YJC H2 ECON P1

This question paper consists of 7 printed pages. YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE YISHUN JUNIOR COLLEGE JC2 PRELIMINARY EXAMINATION 2011 H2 ECONOMICS 9732/01 Paper 1 22 AUGUST 2011 TIME: 2 hours 15 mins Additional materials: Answer paper READ THESE INSTRUCTIONS FIRST Write your name and CTG on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use highlighters or correction fluid. Answer all questions. At the end of the examinations, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question. You are reminded of the need for good English and clear presentation in your answers.

2 Answer all questions. Question 1 Food Inflation Extract 1: Global food crisis forecast Global food prices are on the rise again. According to the UN Food and Agricultural Organisation (FAO), its overall food price i ndex rose by 5% alone between July and August in 2010, although this is 38% down from its peak in June 2008 (see Figure 1). Figure 1: Food Price Index (2002-2004 =100) Source: Food and Agriculture Organisation of the United Nations (FAO) However, opinions are sharply divided over whether these prices signal a world food crisis like the one in 2008 that helped cause riots in 25 countries, or simply reflect volatility in global commodity markets as countries claw their way through recession. Source: Adapted from guardian.co.uk, 25 Oct 2010 & bbc.co.uk, 1 Sept 2010 Extract 2: World food prices hitting dangerous levels Millions of Asia’s poor are being hit both in the pocket and stomach, as global food prices rise relentlessly towards ‘dangerous levels’, according to the World Bank. Asian inflation is among the most sensitive in the world to food price shocks, and in a report released recently, the World Bank said that higher food prices have already pushed another 44 million people in developing countries into ex treme poverty since June last year. Typically, poor families suffer the most because they spend more than half their household income on food. The root causes of food price inflation are hotly debated, with explanations varying from country to country. Analysts have put the blame on the extreme weather events that are occurring more frequently, political instability and Asia’s growing middle classes. Other economists say higher energy prices also play a role, not only through higher transport and fertiliser costs, but also by encouraging farmers to use more of their land to grow crops for biofuel. Source: Adapted from The Straits Times, 17 Feb 2011 0 50 100 150 200 250 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

3 Extract 3: Biofuels and food prices New analysis suggests that the biofuel revolution launched by former President George Bush in 2007 to cut oil imports and reduce carbon emission is impacting on world food supplies. One-quarter of all the maize and other grain crops grown in the US now ends up as biofuel in cars rather than being used to feed people. The 2009 figures from the US Department of Agriculture shows ethanol production rising to record levels driven by farm subsidies and laws which require vehicles to use increasing amounts of biofuels. "There is a direct link between biofuels and food prices. The needs of the hungry must come before the needs of cars," said Meredith Alexander, biofuels campaigner at ActionAid in London. Source: guardian.co.uk, 22 Jan 2010 Extract 4: More countries gambling on subsidies China China’s government has said it will provide poorer households with subsidies in response to double-digit food price inflation. The government also said it had not ruled out price controls if current grain and vegetables shortages worsen. The latest move comes after premier Wen Jiabao said the government was ‘formulating measures to curb the overly fast rises of prices”. “Great attention should be paid to market supply and demand and prices because they are related to the public’s basic interests,” added Premier Wen in his statement. Source: bbc.co.uk, 17 Nov 2010 Middle East Spooked by a gathering popular revolt, Arab rulers across the Middle East are seeking to spend their way to safety - boosting subsidies, increasing wages and in some cases, guaranteeing jobs for disaffected youth. In the past two weeks, the Jordan government has announced a $125 million package of subsidies for fuel and staple products like sugar and rice. Algeria and Libya have also moved to relax food taxes or cut prices of staple foods. Morocco's government, which heavily subsidises food and gas, has vowed to keep food prices at affordable levels "at any price." Oil-producing economies such as Saudi Arabia, Qatar and Bahrain face less pressure because they largely run fiscal surpluses and will see their spending power boosted by an increase in oil prices. But even in oil-rich Kuwait, the government has introduced generous stipend and free food for its citizens until March 2010 to ease the burden of higher costs. Source: The Wall Street Journal, 5 Feb 2011

4 Figure 2: Selected Countries Data, 2010 Questions (a) (i) Describe the trend in food prices from 2000-2011. [2] (ii) Using demand and supply analysis, account for the trend observed in (a)(i). [4] (b) According to Extract 3, to encourage the use of biofuel which is considered a source of clean energy, farm subsidies were given to ethanol production. Comment on whether such subsidies giv en by the US government have affected efficiency in resource allocation. [6] (c) Using relevant economic analysis, discuss the possible impact on developing economies in Asia if “world food prices rise relentlessly towards dangerous levels”. [8] (d) With reference to the data provided, assess the policy approach taken by China and the Middle East countries to deal with rising inflation. [10] [Total: 30]

5 Question 2 The Threat of De-globalisation Extract 5: The nuts and bolts come apart Trade is contracting again, at a rate unmatched in the post-war period. This week the World Trade Organisation (WTO)