CJC 2024 A-level CSQ2 ANS

1 Suggested answer to 2024 A Level H1 Paper 1 CSQ 2 (a) Use the unemployment rate in Figure 2 and select one other economic indicator in Table 2. For each indicator, identify a time period in which Samoa and Singapore’s performance differed significantly and explain your choice. [4] Red areas = similar performance Orange area = differs but not in a significant manner Green areas = differs and somewhat in a significant manner Note: A few misunderstood the label on Figure 2, reporting changes in the total labour force, rather than the unemployment rate. From 2011 to 2012 [1m], the unemployment rate in Samoa increased significantly from about 5.7% to 8.8% while the unemployment rate in Singapore decreased from about 3.9% to 3.7%. An increase or high unemployment rate represents poor economic performance. [1m]

2 Another economic indicator in Table 2 is annual % change in real GDP . In 2021 to 2012, Samoa experienced a recession as real GDP decreased by 8.1% while Singapore experienced actual economic growth as real GDP increased by 7.6%. A positive annual % change in real GDP represents positive economic performance. Note: Some were confused between a reduction in the change in real GDP and a reduction in real GDP. (b) With reference to Extract 4, use the concept of weights to explain Tonga’s high estimated inflation rate of 6.1% for 2022 in Table 2. [4]

3 The inflation rate is calculated as the percentage change in the Consumer Price Index (CPI), which measures the average price level of a fixed basket of goods and services consumed by households. Each item in the basket is assigned a weight based on its re lative importance in household expenditure. [1m] In Tonga’s case, food and fuel are necessities that form a significant proportion of household spending, especially in lower-income economies. As such, these items are likely to have large weights in the CPI calculation. [1m] When prices of heavily weighted items like food and fuel rise substantially, they contribute more to the overall increase in the CPI than items with smaller weights. Thus, even if only a few categories experience large price increases, the overall inflatio n rate can still be high due to their strong influence on the index. [2m] Therefore, the sharp rise in food and fuel prices in 2022, combined with their large weights in Tonga’s consumption basket, explains the high estimated inflation rate of 6.1% shown in Table 2. (c) With reference to Extract 4: (i) Explain how a ‘more progressive taxation system’ could achieve the broad objective of the fiscal policy ‘to protect the vulnerable from the effects of rising food and fuel prices’. [3] A more progressive taxation system is one where individuals with higher incomes pay a larger proportion of their income in taxes while the lower incomes pay a lower proportion. This means the tax burden increases with income level, while lower-income groups have lower or even no tax liability or burden. [1m] With lower taxes, the disposable income of low -income households increases. If this rise in disposable income is greater than or at least matches the rate of increase in food and fuel prices, it leads to an increase in real income, the amount of goods and services they can afford. The tax revenue collected by the government could be used in transfer payments to assist the most economically vulnerable in coping with rising prices of food and fuel by increasing their real disposable income. [1m] As a result, even with rising prices of essential items like food and fuel, vulnerable households will still be able to maintain or improve their standard of living, as they can afford to purchase these necessities. This helps to shield them from the negative effects of inflation, aligning with the fiscal policy objective of protecting the vulnerable. [1m] (ii) Explain how ‘supply-side reform’ could be used to improve the mobility of labour and hence achieve the ‘broad long-term aim of inclusive economic growth’. [5]

4 Supply-side reforms such as improved access to education and training and investment in infrastructure can help to improving labour mobility and promoting inclusive economic growth. By improving access to education and training enhances occupational mobility as workers gain relevant and transferable skills, especially Lower-income workers would be ‘upskilled’ as mentioned in Extract 4. [1m] This leads to improvement in the quality of labour which raises labour productivity, productive capacity of the economy increases which results in potential growth as AS increases from AS1 to AS2 and full employment output increases from YF1 to YF2. [1m] Figure Potential growth also leads to actual growth as real GDP increases from Y1 to Y2. [1m] As real GDP increases, assuming ceteris paribus, unemployment rate will decrease and real GDP per capita will increase, and these will benefit those who gain employment and higher income, usually the low income, leading to a more inclusive growth. [1m] As GPL decreases, the low income will benefit as their real income will increase, leading to a more inclusive growth. [1m] In conclusion, increasing access to education and training and investment in infrastructure can improves labour mobility, promoting actual, potential and inclusive growth. [Bonus Point 1] By improving access to education and training enhances occupational mobility as workers gain relevant and transferable skills that enable them to switch between jobs AD AS2 AS1 Real GDP General Price Level 0 Y1 YF1Y2 YF2 P1 P2

5 or industries more easily, especially in response to structural changes in the economy. For example, training schemes in digital skills can help workers in declining manufacturing sectors transition into growing industries such as information technology. This helps reduce structural unemployment. [Bonus Point 2] Improvement in education and infrastructure can also improve geographical mobility. As the labour force will be more willing and able to relocate to other areas with suitable job opportunities. As unemployment decreases, GINI coefficient will decrease in income inequality will be reduced, resulting to more inclusive growth. [Bonus Point 3] Increase investment in education, training and infrastructure can also lead to increase in G ➔ AD increase ➔ Real GDP increase + lower DD unemployment. (d) With reference to Extract 5, comment on the validity of the assertion that ‘the decision by the Federal Reserve to increase the interest rate makes no sense’. [6] Most candidates tended to utilise an aggregate demand/aggregate supply diagram and gave a developed explanation of the impact of increasing the interest rate on consumption and investment and on the general price level. Many also showed an awareness of a multiplied impact on national income. Most candidates were able to answer the evaluative part well by saying that the assertion was valid. Many argued that increasing interest rates would not tackle the root cause of this inflation and referred to Extract 5 where the decrease in energy supply is identified as the cause of cost -push inflation. Other candidates opined that the higher rate of interest would also cause recession. Assertion is invalid The Federal Reserve of the US has increased the interest rate as a contractionary monetary policy to address inflation in the US. With a rise in interest rate, the cost of borrowing becomes higher. This discourages households from purchasing big-ticket items that is financed by credit. Also a rise in interest rate means that the returns of savings and opportunity cost of spending increases, this will encourage savings and discourage consumption. To firms, the increase in cost of borrowing mea