TJC_H1_ECONS_CSQ2_Ans

TJC Prelims 2017 CSQ2 Answers (H1) (a) With reference to Table 2, explain why the Greek go vernment should be concerned about its economy. [4] As seen in Table 2, data indicates Greece suffering from negative economic growth (-0.2%), high unemployment rates (2 5%) and high public debt (177% of GDP) in 2015. With reference t o a government’s macroeconomic objectives and the trend from 2011 till 2015, these are causes of concern for the Greek government. Negative economic growth: [2m] Greece has been experiencing negative rates of grow th since 2011, with the exception of 2014. [1] This implies that n ational income has been falling, affecting purchasing power of consume rs. This results in a reduction in willingness and ability of consumers to demand goods and services, adversely affecting material standards of living. OR It would also impact producers who may reduce the level of production as inventories start to accumulate. As such, produc ers may lay off workers as the demand for labour is derived from th e demand for their products. This can be reflected in the high levels of unemployment in Greece. High unemployment rates: [2m] Unemployment rates have fluctuated above 20% since 2012. [1] As citizens are unable to find or hold onto a job, thi s reduces both their material and non-material standard of living. As th e unemployed no longer earn income, there is a sharp fall in their purchasing power, hence, their ability and thus level of consumption. This reduces their material standard of living. OR As unemployment rates are high, the expectation of finding a new job tends to be low, resulting in high levels of stress and negative emotions in those who are actively seeking employme nt – non- material standard of living are adversely affected. OR High unemployment rates may further tax government budget as large amount of resources are spent on unemployment benefits. This further worsens the high public debt in Greece. High public debt: [2m] Greece has been suffering from high public debt of around 170% of their GDP. [1] This is a key constraint on governme nt policy as the Greek government will be restricted in their employ ment of expansionary fiscal policy to boost the economy and push it out of a recessionary slump or to reduce demand-deficient unemployment. OR

It will also restrict government expenditure on pro viding necessary welfare benefits to low-income households and those unemployed. This reduces the government’s ability to improve it s citizens’ standards of living, which should have been a key o bjective of any government. Any 2 points for a full 4 marks. (b) (i) Explain the main causes of Greece’s ballooning public debt. [2] A country’s ballooning public debt may be due to ri sing government expenditure and/or falling tax revenue. In the case of Greece, there is a government budget deficit that is financed by borrowing. As impl