2013_HCI_H1_Econs_CSQ 2

HWA CHONG INSTITUTION Year Two H1 Economics 2013   Section A: Case Study Question 2 The Uncertain Future of Globalisation Suggested Mark Scheme (a) (i) Describe the trend in volume of world merchandise trade between 2008 and 2013 as shown in Table 1. [2] Volume of world merchandise trade increased over the period but fell sharply during 2009. (ii) With reference to the Table 1, expla in an economic fact or that contributed to the above trend. [2]  Identify factor: Income  Explain factor: The growth in volume of merchandise trade is positively related to real GDP growth as shown in Table 1. As GDP increases, the demand for imports, which are usually normal goods, will increase. Hence, trade increases in the world. (b) Consider whether the data in Table 1 and Extract 7 are sufficient to assess changes in living standards in the developing economies from 2008 to 2011. [4] Table 1 – positive real GDP – material SO L (amount of goods & services available for consumption); positive growth in imports for most of the year except 2009 – importing more goods & services (for consumption?) [1m] Ext. 7: “global population more than doubled in size”  real GDP per capita may not have risen [1m] OR Ext. 7: “wages of the low-skilled workers fa llen, while wages of the high-skilled risen extraordinarily…”, “inequality in developed countries and in other developing countries remains shameful …”  rising income inequality [1m] (Note: Youth unemployment is for US) Missing data: need concrete data such as gini coefficient and population growth [1m] Non-material SOL not accounted for  need relevant stats [1m] (c) Using Figures 2 and 3, explain why for the US, “when fiscal and monetary policies have been stretched to their limits, exports are the best way out.” [4]  Explain why fiscal policy is stretched to its limits : Figure 1 shows that the USA debt to GDP ratio has been increasing from 2009-2013. Any continuation of

HWA CHONG INSTITUTION Year Two H1 Economics 2013   expansionary fiscal policy will require mo re borrowing which will lead to crowding out effect and limit effectiveness of FP.  Explain why monetary policy is stretched to its limits : The US interest rates are very low since 2009, as shown in Figure 2. Hence, it is no longer possible to increase investment or interest-sensitive consumption by lowering interest rates.  Explain why exports are best way out : Given the limitations of FP and MP, then policies that will boost net exports will be most effective in solving the macroeconomic problems in the US (d) Explain how the West may gain from a rising middle class in China. [2] The higher affluence in China will allow them to buy imports from the West, assuming normal goods (YED > 0). This will reduce US widening trade deficit (e) Using the evidence from the case and your own relevant knowledge, discuss the view that globalisation may not bring about the benefits it promi