TMJC 2022 A Level H2 CSQ1

2022 A Level H2 Economics Suggested Answers to Paper 1 CSQ1 © TAMPINES MERIDIAN JUNIOR COLLEGE Question 1: Economic problems caused by drought and the coronavirus (COVID - 19) pandemic (a) Use a supply and demand diagram in each case to explain why: (i) the price of fresh fruit and vegetables in Australia has risen as a result of the drought. [2] The drought in Australia will mean no or insufficient water for the growth of fruits and vegetables. This will lead to a fall in the supply of fresh fruit and vegetables from S1 to S2 as shown in Figure 1 below. At the original price OP1, there will be a shortage of Q3Q1 of fresh fruit and vegetables, and this will exert an upward pressure on the price causing it to rise from OP1 to OP2. Accurately labelled diagram – 1m: Figure 1: (ii) International tourist arrivals into Australia are expected to fall as a result of the bush fires. [2] The “smoke haze and uncertainty about safety” due to the bush fires have caused a change in taste and preference against travelling to Australia . This will cause the demand for tourist arrivals to Australia to fall. As shown in Figure 2 below, the demand curve will shift from D1 to D2. The equilibrium quantity of international tourist arrivals falls from Q1 to Q2.

2022 A Level H2 Economics Suggested Answers to Paper 1 CSQ1 © TAMPINES MERIDIAN JUNIOR COLLEGE Accurately labelled diagram – 1m: Figure 2: (b) With reference to the data, explain one possible reason for the change in Australia’s budget balance from February to June 2020. [2] Australia’s budget balance changed from a budget surplus to budget deficit. This is because the Australian government increased government spending as a fiscal stimulus to boost aggregate demand so as to help the economy to recover from falling GDP due to the negative impacts of bushfires (Extract 2) and the coronavirus shock (Extract 3). Assuming no change in government’s revenue, the large increase in government expenditure would cause the budget balance to go into a deficit. (c) With reference to Extract 2, explain why a nominal interest rate of 0.25% in March 2020 would be described as being ‘negative’ in real terms. [2] Real interest rate is the nominal interest rates adjusted for inflation. [1] With reference to Extract 2, t he interest rate is 0.25% and inflation rate is 2.2% as reflected by the change in consumer price index . Real interest rate is negative because 0.25-2.2 = -1.95%. [1] OR Real interest rate is negative as inflation rate is higher than the nominal interest rate. (d) Explain how a negative interest rate is likely to affect savings by consumers an