CJC 2025 A-Level CSQ2 ANS

© Catholic Junior College Economics Department 2026 1 2025 H1 A Level CSQ2 Suggested Answers ai State what is meant by a government budget balance. [1] A government budget balance refers to the difference between a government's total tax revenue and its total government expenditure over a given period, usually one fiscal year.[1] aii With reference to Figure 4, compare the government budget balances as a percentage of GDP in Singapore and the UK between 2013 and 2022. [3] The UK recorded a budget deficit throughout the entire period from 2013 to 2022, with budget balances remaining negative and ranging from approximately –2.1% to –15.1% of GDP. In contrast, Singapore's budget balance fluctuated between small surpluses and d eficits over the same period, indicating a more balanced fiscal position. [1] In terms of magnitude, the UK generally experienced larger budget deficits than Singapore. For example, in 2020, the UK's budget deficit reached 15.1% of GDP, significantly exceeding Singapore's deficit of 10.8% of GDP. [1] Both countries’ budget balances worsened sharply in 2020 followed by a gradual improvement in 2021 and 2022. [1] b With reference to Extract 5, explain two reasons why it might be misleading to use nominal household income data to infer changes in the standard of living in Singapore between 2017 and 2022. [4] [2 marks for 2 possible reasons . 1 mark for identification of point and 2nd mark for explanation.] Using nominal household income alone can give a misleading picture of changes in the standard of living because it does not take into account changes in the general price level. [1] Even if nominal income rises, households may not necessarily be better off if inflation increases at an equal or faster rate. In such cases, the purchasing power of income falls, meaning households are able to buy fewer goods and services despite earning a higher nominal income. Therefore, real income is a more accurate indicator of living standards than nominal income. [1] A second limitation is that nominal household income does not reflect changes in household size and composition. [1] An increase in total household income may simply result from more household members entering the workforce rather than an improvement in the economic well -

© Catholic Junior College Economics Department 2026 2 being of each individual. Measures such as per capita income or median household income adjusted for household size provide a more meaningful assessment of changes in living standards. [1] Therefore, nominal household income should be interpreted with caution when assessing standards of living, as it ignores both inflation and differences in household composition. c With reference to Extract 6, explain how changes to the tax rates can assist the government in maintaining fiscal sustainability over the long term. [4] What is fiscal sustainability? Fiscal sustainability refers to the government's ability to finance its expenditure and meet its financial obligations over the long run without accumulating unsustainable levels of debt. [1] Explain how a rise in tax rates can help maintain fiscal sustainability Changes in tax rates can influence fiscal sustainability by affecting the amount of tax revenue collected by the government. An increase in tax rates generally raises government revenue, assuming the tax base remains relatively stable. [1] Higher government revenue improves the government's fiscal position by reducing budget deficits or increasing budget surpluses. This allows the government to finance expenditure more sustainably without relying excessively on borrowing. [1] For example, higher indirect taxes such as the Goods and Services Tax (GST) increase the tax paid on consumption expenditure. As households and firms pay more tax, government revenue rises. [1] OR Similarly, increases in direct taxes such as income tax can boost tax collections from individuals and businesses, provided that the disincentive effects on work and investment are limited. [1] d With reference to Extract 7, explain how the supply-chain crises might have affected the UK's aggregate supply and how the international conflicts might have affected the UK's aggregate demand. [4] The supply-chain crises following the pandemic have led to shortages of raw materials and components which caused a rise in the prices of factor inputs. [1] This increases the cost of production for UK firms, particularly in the manufacturing industry and therefore reduced the SRAS, causing the SRAS curve to shift up. [1] The international conflicts, such as the Russia -Ukraine war, create global economic uncertainty. [1] This uncertainty damages business and consumer confidence. Firms may delay investment projects (I) as they expect business profitability to fall, and households may increase precautionary savings, reducing consumption (C). Since C and I are components of a ggregate demand (AD = C + I + G + (X – M)), delayed investment and reduced consumption will lead to a fall in AD. [1]

© Catholic Junior College Economics Department 2026 3 e With reference to Figure 3, comment on whether the data supports the expected relationship between GNI per capita and HDI. [6] Expected relationship between GNI per capita and HDI The expected relationship between Gross National Income (GNI) per capita and Human Development Index (HDI) is a positive one. A higher GNI per capita generally provides governments and households with greater financial resources to spend on healthcare, education and other merit goods, which are key determinants of HDI. Consequently, countries with higher incomes are expected to achieve higher levels of human development. The data supports the expected relationship The data largely supports this expected relationship. Countries with low GNI per capita, such as Mali (below US$500), record very low HDI values of less than 0.5. In contrast, countries with high GNI per capita, such as Singapore (above US$90,000), achieve HDI values exceeding 0.9. This suggests that higher incomes increase access to healthcare and education, improving life expectancy, educational attainment and overall living standards. Therefore, the data demonstrates a clear positive correlation between GNI per capita and HDI. Comment: the data may not support the relationship in all instances However, the data does not support the relationship in all instances. For example, the United States has a significantly higher GNI per capita (approximately US$65,000) than the United Kingdom and Australia (approximately US$45,000–50,000), yet its HDI is slightly lower than both countries. This indicates that higher income alone does not automatically translate into better human development outcomes. Since HDI is determined not only by income but also by health and education indicators, countries that do not effectively convert their economic resources into improvements in healthcare, education and life expectancy may record lower HDI values despite having higher incomes. Conclusion Overall, the data supports the expected positive relationship between GNI per capita and HDI. While a few anomalies exist, the general trend shows that countries with higher GNI per capita tend to achieve higher levels of human development. Therefore, the relationship is strong, although it is not perfectly linear. Level 2 3-4m Up to 4 marks for an analysis of the expected relationship and how the data supports it Level 1 1-2m Up to 2 marks for an analysis of the expected relationship OR how the data supports it Evaluation 1-2m Up to 2 marks for a relevant comment on how the data does not support the expected relationship