2025 ASR-VJC-TJC H3 Economics Prelim Paper QP

1 © ASRJC Economics Department 9809/01/JC2 Prelim/2025 [Turn Over ECONOMICS 9809/01 Paper 1 23 September 2025 No Additional Materials are required. 3 hours 15 mins READ THESE INSTRUCTIONS FIRST An answer booklet will be provided with this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional answer booklet s, ask the invigilator for a continuation booklet. Section A Answer all questions. Section B Answer two questions. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 7 printed pages and 1 blank page. ANDERSON SERANGOON JUNIOR COLLEGE JC2 PRELIMINARY EXAMINATION Higher 3

2 © ASRJC Economics Department 9809/01/JC2 Prelim/2025 [Turn Over Section A Answer all questions in this section. 1 Issues in Cryptocurrency Extract 1: What is Cryptocurrency (Crypto)? A cryptocurrency is a digital or virtual currency secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. It is a form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities. Some experts believe blockchain and related technologies will disrupt many industries, including finance and law. The advantages of cryptocurrencies include cheaper and faster money transfers and decentralized systems that do not collapse at a single point of failure. The disadvantages of cryptocurrencies include their price volatility, high energy consumption for mining activities, and use in criminal activities. Source: Investopedia, assessed 3 December 2024 Extract 2: Why Investors buy Crypto In a little more than a decade, investors have transformed cryptocurrency from a techno - curiosity into a trillion-dollar-plus opportunity that has the potential to one day reshape the global economy. A new study by Harvard Business School professor Marco Di Maggio shows that on average, cryptocurrency investors have higher household incomes, live in wealthier and more educated ZIP codes, like to gamble, frequently use credit cards, and often overdraft their checking accounts. Moreover, these investors are drawn by the lure of potentially higher returns in a “lottery-style payoff” than the returns expected from traditional investments. Plus, the COVID-19 stimulus money led new investors to experiment with cryptocurrencies, according to the study. Yet while crypto investors might have a higher risk tolerance than more typical investors, they make decisions based on the same variables as other investors in traditional asset markets. At the same time, the industry finds itself in the spotlight of regulators who are exploring ways to tighten control of the fledgling market. In addition, despite the growth of cryptocurrency, many consumers and businesses remain sceptical. A study of 59 million United States (US) consumers Di Maggio and a team of economists analysed the bank account and credit card transactions of more than 59 million US consumers between January 2010 and May 2021. They then supplemented this massive database with demographic data, such as income ranges and places of residence. Two surges in crypto’s popularity The heart of the paper sought to answer a fundamental question: Who invests in crypto? • Booming interest in Bitcoin in 2017 drove new investors into cryptocurrency at a rate of about 10,000 people per month.

3 © ASRJC Economics Department 9809/01/JC2 Prelim/2025 [Turn Over • Three years later, a second surge brought in new investors but at a slower rate of about 5,000 investors per month. • During both periods, investors devoted about 3 percent of deposits and 6 percent of spending to purchasing cryptocurrency. • Sixty percent of crypto transactions are made by investors earning more than $75,000, while those earning $45,000 or less accounted for another 20 percent of the transactions. What to know about cryptocurrency investors Di Maggio's findings offer some key insights about the world of cryptocurrency investing: • More people are embracing crypto. Managers who have been contemplating whether it makes sense for their companies to start accepting cryptocurrency as a form of payment may want to consider doing so. Since the study suggests that crypto investing has edged into the mainstream, it means businesses are likely to see more consumer demand for spending of crypto as a currency in lieu of dollars and cents. • Crypto may offer inflation protection. Many in the investment community have argued that cryptocurrencies, Bitcoin in particular, provide a hedge against inflation because they are not subject to the decisions of a government or central bank, and feature a limited supply schedule that make Bitcoin resemble digital gold. • Investors often don’t stick with crypto for the long haul. Investors seem more willing to cash out of crypto investments than traditional investments, a sign that some are drawn by the promise of a lottery-style payout. Source: adapted from: Ben Rand, Why Mainstream Investors Buy Crypto, 17 August, 2023 Extract 3: Information asymmetry Bitcoin transactions are influenced by prevailing social sentiment in the market, leading to information asymmetry. This sentiment often forms on social platforms that cater to market participants. Some buyers may have access to trading-relevant information, while sellers may lack it, because the information is intentionally withheld or simply unavailable. The reverse scenario can also occur, where sellers possess an informational advantage over buyers. Asymmetric information has existed in financial markets for many years, and many participants tend to think of information as not being evenly distributed across participating traders (both buyers and sellers) (Spencer, 2000). Information asymmetry for Bitcoin has been stronger than for stocks (Park and Chai, 2020). Informed traders tend to transact based on economic policy uncertainty and privileged information about digital currency prices. Bitcoin trade is prone to information asymmetry because the related information has not had enough time to accumulate into a consistent single-source, large-scale data corpus so it can be fully studied (Lindman et al. 2017). Thus, traders have difficulty obtaining data they need. Second, information disclosure systems to mitigate information asymmetry among traders also have not been effectively established. Third, the market is inherently imperfect. So, information is not always distributed equitably (Easley et al., 2010) and information asymmetry is unavoidable. Source: adapted from: K. Kim and R. Kauffman, information asymmetry, 2024

4 © ASRJC Economics Department 9809/01/JC2 Prelim/2025 [Turn Over Extract 4: Bitcoin Mining in Kazakhstan Kazakhstan’s largest Bitcoin mine, Enegix, is located in Ekibastuz city, deep into the country’s rust belt, a region marked by aging infrastructure and Soviet-era architecture. When fully operational, Enegix’s facility consumes 150 megawatts of power, five times the peak demand of Ekibastuz itself. Abundant coal and the withering of industrial production after the collapse of the Soviet Union left the area with an electricity surplus. Eventually Bitcoin miners cottoned onto that fact, and in 2017, they started to arrive. Not only was power cheap, but there was almost limitless land and a surfeit of unused industrial buildings that mines could inhabit. Kazakhstan’s miners took advantage of tax breaks and cheap power, and illegal miners also exploited Kazakhstan’s crony poli