower profits for firms from lower prices. 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 Why it might not be a problem:
    decreases prices, increasing affordability for consumers
    if it is caused by decreases in cost, problems for the economy are less significant
    increase in international competitiveness
    it depends on the extent and duration of the deflation. 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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