MJC_H2_ECONS_CSQ2_Q_A

2018 JC2 H2 Economics Prelim_CSQ2_Suggested answers (a) With reference to Table 4, compare the changes in GDP between Germany and the UK from 2015 to 2017. [2] Similarity: GDP of both Germany and the UK increased from 2015 to 2017. Difference: However, Germany’s GDP was increasing at an increasing rate, while the UK’s GDP was increasing at a decreasing rate. (b) (i) Using a diagram, explain why the pound sterling fell in value after UK had voted to break out of the European Union. [2] As mentioned in Extract 4, breaking out of the European Union was a “lurch into the unknown”, which could give rise to loss in investors’ confidence in the economy. Explain impact on SS of pound sterling in forex market: This would cause capital outflow from the UK, leading to an increase in supply of pounds in the foreign exchange market, hence reducing the external value of the pound sterling. OR Explain impact on DD for pound sterling in forex market: This would cause a fall in capital inflow into the UK, leading to a decrease in demand for pounds in the foreign exchange market, hence reducing the external value of the pound sterling. (b) (ii) Explain whether the depr eciated pound sterling would lead to a higher cost of living and standard of living in the UK. [6] Depreciated pound sterling  fall in price of exports in F.C but increase in price of imports in D.C Impact on cost of living If consumers consume a large quantity of imports, the increased price of final imported goods and services will mean that cost of living will increase. OR If UK firms import significant amount of raw materials from overseas, this will cause imported inflation and hence, increase their unit cost of producing domestic final

2018 JC2 H2 Economics Prelim_CSQ2_Suggested answers goods, hence, causing SRAS to fall, leading to increases in GPL. Hence, cost of living increases. Impact on material SOL Assuming marshall-lerner condition hold s (PEDx + PEDm>1), net exports will increase as seen from “boosted exports orders for manufacturing”(Ext 6)  assuming there is spare capacity in the economy  increase AD will result in increase in real output  national income increases by a multiplied amount  increase in quantity of goods and services consumed  increase material standard of living Explain “whether”: Comment on the extent of change Material SOL may have worsened instead if the rise in general price level is faster than the increase in national income. (c) Explain a likely advantage to th e foreign firms for locating their businesses in Ireland. [2] Cost advantages Locating businesses in Ireland will enable fo reign firms to tap into the large EU market and sell to a larger market as inferred from “jumping off point for their European ambitions” (Ext 5). Such increase in market size in turn enable it to produce larger quantity, reaping economies of scale, hence enjoying lower average cost and