2013_IJC_H1_Econs_Q2 Answer

Suggested Answer (a) (i) Describe the trend of Spain’ s balance of trade between 2007 and 2011. General: Spain’s BOT deficit is gener ally decreasing (1 mark) and/or Spain is constantly in a deficit (1 mark) Specific: In 2009, Spain’s trade deficit fall sharply. (1 mark) [2] (ii) Compare this trend with changes in Germany’s balance of trade during the same period. Spain is experiencing a decreasing trade deficit (1 mark) whereas Germany is experiencing a decreasing trade surplus (1mark). [2] (b) From Table 2, (i) Identify the base year for Spain. Year 2008 [1] (ii) Explain the difference between GDP at constant price and GDP at current prices. GDP is the monetary value of a ll final goods and services produced within the country regardless of nationality in a given year. (1 mark) Spain’s GDP at constant price is generally lower than it’s GDP at current price from the per iod of 2009 to 2011. (1 mark) This is due to the increasing general price level/ inflation.(1 mark) [3] (c) Explain why governments shoul d be concerned with rising youth unemployment in recent years. The rising youth unemployment is a c oncern to the governments as it will lead to loss of resources and rising welfare expenditure. Rising youth unemployment will lead to a fall in income tax revenue collected. This will l ead to lesser revenue for government to spend on infrastructure development and provision of merit and public goods. This in turn will result in fall in the countries’ standard of living. In addition, welfare countries like UK and Spain will also have to experience an increase in unemployment benefit expenditure (extra ct 3), thus leading to an increase in budget deficit. (2 marks) (or any other SR consequences th at results from rising youth unemployment – 1mark) In the long run, the rising youth unemployment will l ead to a fall in productive capacity of the country as the unemployed youth will missed out their opportunity to accumulate work ing experience or gain on the job training (extract 3), hence their curr ent skills or knowledge will gradually [4]

become obsolete. This will in turn reduce the efficiency and productive level of the labour force, thus leading to the fall in productive capacity and a leftward shift of the LRAS from LRAS0 to LRAS1. This will lead to a fall in the country’s potential economic growth. (2marks) (d) (i) To what extent was the “2008 fi nancial crisis” a cause of the increase in youth unemployment in Spain and the UK? [8] Thesis: The rising youth unemployment could be due to 2008 financial crisis.  From Table 2 & 3, GD P at constant price fo r both UK and Spain has decreased in 2009.  Analysis: The 2008 financial crisis  worldwide recession  income level of household around the world has fallen  demand for imports from all countries fallen => the demand for expor t from Spain and UK fallen  fall in AD  multiplied fall in NY => lower production