2022 A Level H1 economics CSQ2 answers

H1 GCE A Level Examinations 2022 Question 2: Price Stability and Growth Suggested Answers (a) With reference to Table 2 what can be concluded about projected government spending relative to government revenue in Botswana and Zimbabwe? [2] For both countries, government spending is projected to be larger than government revenue. i.e. both countries are projected to have a budget deficit. But Zimbabwe is projected to have a larger budget deficit than Botswana. (b) Explain the relationship you would expect between the adult literacy rate and the real GDP per capita and comment on the extent to which Figure 3 supports the expected relationship. [6] We would expect a positive relationship between the adult literacy rate and the real GDP per capita. With a higher adult literacy rate, it is likely that the labour force is more productive as they can apply their knowledge and skills in their jobs. The higher efficiency and productivity of these skilled workers lead t o higher profit for firms as workers can produce more output per hour and per unit cost of production would be lowered . Investor’s confidence will be enhanced, and this could increase the AD . The rise in Ad would lead to a shortage and upward pressure on GPL. The autonomous increase in I will lead to a more than proportionate increase in the real GDP per capita via the multiplier process. Alternative response: With higher real GDP per capita, the government could collect more tax revenues from income and corporate tax which is a percentage of income and corporate profit respectively. The government could use to provide and subsidise education to a larger number of people in the population. Hence, with the provision of more schools in many parts of the country, there will be a higher adult literacy rate. Figure 3 supported this relationship to some extent. For instance, Mali has the lowest real GDP per capita and the lowest adult literacy rate whilst Botswana and Namibia have one of the highest adult literacy rates and also highest real GDP per capita. However this is not the case for Zimbabwe. It has a high adult literacy rate but a low real GDP per capita relative to the rest. Its low real GDP per capita could be because there are other factor, beyond labour productivity, influencing the level of investor confidence. I and hence AD, could be falling if the overall investor confidence is low i n the country. This could lead to a more than propionate fall in the real GDP per capita leading to a situation of high literary rates but low real GDP per capita. Hence, adult literacy rate is only one determinant of real GDP per capita. There are other influences on real GDP per capita such as the size of capital stock and level of technology. (c) The global price of diamonds changed significantly between December 2019 and March 2020. Using an aggregate demand and aggregate supply diagram, explain the impact this change