EJC Econs 2023 A-Level H2 P1 Q2 - students

Suggested Answers for 2023 A-Level H2 P1 Qn 2: Economic impact of an ageing population (a) With reference to Extract 5: (i) Calculate and compare the old-age dependency ratio for Singapore in 1990 with that in 2020. [3] Old-age dependency ratio in 1990 = 164000/17200 = 10 Old-age dependency ratio in 2020 = 614000/26260 = 23 The old-age dependency ratio for Singapore in 2020 is higher than that in 1990. (ii) Explain one reason for the change in the old-age dependency ratio for Singapore between 1990 and 2020. [2] The old-age dependency ratio for Singapore increased from 1990 to 2020 because the resident population aged 65 years and over increased at a faster rate compared to the resident population aged 20-64 years. This is seen from Table 2 where the resident population aged 65 years and over increased by around 274% which is higher than that of the resident population aged 20 -64 years of around 53%. (b) Explain how the changes in the populations of countries shown in Figure 3 might affect aggregate supply and aggregate demand in those countries. [4] Figure 3 shows a projected decline in the population of those countries from 2006 to 2030 by several millions. The labour shortage that follows could lead to rising pressure on wages as firms compete for the limited amount of labour. The rise in wages could lead to a rise in production costs at every given output level, causing a fall in short run aggregate supply (SRAS). Furthermore, the smaller labour force means a lower number of units of labour, possibly leading to a fall in productive capacity and hence, long run aggregate supply (LRAS). A projected decline in population also means that the consumer base is smaller. Consumer expenditure (C) falls as demand for perishables and durables fall. This will lead to a fall in aggregate demand (AD) as it comprises of C. (c) With reference to Extract 5, explain why firms may choose to ‘cut investment in the domestic economy substantially, even as interest rates fall’. [3] Whether a firm decides to invest and how much to invest by depends on its expected rate of returns. The returns or profits that a firm reaps is given by total cost (which includes borrowing costs i .e., interest payments) subtracted from total revenue. According to Extract 5, firms might believe that output and consumption growth slows following an ageing population. This will mean that they believe that revenues are expected to increase at a lower rate as they project output sold to increase at a lower rate. In the case that firms adopt a more pessimistic outlook, they may project revenues to fall as there could be the belief that elderly individuals withhold their spending as they become more frugal. Hence, even if interest rates fall (meaning that cost of borrowing falls), it could be that expected revenues fall by a greater extent than the fall in cost, leading to a fall in the expected rate of