NYJC_H1_ECONS

J2 H1 Economics (8819/01) 1 PAPER 1 Tuesday 12 September 2017 08:00 – 11:00 TIME : 3 hours INSTRUCTIONS TO CANDIDATES Do not open this paper until you are told to do so. Write your name, class and name of economics tutor in the space provided on the writing paper. Do not use staples, paper clips, glue or correction fluid/tape. Section A Answer all questions. Section B Answer one question. The number of marks is given in the brackets [ ] at the end of each question or part question. Write your answers on the writing papers provided. If you use more than one sheet of paper, fasten the sheets together. You are advised to spend several minutes per question reading through the data and questions before you begin writing your answers. There are _8_ printed pages including this cover page PRELIMINARY EXAM 2017 Economics JC2 H1 (8819/01) NYJC

J2 H1 Economics (8819/01) 2 SECTION A Answer al l questions. Question 1 Trade Slump and Deflation Extract 1: UK slips into deflation as prices fall 0.1% The UK has officially slipped into deflation for th e first time in more than half a century, but economists and policy makers are not concerned, say ing that a brief period of gently falling prices is more likely to help growth than harm it. The UK has been teetering on the brink of deflation for several months because of the slide in global oil prices, falling household incomes and th e strength of sterling, which has reduced UK’s export competitiveness. Suneil Mahindru, chief investment officer internati onal equity at Goldman Sachs Asset Management, reacted by saying: “We are not concerne d about the UK”. Falling prices are “freeing disposable income and many industries, suc h as retail, are benefiting”, he added. UK households have suffered from falling real wages ov er the past few years. Now that prices of consumer essentials like food and energy are stagna nt or falling, many households are finally getting a boost in living standards. Chancellor George Osborne said the data were good n ews for family budgets and should not be mistaken for “damaging deflation” — a vicious cy cle of falling prices and wages which shrinks an economy. He added that once deflation se ts in consumers would expect prices to fall and they would delay spending for as long as p ossible in order to save money. This would perpetuate the problem and is known as a deflation trap. The deflation trap would lead to falling economic growth. Source: Adopted from The Financial Times, 19 May 2015 Extract 2: Deflation risk and trade slump cast chill over global economy The world economy is at risk of slipping into a def lation trap and faces a historic slump in global trade that should serve as a wake-up call fo r governments around the world. The International Monetary Fund warned o