H2 Prelims Paper 1 Q2 Suggested Answers

©ACJC2022 Preliminary Exam 9757/01 Question 2: The Impact of a Global Pandemic on Globalisation Suggested Mark Scheme: (a) Describe the trend in global trade as a percentage of GDP from 2011 to 2020. [2] General trend: Global trade as a percentage of GDP is decreasing from 2011 to 2020. [1] Refinement: However it increased from 2016 to 2018. [1] (b) With reference to Extract 4, (i) Using AD/AS analysis, explain how Singapore’s monetary policy can increase national output. [4] • Singapore adopted a zero percent appreciation, allowing the Singapore dollar to depreciate. [1] • The depreciation of Singapore dollar would make exports cheape r in terms of foreign currency. [1] • This increases exports competitiveness, leading to an increase in export revenue and aggregate demand. [1] • As aggregate demand increases, firms respond by increasing production, resulting in an increase in GDP. [1] Note: impact on imports not needed for this question. Use of elasticity concepts also not required. (ii) Explain one possible unintended consequence of “further monetary easing”. [2] • Further monetary easing involves further depreciation of the Singapore dollar, which would increase the price of imports in terms of Singapore dollars. [1] • As the price of imports increases, imported raw materials become more expensive. This leads to an increase in cost of production and imported inflation. [1] (c) (i) Using the concept of price elasticity of demand, explain the impact of imposing rice export restrictions on a domestic rice producer’s revenue. [4] • Rice export restrictions prevent rice producers from exporting to other countries, and thus increase the domestic supply of rice [1] • Increase in supply of rice → surplus of rice at the current prices → downward pressure on price [1] • The demand is price inelastic (PED < 1) since food is a necessity in most rice producing countries [1] • The decrease in price due to the rising supply leads to a less than proportionate increase in quantity demanded. • The loss in revenue due to decrease in price outweighs the gain in revenue due to increase in quantity sold, thus there is an overall decrease in revenue for rice producers. [1] Note: for answers that explain a fall in demand due to a smaller market, maximum of 2 marks since PED concept is not used.

2 ©ACJC2022 Preliminary Exam 9757/01 (ii) Discuss the impact on the economy in countries such as Vietnam and Cambodia of imposing export restrictions. [8] Introduction: • The export restrictions are imposed with the main objective of lowering the prices of commodities and food for the domestic economy. • Such restrictions can have both positive and negative effects on an economy. Requirement 1: Positive impact of export restrictions • As explained in (ci), export restrictions increase the supply of important commodities and food in a domestic economy. This helps to r educe prices of food and other raw materials. • Thus food and commodities will be more affordable to domestic households. With an increase in purchasing power, material standard of living improves. • In addition, with cheaper raw materials, cost of production for firms is reduced. As firms are more willing and able to produce at each price, there is an increase in SRAS. Firms pass on the cost savings to consumers resulting in a lower general price level. → Lower and more stable inflation rate Requirement 2: Negative impact of export restrictions • As firms are not allowed to export overseas, they have a smaller consumer base to sell to. They are only able to sell domestically at a lower price, leading to a loss in revenue. • Thus firms may experience a loss of profits. • With lower export revenue, there is also a fall in AD, especially if the country is reliant on exports. The fall in AD results in an unplanned increase in stocks for firms. Firms respond by cutting down production, leading to a fall in GDP. • With lower output, firms demand less labour, especially in export industries. Some workers may be laid off and there may be an increase in demand deficient unemployment. • In the long run, market share may be lost as other countries that p roduce the same commodities can increase production to meet the global demand. The country’s trade reputation may also be damaged. Other countries may choose to find more stable sources to import from. Thus, export revenue may remain lower even after the e xport restrictions are removed. Evaluation: • As extract 5 mentions, export restrictions are a “knee jerk” reaction to a crisis. They may be necessary in the short run to ensure a stable supply of food and other necessities in a country. • However, export restrictions are likely to be more harmful in the long term as it leads to a loss of export revenue. • The extent of harm depends on the nature of the country. For a country that is reliant on exports for economic growth, export restrictions are likely to be more harmful for the economy. Level Descriptors Marks L2 • Balanced answer that considers both the positive and negative impacts of export restrictions. • Answer uses economic analysis and tools such as AD/AS analysis to explain the impact on the economy. • Both requirements should be analytical to score 6 marks. • Good use of evidence and reference to the extracts. 4 - 6 L1 • Answer may be one sided, explaining either positive or negative impacts. 1 - 3

3 ©ACJC2022 Preliminary Exam 9757/01 • Answer may have insufficient economic analysis / be more descriptive. • Answer may be theoretical and lack application to the context. E2 Well-reasoned judgement using at least one criteria, such as short / long term or nature of the economy 2 E1 Judgement is not well substantiated / the substantiation and reasoning is not convincing. 1 (d) Discuss whether the COVID-19 pandemic will slow down or accelerate the rate of globalisation. [10] Note to markers: Students are expected to explain why and how globalisation may slow down, with analytical explanation. Introduction: Globalisation refers to the development of an increasingly global economy, characterised by increases in trade of goods and services, international flows of capital, and labour mobility. Given the trend in global trade, globalisation has slowed down in the past decade. The COVID-19 may have further slowed down the rate of globalisation. Requirement 1: The COVID -19 pandemic may have slowed down the rate of globalisation. • Why countries may trade less: Countries are wary of vulnerable global supply chains. With disruptions to the global supply chain, countries are not able to import important commodities and necessities from their usual sources. This could lead to high imported inflation due to the decreased supply of commodities. Thus, countries may switch to domestic production for increased stability instead of relying on trade for such commodities. • How global trade may be reduced : Use of measures such as export restrictions will reduce total world trade (as shown by figure 1). • • Why investments may fall: In addition, to reduce vulnerability to external shocks, firms may decide to re-shore their businesses. For example, US firms such as Delta Children (Extract 6) considered moving their production back to the US to avoid supply shortages caused by COVID -19 measures implemented in China. The shortages result in higher cost of production and loss of profits for the firms. If more firms re-shore their businesses to stabilise their profits, there could be a decrease in FDI globally. • Why labour movements may fall : The COVID -19 restrictions have also “brought international travel to a standstill” (Extract 6). With travel restrictions in place to prevent the spread of the virus, people are less able to travel and take up job opportunities overseas. Export restri