PJC_H2_ECONS_P1_Q2_Suggested_Ans

1 Question 2: The impact of trade and automation on jobs (a) (i) State the relationship between manufacturing employment (as a % of total employment) and imports from China (as a % of GDP). [1] Suggested answer: There is an inverse relationship between manufacturing employment (as a % of total employment) and imports from China (as a % of GDP). (ii) Explain how changes in imports from China have contributed to the change in manufacturing employment. [3] Suggested answer: As China has an abundance of low cost labour, it has a comparative advantage (1) in the production of low cost, labour intensive consumption goods and this has resulted in the replacement of US domestic production of these goods with imported goods from China. This has caused a fall in the manufacturing employment in the US as imports from China increases. (2) (As show in Figure 1) (b) Compare the change in China’s current balance between 2010 and 2015 with that of the US over the same period. [2] Suggested answer: From 2010 to 2015, 1) Between 2010 to 2015, China Current accounts were always in surplus whereas US Current accounts were always in deficit. (1) 2) China Current accounts surplus has increased while US Current accounts deficit was relatively constant / has increased slightly. (1) (c) Explain whether an increase in trade between China and the US would result in higher standard of living in the US. [6] Suggested answer: With an increase in trade between China and USA there would be an increase in imports and exports between the two countries. US firms are able to enlarge its global market and increase its total revenue and hence profits by exporting to China. With an increase exports, there would be an increase in AD and via the multiplier effect, there would be a larger increase in real output and hence real national income (NY). With an increase in real NY, there would be an increase in income per capita (assuming that the rate of population increase in USA is slower than the rate of increase in real NY) and an increase in purchasing power and hence an increase in SOL. And with an increase in export and real output, there would be an increase in demand for labour. This would result in an increase in the wage rate for labour. Income of workers would increase and hence purchasing power increase and hence increasing the SOL of US workers. An increase in trade would also imply increase competition and hence increased variety of goods and services at lower prices available for consumer s. This would increase consumer surplus and hence consumer welfare and an increase in SOL for USA. However, on the other hand, with increased trade and increased competiti