HCI_H1_ECONS_CSQ2_ans

HWA CHONG INSTITUTION  C2 Preliminary Examination 2016  Higher 1 Economics    Case Study Question 2  Suggested Answer  (a) With reference to Table 2, describe the trend of China’s real GDP from 2011 to 2014 China’s real GDP generally rising (1m) at decreasing rate (1m)  [2] (b) Extract 5 suggests that the Chinese are concerned over the formation of real estate bubbles. (i) Use the concept of circular flow of income to explain how, if “burst of real estate bubbles” (Extract 5) occurs, will affect China’s equilibrium national income. 1. If the real estate bubbles were to burst, prices of housing would fall. (1m) 2. Consumers would feel less wealthy OR consumers would have to cut down on expenditure to pay their debts, thus cutting autonomous consumption (1m) 3. Explain how fall in autonomous consumption (a form of injections) result in J<W (disequilibrium) + Adjustment from disequilibrium to equilibrium (3m) 1m – show understanding that there is J<W 1m – Change in Y and hence impact on expenditure and employment 1m – Fall in withdrawals increase until J=W  [5] (ii) Explain and comment on a policy that China can implement to mitigate the ‘downward risk’ on its economy (Extract 5) Students need to recognise that the ‘downward’ risk is the effects of burst of real estate bubble as explained in b(i). Explain one expansionary demand managem ent policy or housing cooling measure (3m) – must link to how it mitigate fall in NY Comment on the policy (relevant evaluation) (2m) [5] (c) (i) Explain what is meant by the term ‘youth unemployment’ of country such as Greece. Youth employment refers to a situation where youth (those above legal working agae and under 25) in the labour force (1m) who are willing and able to work but are unable to find employment (1m).  [2] (ii) Compare the trend of unemployment rate and youth unemployment rate in Eurozone from 2011 to 2014. Similarity – Both unemployment rate and youth unemployment rate generally [2]

increase from 2011 to 2014. Difference – youth unemployment rate is consistently higher than that of unemployment rate over the period. (iii) Using AD/AS analysis, discuss the extent to which youth unemployment in the Eurozone will adversely affect its current and future economic growth. 1. Explain how youth unemployment in Eurozone may affect its actual economic growth Loss in production and Income: Loss of jobs brings about reduction in production and income. Scarring effect (where young people may not have a full time stable job and earn lower wages and at greater possibility of unemployment)  reduces purchasing power  low consumer confidence among the youths (expectations)  fall in (autonomous) consumption  fall in AD Excess labour means the economy is not producing on the boundary of PPC and thus actual growth is affected. The longer youths remain unemployed, the more it will hamper t