PJC_H1_ECONS_P1_Q2

PIONEER JUNIOR COLLEGE (E CONOMICS DEPARTMENT ) 1 PJC 2017 H1 Prelim Exam Paper 1 Question 2: Economic Performance, Prospects and Lessons (a) Describe the change in China’s real GDP between 2011 and 2015 [2] Suggested answer : China’s real GDP increases at a decreasing rate between 2011 and 2015. (b) Extract 7 suggests an increase in China investment overseas. Comment on the likely effects of this on China’s balance of payments [4] Suggested answer : An increase in China investment overseas will lead to a deterioration of her capital account in the short run as this is recorded as a d ebit entry in the long run capital account. Ceteris paribus, her BOP will deteriorate. However, in the long run her balance of payment may improve as investment overseas reap returns in the form of investment income such as profits and dividends. These are rem itted back to China and are recorded as credit entry in China’s Current account in her Balance of Payment. (c ) Explain the case for the use of protectionist measures by the EU government [4 ] Suggested answer : The argument advanced for protectionism is to save jobs as dumping of cheap stainless steel product has “put thousands of jobs at stake’ in the EU stainless steel industry. With China dumping cheap stainless steel in the EU marke t below cost, many EU firms are forced to sell at ‘below cost price’ as they cannot compete with cheap China made stainless steel. As a result, many were force to cu t back production and hence employment. To prevent such massive job losses, governments hav e resorted to protectionism such as imposition of tariff so that imported stainless steel products are more expensive and EU stainless steel producers can still sell their p roducts and hence prevent job losses. This will allow an increase in demand for domestic produce stainless steel and reduce demand for imported stainless steel. When demand ri ses, there will be an increase in production and hence a rise in derived demand for l abor, hence preventing further job losses. In this way jobs may be saved. (d ) With reference to Extract 7, using AD/AS analysis, explain how the ‘Belt-and-Road Initiative’ impact the Chinese economy. [4] Suggested answer : The ‘Belt-and-Road Initiative’ is an infrastructure development plan proposed to improve the connectivity of the country. As this project is undertaken by the Chinese government, it represents an increase in G and hence an increas e in AD of which G is a component. Through the multiplier process, this will bring abo ut an increase in actual growth in the short run as seen in the increase in real GDP. As r eal GDP increase, firms hire more labour to produce more output. This improve the employment of the economy as well. In the long run, an improvement in infrastructure incr ease connectivity and efficiency. Better infrastructure leads to time save on the roa d and allows