2016 JC1 NYJC Promotional Examinations H2 Case Study Answers

2016 Promotional Exam H2 Case Study Suggested Answers (a) (i) Describe the trend of China’s nominal GDP from 2011-2015. Requirements: Using table 1 as the information source, students are to conclude that because of the positive GDP growth figures over the period, China’s GDP is increasing at a decreasing rate. [2] (ii) Using information from the case materials, account for the above trend. Requirements: • Students are to infer that China is undergoing “structural change in the economy” (Ext 1, para 2) towards a consumption-driven economy ➔ economic activities promoting economic growth gives greater priority to domestic consumption rather than exports (albeit the absolute figures for the latter could still be a fairly large contributor to China’s GDP) Suggested Response: • China’s growth “new normal” is the consequence of: i. Lower increases in AD overtime (with AS constant) ▪ The slower rate of increase in AD was due to a slower X demand rise not adequately made up by the rate of increase in consumption expenditure (the main driving force in China’s AD) ➔ causing a subsequently slower cumulative AD rise & growth over time. ii. Lower increases in AS overtime (with AD constant) ▪ The effect on China’s productive capacity from a consumption-driven growth (from mainly services sector) is relatively lower than manufacturing sector driven growth. (Ext 1, para 3) ➔ with a constant AD, the rightward shift caused by services sector would not be as much in magnitude as it would have been due to the growth in the manufacturing sector. [2] (b) (i) Define the term unemployment. Requirements: Student are to show ability to recall the definition or provide an accurate description/meaning of the unemployment concept. [1]

(ii) Using the information provided, identify and explain the types of unemployment that the Chinese economy is facing. Requirements: From appropriate evidence from the case material, students are to show accuracy in conceptual knowledge in matching the identified causes/circumstances in China to the theoretical unemployment types. Suggested Response: • China may face demand-deficient unemployment. Assuming the 2016 contraction of China’s exports of -2.5% (Table 1) is due to a fall in demand by China’s trading partners. China’s export sector may face a situation of output surpluses. To minimize the potential fall in revenue & profits for the sector, employers may react to the declining export demand by reducing their demand for labour. • China faces structural unemployment due to the “rapid structural change” (Ext 1, para 3) of China’s main growth sector from manufacturing to services (Ext 1, para 3). This may increase the likelihood that a skill mismatch between the skills job-seekers (new labour market entrants or those retrenched from other sectors, eg. manufacturing sectors) possess and the skills demanded by employers in the services sectors may occur.