Economics · May / June 2026 · Paper 21 · Question 1

Calculate Uruguay’s government spending in US dollars in 2023. $13.2 bn. 1 Accept 13.2 bn. Due to a series-specific issue during the live exam series, all candidates were awarded full marks for question 1 (a). The mark scheme for this question was not used by examiners.

Identify two reasons why the Uruguayan Government raised the retirement age. High proportion of/lots of/decrease government spending that goes on pensions (1)

Increasing life expectancy / increasing average age (1)

To increase labour force (1)

2 If more than two reasons are given, consider the first three.

Explain why some Uruguayan workers emigrate to the USA. Higher wages / income (1)

increase living standards / increase quality of life / increase purchasing power / reduce poverty / send remittances back to Uruguay / less progressive tax in the US (1).

Explain two reasons why income inequality is lower in Uruguay than in the USA. Logical explanation which might include: More progressive tax system (1)

takes a larger percentage of the incomes of the rich / take a lower percentage of the income of those on low incomes (1). Higher government spending on education (as % of GDP) (1)

increases employment opportunities / earning potential (1). Higher government spending on healthcare (as % of GDP) (1)

reduces illness/ time off work (1). 4 One mark each for each of two reasons identified and one mark for each of two explanations. If more than two reasons are given, consider the first three.

Draw a demand and supply diagram to show the effect of an increase in demand for swimming pools on the market for water. Coherent analysis which might include: D&S diagram: Axes correctly labelled – price and quantity (or P and Q) (1). Original demand and supply curves correctly labelled (1). New demand curve shifted to the right and labelled (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1).

Analyse the relationship between the number of doctors and life expectancy. Coherent analysis which might include: Expected relationship (up to 2 marks): Direct / positive (1)

as the number of doctors rises, it would be expected that life expectancy rises (1). Supporting evidence (up to 2 marks) Chad has the lowest number of doctors and lowest life expectancy (1)

Angola has the second lowest number of doctors and second lowest life expectancy (1)

Analysis (up to 2 marks): More doctors should be able to provide more/better healthcare/quicker treatment (1)

improving the health of the population (1). Exception (up to 2 marks): Uruguay / New Zealand (1)

Uruguay had the highest number of doctors but only the second highest life expectancy / New Zealand had the second highest number of doctors but the highest life expectancy (1). Analysis of the exception (1 mark): There are other influences on life expectancy e.g. nutrition / more doctors may not be evenly spread across the country/ may not indicate an increase in the skills of doctors / high inequality (1). 5 Responses do not have to be in the format suggested but they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data.

Discuss whether or not Uruguay’s low inflation rate would have benefited the Uruguayan economy. Award up to 4 marks for logical reasons why it might, which may include:

due to increased certainty / confidence (1)

which increased output / total demand / economic growth / GDP (1)

hire more workers / create more jobs (1)

reduce unemployment (1)

increased exports (1)

reduce current account deficit / increase current account surplus (1)

between lenders and borrowers (1)

encouraged saving (1)

Award up to 4 marks for logical reasons why it might not, which may include:

may result in unemployment (1)

as firms may find it difficult to reduce their (real) costs (1)

as lower inflation could be caused by lower demand (1)

lower revenues / profits (1)

may create fears that low inflation may lead to deflation (1)

which can result in a recession (1)

6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease because of reason e.g. incomes may be lower. Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education.

Discuss whether or not Uruguay’s consumers would benefit from more of its markets becoming monopolies. Award up to 4 marks for logical reasons why it might, which may include:

due to economies of scale (1)

example (1)

which may reduce price (1)

which are reinvested / spent on research and development (1)

more innovation / better quality (1)

create new products (1). Award up to 4 marks for logical reasons why it might not, which may include:

due to diseconomies of scale (1)

example (1)

ability to set prices (1)

due to lack of competition (1)

lower purchasing power / real income (1)

lack of innovation (1)

complacency (1)

inelastic demand / necessity (1)