ACJC_H2_ECONS_P1_Case_Study_Q2_Answers

H2 Case Study Question 2 Answers (a) (i) Compare the trade balance between South Africa and United States from 2013 to 2017. [2]  Skills: For the command word “Compare”, should identify either  1 similarity and difference OR  2 differences Difference 1: South Africa’s trade balance had improved while United States’ trade balance had worsened from 2013 to 2017. Difference 2: South Africa’s trade balance has improved from a deficit to a surplus trade balance while United States’ trade balance was consistently in deficit throughout the years. 1 mark for each difference explained correctly (ii) Account for the change in the trade balance of United States observed in a(i). [2]  Skills:  Identify a reason from the extracts that accounts for the worsening of trade balance  Explain how this reason leads to either fall in X or increase in M Trade balance refers to the difference between export revenue and import expenditure. US’s trade balance has consistently been in a deficit and worsened over the years. Possible reason 1: Extract 5 mentions that China was accused of unfair trade practices, implying that they were possibly selling their exports at an unfairly low price. This could have been the reason for the United States importing more goods and services from China. Assuming export revenue of United States remain the same, this would cause the trade balance to worsen. OR Possible reason 2: Extract 5 mentions that the United States had structural issues in their economy, possibly causing its exports to be less competitive than before. Assuming that their demand for exports are price elastic, quantity demanded for their exports would have fallen more than proportionately when there is an increase in price of exports, leading to a fall in export revenue. Assuming that import expenditure remains the same, this would cause the trade balance to worsen. 1 mark for identifying one reason 1 mark for explaining how the reason leads to a worsening of the trade balance in the US

(b) Using an aggregate demand and aggregate supply diagram, explain how trade wars among United States and China might affect domestic prices levels in Africa. [5] Skills:  Explain how US tariffs on China would affect China’s economy  Explain how falling national income in China would cause demand for Africa’s resources to fall  Explain how fall in AD in African economics lead to decrease in domestic price level  Illustrate leftward shift of AD curve with subsequent effect on GPL Trade wars among United States and China refer to increased protectionist measures against each other’s imports. Evidence from Extract 5 show that there were 25% tariffs imposed by the US on steel imports from China. Such tariffs would cause prices of China’s steel exports to be artificially higher, leading to