2025 TYS H2 Economics Paper 1 CSQ Answers (HCI)

Suggested Answers to A Level 2025 H2 Economics (CASE STUDIES) by Hwa Chong Institution Economics Unit 2025 A-Level Case Study Question 1 (a) Using the data in Table 1 (i) calculate Japan’s aggregate demand in 2019. [1] AD = C + I + G + (X-M) = 304.6 + 142.5 + 111.3 + (- 1.6) = 556.8 trillion yen (ii) Calculate Japan’s spending on imports of goods and services in 2019. [1] (X-M) = -1.6 97.4 - M = -1.6 M = 97.4 + 1.6 = 99 trillion yen (b) Using Table 1, explain how changes in exports of goods and services from 2021 to 2024 might affect one other component of aggregate demand in Japan. [3] Identify changes in exports from 2021 to 2024 Exports is expected to rise at a decreasing rate from 2021 to 2024 [1m] Impact on one other component of AD (I) in Japan [2m] Since exports are expected to rise, firms in the export industry expect higher sales and returns. They would be more willing to invest and spend on capital goods such as new equipment and machinery to expand production of goods and services as it is now more profitable to do so. Assuming the expected rate of returns exceed the borrowing costs of investment, level of investment, a component of AD will rise. OR Impact on C Higher exports increase aggregate demand directly and raise real national income, leading to higher derived demand for labour. This increases employment and wages, which increases induced consumption via the income and multiplier effects. (c) Using a diagram, explain how monetary policy under ‘Abenomics’ would affect Japan’s aggregate demand, aggregate supply and hence its real output. [4] From Extract 2, the BoJ engages in massive quantitative easing and sets negative interest rates (i/r) under Abenomics. As money supply increases and cost of borrowing lowers, consumption of consumer durables and investment in capital goods increase due to rise in expected profitability of investment as MEI>i/r.

Suggested Answers to A Level 2025 H2 Economics (CASE STUDIES) by Hwa Chong Institution Economics Unit Figure 1 [1m] Since consumption and investment are components of AD, AD rises. Households will spend part of the additional income causing induced consumption to rise further but some of the income is withdrawn, each additional round of consumption will become increasingly smaller. Through this multiplier process, national income and output rises several times more than the initial rise in AD. [1m]. In addition, investment increases the quality and quantity of capital and increase the productive capacity of Japan’s economy, raising AS from AS0 to AS1 [1m]. With both AD and AS increasing the real output increases from Y0 to Y1 [1m]. (d) Explain two possible ways in which fiscal policy under ‘Abenomics’ might affect Singapore’s competitiveness. [3] Impact on Singapore’s competitiveness for Investment [2m] Increases in Japan’s consumption taxes dampen consumer spending and reduce firm’s profitability in Japan. High government debt further erodes investor’s confidence and Japan’s competitiveness for investments. This might raise Singapore’s competitiveness in attracting foreign direct investments relative to Japan due to relatively low taxes and stable fiscal position. Impact on Singapore’s Export competitiveness [1m] Increases in Japan’s consumption taxes also raise tourists’ spending on food, transport and accommodation expenses that are non-tax refundable, increasing the overall cost of travelling in Japan. This would increase Singapore’s competitiveness as a tourist destination (export competitiveness) relative to Japan as tourists switch to Singapore as the relatively low cost alternative travelling destination. (e) With reference to Extract 3, discuss whether supply -side policies would have been likely to reduce Japan’s inflation rate. Extract 3: https://www.reuters.com/markets/asia/japans -consumer-inflation-hits- 8-year-high-stays-above-boj-target-2022-10-20/ [8]

Suggested Answers to A Level 2025 H2 Economics (CASE STUDIES) by Hwa Chong Institution Economics Unit R1: Supply-side policies would likely reduce Japan’s inflation rate Short run supply -side policies such as subsidising firms’ costs of production would cushion Japan’s imported cost-push inflation, mainly driven by rising import costs due to strong reliance on imports of energy and food according to Extract 3. Other supply-side policies such as structural reforms in the labour market that increase young people and women’s participation in the service sector (Extract 2) to raise labour productivity and lower unit costs of production for firms would also raise agg regate supply As aggregate supply shifts from AS0 to AS1 as shown in Figure 2 over time, this would reduce general price level from P0 to P1 and curb inflationary pressures. Figure 2 R2: Supply-side policies would unlikely reduce Japan’s inflation rate Continued increase in government debt and high budget deficits (Extract 2) would limit Japan’s budget to provide subsidies to firms. Structural reforms take time to implement and materialise and results are not guaranteed. Furthermore, these policies do not address the immediate root cause of inflation, which is import-price driven due to depreciation of yen. Such domestic supply- side measures have limited impact on reducing external cost pressures. Summative Conclusion: Supply-side policies that enhance productivity would likely reduce Japan’s inflation rate in the long run when accompanied with a gradual tightening of monetary policy that limits excessive currency depreciation of the yen which has been the main driver of Japan’s inflation.

Suggested Answers to A Level 2025 H2 Economics (CASE STUDIES) by Hwa Chong Institution Economics Unit (f) Discuss the extent to which Japan continues to experience economic difficulties following the COVID-19 pandemic of 2020 to 2022. [10] R1 Japan continues to face economic difficulties following COVID-19 pandemic Economic growth remains weak. From Table 2, real GDP growth is forecast to slow down from 1.9% in 2023 to 0.9% in 2024. This is due to weak domestic demand as private consumption and investment growth slows from 2023 to 2024 and external economic pressures as export growth recovery c ontinues to be weak following the pandemic. Japan also continues to face severe fiscal challenges. Government debt is forecast to exceed 250% of GDP with persisting budget deficits. This constrains the government’s ability to use fiscal policy to support growth and recovery. Structural issues such as an ageing population and rigid labour markets further limit economic growth in the long run. Inflation is forecast to fall from 2% in 2023 to 1.7% in 2024 which is still considered modest compared to other major economies, hence BoJ continues to keep interest rates at very low levels (Extract 3). This in turn causes demand for yen to fall and the depreciation of yen to continue. Since Japan heavily relies on imports of both energy and food, continued depreciation will contribute to Japan’s imported inflation. Current account balance as a % of GDP is forecast to fall to 0.9 as compared to 3.5 pre-pandemic, suggesting weakening of Japan’s external competitiveness. This could be due to supply chain disruptions following pandemic and continued imported cost - push inflation offsetting the export price competitiveness gains from weaker yen, leading to lower export growth forecast of 2.9% and 2.2% and falling current account balance as a % of GDP despite currency depreciation. <may include AD-AS diagram and analysis to illustrate slow growth and cost-push inflation> Figure 3

Suggested Answers to A Level 2025 H2 Economics (CASE STUDIES) by Hwa Chong Institution Economics Unit R2 However, there are signs of recovery Unemployment rate remains low and is forecast to fall to 2.4% following the pandemic