H1 Paper 1 tmjcprelim2024 CSQ2 ans

JC2 H1 Economics 8843 2024 Prelim Suggested Answers & Markers Report 20 Tampines Meridian Junior College Question 2: Trouble in the United States and Singapore Suggested Answers (a) With reference to Table 2, (i) Describe what happened to the rate of inflation and the price level in US between 2019 and 2022. [3] Rate of inflation has increased. [1] General price level has increased [1] at an increasing rate. [1] OR Rate of inflation has increased [1] with a fall in 2020. [1] General price level has increased. [1] Markers’ Report Skills Strengths (+): What are the required skills that were well - demonstrated? Areas for improvement ( -): What are the skills that were lacking/ not well-demonstrated? Aha moment! (+) Majority wrote 3 distinct observations. (-) Some did not answer the question explicitly by linking to CPI instead of price levels. Students need to address the question directly. (-) A few scripts did a comparison of inflation rates and price levels between Singapore and US which is not the question intent. Content Strengths (+): What are some concepts that were well - explained with clear linkages made? Areas for improvement (-): What are some concept gaps / conceptual errors? Aha moment! (+) Majority of the students can identify 3 main observations on inflation rate and price level. (-) A handful picked up that the largest increase in prices in US was in 2022 but the information is not the most meaningful from the data set. (-) Some students wrote that price level increases at a decreasing rate from 2019 to 2020 but the time period is too short to consider the rate of change. This is a similar issue when students explain that price level increase at an increasing rate from 2020 to 2022.

JC2 H1 Economics 8843 2024 Prelim Suggested Answers & Markers Report 21 Tampines Meridian Junior College (-) A small group of students interpreted a fall in inflation rate as a fall in price level. However, the data shows that inflation rate is still in the positive region. (ii) Explain why a nominal rate of interest of 4.5 per cent in the US in 2022 would be described as being ‘negative’ in real terms. [2] Real interest rate is the nominal interest rates adjusted for inflation. As stated in Extract 2, the interest rate is at 4.5% in 2022 and inflation rate is 8% as reflected in Table 1. Real interest rate is negative because 4.5-8 = -3.5%. OR Real interest rate is negative as inflation rate is higher than the nominal interest rate. Markers’ Report Skills Strengths (+): What are the required skills that were well - demonstrated? Areas for improvement ( -): What are the skills that were lacking/ not well-demonstrated? Aha moment! (+) Most students understood the question requirement and made good reference to inflation rates in Table 2. (-) Some students fail to recognise that Table 2 already showed the inflation rates, and so they proceeded to calculate the change in CPI for US in 2022 instead. Content Strengths (+): What are some concepts that were well - explained with clear linkages made? Areas for improvement (-): What are some concept gaps / conceptual errors? Aha moment! (+) Majority of students were able to provide the accurate definition of “real”. (-) Some students showed weak understanding of ‘real interest rates’ and gave erroneous definition of ‘real’ as having accounted for changes in either (1) population growth, (2) interest rates or (3) GDP. (-) Weaker responses did not provide a clear explanation as to why real interest rate is negative – inflation rate is high -er than nominal interest rate. Instead, their responses merely accounted for ‘real’ – inflation rate is high . Students need to understand that a high inflation rate does not necessarily result in negative interest rates.

JC2 H1 Economics 8843 2024 Prelim Suggested Answers & Markers Report 22 Tampines Meridian Junior College (b) Explain how a negative real interest is likely to affect the exchange rate in the US. [3] Explain effect on exchange rate With negative interest rates, there is also less hot money inflow into US. This will lower the demand for US Dollar. There is more hot money outflow from US seeking for higher interest rates elsewhere. This will increase the supply US Dollar. This will lower the exchange rate in US (i.e. US Dollar depreciates). Markers’ Report Skills Strengths (+): What are the required skills that were well - demonstrated? Areas for improvement ( -): What are the skills that were lacking/ not well-demonstrated? Aha moment! (-) A handful of student s misinterpreted the question to look at how exchange rate policy can be used to tackle the negative interest rates instead of looking at the impacts. Content Strengths (+): What are some concepts that were well - explained with clear linkages made? Areas for improvement (-): What are some concept gaps / conceptual errors? Aha moment! (-) Some students explain how negative interest rate will affect C&I but this will not help to answer the question on the impact on exchange rates. (+/-) Majority of the students can recognise how demand or supply of currency changes with interest rates falling however they are less able to explain the reason behind it. Also, some students only look at either the impact of fall in dd or increase in supply but not both. (c) With reference to Extract 5 and using a supply and demand diagram, comment on the likely effects on the food market in the US. [6]

JC2 H1 Economics 8843 2024 Prelim Suggested Answers & Markers Report 23 Tampines Meridian Junior College Explain change in DD for food [1] As stated in Extract 5 para 1, the Covid-19 pandemic has led to “panicked shoppers stockpiled groceries” where consumers expect future price s of food to increase, hence increases DD for food at present. Explain change in SS of food [1] According to Extract 5 para 1 “Russia’s invasion of Ukraine has pushed up the prices of energy and fertilisers”, therein implies a rise in COP which in turn leads to a fall in profit margins for food producers, hence decreases SS of food OR According to Extract 5 para 1 “droughts and an avian flu outbreak” has resulted in decrease in SS of food due to extreme b ad weather condition / outbreak of diseases destroy crops. Explain market adjustment process to derive impact on eqm P & Q [2] • [Initial eqm] Initial equilibrium is at E1 with corresponding equilibrium price and quantity at P1 & Q1 respectively. • [Shifts] As explained above, DD for food increases, thus a rightward shift of DD curve to D2 and since SS of food has decreased, there will be a leftward shift of SS curve to S2. • [Justification – 1m] In this context, the fall in SS would be greater than the rise in DD for food since Russia is a “major exporter” of chemical fertilisers. Furthermore, fertiliser is a major factor input for farmers to ensure healthy crops, so since fertiliser price has increased significantly, the COP for farmers would have also increased significantly which thereby causes SS of food to decrease significantly. As such, SS > DD, ceteris paribus. • [Shortage/Surplus] Shortage at original price P1 since QD>QS, thus exerts upward pressure on price. As price increases, quantity demanded decreases and quantity supplied increases. This process continues until a new equilibrium (