2022 RI H1 Econs Prelims (CSQ2 Examiner's Report)

8823/01/Prelim/Y6/22 1 © RI 2022 ECONOMICS Higher 1 Syllabus 8823 Examiner’s Report Year 6 Prelims 2022 Case Study Question 2 R a f f l e sI n s t i t u t i o n N u r t u r i n g t h e T h i n k e r , L e a d e r & P i o n e e r TEL: 65 6419 9888 ● FAX: 65 6419 9898 http://www.ri.edu.sg ● One Raffles Institution Lane, SINGAPORE 575954

8823/01/Prelim/Y6/22 2 © RI 2022

8823/01/Prelim/Y6/22 3 © RI 2022 ECONOMICS Y6 H1 Prelims 2022 Paper 8823 Case Study 2 (a) With reference to Figure 1, summarise the main changes in Vietnam’s GDP from 1985 to 2019. [3] Overall trend [1m] • Vietnam consistently recorded positive annual GDP growth rates hence GDP rose from 1985 – 2019. Refinement [additional 2m – 1 mark for each correct observation] • GDP grew at an increasing rate from 1985 to 1995. • GDP grew at a falling rate from 1996 to 1999. • GDP grew fastest in the period from 1992 to 1998 (at least 8%). • GDP grew at a steady rate of around an average of 6-7% between 1999 to 2019. Suggested summary of main changes: Vietnam consistently recorded positive annual GDP growth rates hence GDP rose from 1985 – 2019. In the earlier years, from 1985 to 1995, Vietnam’s GDP grew at an increasing rate, peaking at 9.5% in 1995. In the period between 1992 and 1998, Vietnam’s GDP grew the fastest, with growth rates of at least 8%. However, after 1995, GDP started to grow at a falling rate, reaching a steady rate of around 6-7% on average, between 1999 and 2019. Comments: • Many students being unable to provide a summary of main changes in GDP. • There were some students who mixed up GDP and GDP growth rate. These resulted in misinterpretation of the data, with some students stating that fastest increase in GDP was from 1986 to 1989 . This would be correct for GDP growth rate, but incorrect for GDP . The fastest increase in GDP should be from 1992 to 1998 where growth rate was at least 8%. • Students should also recognise that question requirement was to ‘summarise the main changes’, so stating that GDP grew fastest in 1995 and grew the slowest in 1986 are invalid observations. A one-year data does not constitute a summary of changes. A summary entails observation from a range of years (at least 3 years). • Similarly, a statement like ‘ GDP rose at a rising rate from 1985 to 2019 ’ is also not very meaningful as it does not provide information about main changes since rates of growth varied quite a lot over the data range. (b) (i) Explain the difference between GNI and GDP. [1] One mark for clear difference explained: GDP is the total value of all final goods and services produced within the geographical boundary of a country, regardless of whether resources used in production were local or foreign owned. On the other hand, GNI is the total income received by the residents of a country, regardless of where the factors of production are within or outside the country. OR GNI = GDP + Net factor income from abroad i.e. income earned by the country’s factors of production residing overseas is added to GDP, while income earned by foreign factors of production residing within the county is deducted from GDP. Comments:

8823/01/Prelim/Y6/22 4 © RI 2022 • The main reason students did not do well for this question was the weak knowledge of GNI. Weaker scripts could not define GNI accurately. • Better scripts were able to explain that the difference lies in net factor income from abroad. • Most of the better scripts explained that income earned by the country’s factor of production based abroad was added to GDP. However, students should note that income earned by foreign factors of production based within the geographical boundary must also be deducted from GDP. (ii) Extract 1 states that “Singapore’s economy stands to benefit from Vietnam’s continued growth”. Explain one way that ‘Vietnam’s continued growth’ can increase Singapore’s GDP and one way that it can increase Singapore’s GNI. [4] First 2 marks for explaining how ‘Vietnam’s continued growth’ → increase in GDP ‘Singapore’s economy stands to benefit when foreigners from the region visit the country as tourists, to attend school or do business’ • Vietnam’s continued growth → Higher income → Higher purchasing power [1] → increase demand for goods produced in SG or increase X → Increase AD due to increase net exports → Increase SG’s GDP. [1] Next 2 marks for explaining how ‘Vietnam’s continued growth’ → increase in GNI ‘Growing affluence in Vietnam creates tremendous growth opportunities’ and ‘More Singapore companies are choosing to invest in Vietnam, riding on… the country’s steady growth.’ • Vietnam’s continued growth → Higher expected returns in investment / higher expected profits earned by SG firms who set up in Vietnam [1] → when profits are repatriated from Vietnam → Increase SG’s GNI. [1] Comments: • There were better explanations for how GDP could increase due to Vietnam’s continued growth, compared to the explanation for GNI. • Most of the mistakes stemmed from weak knowledge of GNI. This is worrying as GNI is an important key economic indicator. GNI per capita is used to measure material standard of living and is part of the composition data for Human Development Index (HDI). This lack of knowledge also impeded the crafting of good responses for part (e). • Many weak answers mixed up the effects of Vietnam’s continued growth on GDP and GNI. • Economic analysis also tended to be weak. For example, many students stated that Vietnam’s continued growth will increase the demand for produced goods and services in Singapore. A better response would first acknowledge the rise in income, hence purchasing power. Similarly, many students just lifted from case material and stated that SG firms would increase investment in Vietnam due to continued growth. Better responses would explain the underlying factor contributing to increased investment e.g. higher expected rate of returns or profits. (c) With reference to Extract 2 and use of relevant economic analysis, comment whether the Vietnamese government ought to be concerned with the country’s vulnerability to climate change. [7] Approach: Vietnamese government ought to be concerned → Due to n egative impact on the economy → In terms of attainment of the 3 macroeconomic goals → Economic growth (actual and potential), Unemployment and Inflation. (Answers relating to sustainable or inclusive economic growth are equally acceptable) Thesis: The Vietnamese government ought to be concerned about climate change as it would result in negative macroeconomic impact on the economy [up to 4 marks] • Climate change → changes in weather conditions such as ‘temperature and precipitation’ → reduce yield of farm products → price of agricultural products [1]

8823/01/Prelim/Y6/22 5 © RI 2022 • As Vietnam has ‘high dependence on agriculture’ → loss of export competitiveness of agricultural products → Fall in export revenue → Fall in net export (assuming import expenditure unchanged) → Fall in AD [1] [Students can also interpret ‘high dependence on agriculture’ as agriculture products making up a large proportion of output produced in Vietnam. Hence when yields are reduced → Fall in AS] • This will lead to an unplanned surpluses and firms will reduce output and hire less worker. When workers’ income falls → fall in income -induced consumption, triggering further decreases in AD and income → RNY falls more than proportionately than the initial fall in AD → Fall in actual economic growth. [1] • Moreover, climate change → ‘significant infrastructure damage’ such as ‘roads [being] washed away’ → fall in productivity and efficiency e.g. firms transporting goods and services will not have to use alternative longer routes → fall in productive capaci