2026 ACJC H2 Econs P1 Q2 Prelim ANS

ACJC ECONOMICS ACJC Prelim P1Q2 Suggested Responses (a) With reference to Figure 1: (i) State the change in the exchange rate of the Indonesian Rupiah against the US dollar from 2021 to 2024. [1] State the change: The Rupiah has depreciated or weakened or (value of Rupiah) has fallen. [1m] [No need for reason: More Indonesian Rupiah is needed to exchange for USD] [Not acceptable: reading off values from chart (e.g. R14250 to R16250, more rupiah per US dollar). (ii) Explain how the change in the exchange rate of the Indonesian Rupiah against the US dollar from 2021 to 2024 might have affected Indonesia’s balance of trade. [4] The depreciation of the Indonesian Rupiah against the US dollar would increase the price of imports in Indonesian Rupiah and decrease the price of exports in foreign currencies. Increase in import prices will lead to a decrease in quantity demanded. Assuming that there are domestic substitutes available, the demand for imports will likely be price elastic. Hence, the more than proportionate decrease in quantity demanded will lead to an overall decrease in import expenditure since import expenditure is obtained by import price x quantity of imports. Decrease in export prices will lead to an increase in quantity demanded, ceteris paribus. Since export prices in Indonesian Rupiah did not change, the increase in quantity demanded will lead to an overall increase in export revenue ( price x quantity) in Indonesian Rupiah as a result. Overall, net export revenue (X-M) increases, causing an improvement in Indonesia’s balance of trade. Note: Students may use MLC or to assume PED for exports as elastic to justify the increase in net exports (X-M) (b) With reference to Extract 6, explain one example of an opportunity cost of the Indonesian government’s spending on physical infrastructure. [3] Opportunity cost refers to the net benefit of the next best alternative foregone . When the Indonesian government spends on physical infrastructure, it is unable to spend on

ACJC ECONOMICS education . Hence, the government foregoes the improvement in literacy rate that greater educational spending can bring. Note : Answer must show the idea of net benefits of the alternative projects foregone, NOT the trade-offs made. (c) Explain why roads in a country should not be classified as a public good. [4] A public good is ● Non-excludable (it is economically feasible to prevent non-payers from consuming the good) and ● Non-rival (consumption by one individual does not diminish the quality and quantity available for another individual at the same time) Roads in a country can be excludable as it is possible to set up toll booths or gantries along the road that require road users to pay before using a stretch of road. Roads may be rivalrous during times of traffic congestion/peak period . In such situations, the use of the road by one road user would contribute to the congestion, causing delays for other road users (diminish the quality of the road usage to other users). Therefore, roads in a country should not be classified as a public good. (d) Discuss the extent to which Indonesia should rely on increasing consumption expenditure to achieve sustained economic growth. [8] Question analysis: Command Word Discuss the extent Concept Sustained economic growth, AD/AS analysis Context Indonesia Introduction: To achieve sustained economic growth, Indonesia must achieve both actual and potential growth which requires both aggregate demand (AD) and aggregate supply (AS) to increase. R1: Indonesia can rely on increasing consumption expenditure to achieve sustained economic growth. Table 2 shows that consumption expenditure (C) is the largest component of Indonesia’s aggregate demand (AD) in 2020, and it has been increasing since 2021. Extract 5 also

ACJC ECONOMICS suggests that Indonesia could tap on its large workforce to achieve faster economic growth. The increase in C will increase AD, ceteris paribus. Assuming that the economy is operating below full employment output level, an increase in AD leads to a depletion of inventory stocks, this signals to the firms to produce more, leading to an increase in real national income. In order for firms to increase production, they will have to hire more labour which increases household income. The increase in household income will increase induced consumption which further increases AD. Thus, due to the multiplier effect, there will be a multiple increase in AD and hence a multiplied increase in real national income, achieving actual growth. Positive economic outlook may then increase business confidence, prompting firms to increase investment expenditure as they anticipate higher future profit margins. This further increases AD and AS. The increase in the country’s productive capacity allows for continuous actual growth alongside potential growth, allowing Indonesia to achieve sustained economic growth. R2: However, there are challenges in relying on increasing consumption expenditure to achieve sustained economic growth. Challenges raised in Extract 5 and 6 include: ● Extract 5 mentioned that the middle class has been shrinking, suggesting that while increasing C can help to achieve sustained economic growth, the increase in C could be of a small extent due to a reduction in the number of middle-income households. ● Extract 5 and 6 also mentioned that high unemployment among university graduates and other educated workers have driven these people to seek work opportunities overseas. This decreases both the quantity and quality of labour in the country, reducing AS and AD (in the form of C). Both actual and potential growth are reduced, hence reducing the extent to which Indonesia is able to achieve sustained economic growth. Evaluation and Conclusion: The extent to which increasing consumption expenditure should be used to