ACJC International Trade Answers Case Study 2

2024 International Trade Tutorial Worksheet: Case Study Question 2 2020 A Level H2 Economics: The Dangers of a Trade War (a) With reference to Table 4, state the two components of Singapore’s current account, other than the goods and services balance. [2] Note: ‘state’ would mean literally stating without the need for explanation The two components of the Singapore’s current account, other than the goods and services balance is the primary income balance and secondary income balance. (b) Using a production possibility curve diagram(s), explain the likely impact of the change in labour force described in Extract 6 upon China’s economic growth. [2] Identify the changes in China’s labour force as in Extract 6 • “falling birth rates” and “ageing population” Explain the changes: • Fewer birth to replace the retiring workers  shrinking labour force • Composition of labour force is also mostly ageing  elder workers may have lower quality of labourforce as economy advances (drop in productivity)  lower overall quality of labour • The decrease in the quantity and quality of labour resource  lower the maximum amount of goods the economy can produce • China’s production possibility curve will shift inwards from C0K0 to C1K1 as China’s productive potential decreases  falling potential economic growth Cambridge report (FOR TEACHER’S REFERENCE ONLY) Most candidates showed good understanding of production possibility curves and explained the impact of the change in the labour force upon China’s economic growth. Diagrams were accurately drawn and had appropriate axes in most cases. Stronger responses showed how the impact of China’s ‘ageing population and shrinking labour force’ would lead to a shift in China’s production possibility curve to the left as China’s productive potential declined. (c) With reference to Extract 7, explain why it might be claimed that a floating exchange means that the Chinese economy ‘was well placed to withstand external shocks’. [4] Capital goods Consumer goods K1 C1 K0 C0

• China adopting a floating exchange rate would mean that China’s exchange rate will be determined by the demand and supply of Chinese Yuan in the foreign exchange market • With the US imposing significant tariffs on a wide range of Chinese imports, the demand for Chinese goods and services by Americans will fall , leading to a large decrease in demand for Chinese yuan in the FOREX market causing the Chinese yuan to depreciate • W ith a depreciation of the Yuan, Chinese goods and services will now will cheaper in foreign currency, China’s exports will now be more price competitive as foreigners require less of their currency to purchase a unit of Yuan. • This can help to improve China’s X-revenue, assuming that the demand for Chinese’s X is price elastic. This will improve China’s BOT, even though USA imposed tariffs on China, helping China