MJC H2 ECON CSQ2

JC2 H2 Economics Prelim Exam Paper 1 _CS2_MJC_110911 a (i) Summarize the growth rates in GDP for selected countries in Table 1. [2] All selected countries are forecasted to experience increase in output/GDP However All selected Asian countries are forecasted to grow faster than all the selected G7 countries. OR However China is forecasted to grow 5 times that of US whilst Singapore is forecasted to grow 6.3 times that of UK and Germany. (ii) With reference to data, explain one possible reason why growth rates differ from country to country. [2] Differences in investment levels. Observed from Figure 1: Investments as a % of GDP /barb2right rising trend for the Asian countries but decreasing trend for G7.Increased investments within China, India and Singapore /barb2right implies firms expectations of higher demand for domestic output in the future /barb2right increase C and I /barb2right increase in AD /barb2right hence explains why China, India and Singapore are forecasted to have relatively higher growth rates than UK, US, Germany and Japan. (iii) Is there enough evidence to support the view that t here has been an improvement in the economic situation of Asian countries? [2] Largely insufficient evidence. 1. Data in Table 2 only representative of selected Asian countries 2. Extract 4 suggests that Asian economies are reco vering faster from the global downturn /barb2right qualitative nature of data /barb2right insufficiency 3. Quantitative indicator such as the forecast GDP growth rates gi ven in table 2 is insufficient as they are forecasted growth rates b To what extent does the data suggest that the Chinese government should allow the currency to appreciate in 2010? [6] Advantages of appreciation: 1. Extract 5 : an appreciation of its currency will help to “lift consumers’ real purchasing power” /barb2right Chinese consumers will be able to buy more imported goods and services 2. Appreciation is also needed to discourage exces sive investments into manufacturing /barb2right loss-made export firms will exit the industry /barb2right more resources channelled to other industries, for instance, service industries as quoted in extract 7 /barb2right which will help to increase employment of workers 3. Appreciation is also help to “reduce the trade deficit further, alleviate the risk of a protectionist backlash abroad” /barb2rightin fig 5, trade surplus was accumulating from 2005 to 2008 with the highest trade surplus recorded in mid 2008 Disadvantage of appreciation: 1. Table 2: Fall in trade surplus /barb2right extract 6 evidenced that China’s exports as a percentage of GDP are 32% /barb2right still relatively reliant on exports earnings as a source of national income /barb2right figure 5 showed

[Type text] [Type text] [Type text] that when yuan appreciated in June 2008, trade surplus started to fall significantly as showed in figure 3 Synthesis/conclusion Appreciation of Yuan recommended. /barb4right Important to improve equity /barb2right excessive investment into capital- intensive growth has caused “the share of national income going to households (as wages and investment income) to fall, while the share of profits has risen” /barb4right Fall in export revenue is likely to be compensate d by the rise in domestic C and I /barb2right overall AD will still increase /barb2right actual growth maintained. (Extract 4) c Identify the two policy approaches suggested by ec onomists for China and discuss whether there is a conflict between them. [8] Identify the 2 policy approaches: export-led growth (ext 6) domestically-led growth (ext 5) No Conflict: Target is the same /barb2right increase growth. Explain how Exp MP such as cut in interest rates /barb2rightdomestic led growth Explain how Exp MP such as devaluation of exchange rate /barb2right export led growth Both policy approaches can help achieve economic growth of China If the tool involved increase in productivity gains /barb2right Extract 7 /barb2right China is also pursuing increase productivity gains /barb2right increase productive capacity for China will reduce the likelihood of demand pull inflation /barb2right hence enabling China to pursue both domestic demand growth as well as export price competitiveness. Yes, Conflict Pursuing domestically-led growth may conflict with export led growth /barb2right Increases in C and I /barb2right decrease export-competitiveness of goods and services /barb2right X revenue falls /barb2right AD falls /barb2right offsets the increase in AD caused by domestic demand growth. Synthesis/conclusion Overall there isn’t a strong conflict between the pursuit of both domestic and external demand for higher growth in China. The key issues raised in the anti-thesis can be easily overcome by SS side policies that focuses on increase the productivity and quantity of resources in China which is what China is currently focusing on. Hence in the future /barb2right china can pursue a balance of both export oriented and domestic demand drive growth

JC2 H2 Economics Prelim Exam Paper 1 _CS2_MJC_110911 Define globalization Advantages and disadvantages of globalisation Desirable Not desirable Increased mobility of goods across economies /barb2right/barb2right /barb2right/barb2right greater integration of economies • Globalization /barb2right Enables countries to produce goods according to their comparative advantage in production /barb2right enable country to consume outside the PPC /barb2rightIllustrate with PPC diagram • Evidence: Extract 4 – Asia- China – US/Rich country trade relationship – is an example of each country producing a part of the whole process of production according to CA. • In times of strong demand for goods due to higher GDP growth across the world /uni.f’. higher world output/uniRR.k higher domestic economic growth/uniRR.k generate greater employment. • Analyze with AD-AS analysis : Apply to countries in Extract 4: Increase Real output for Asia producing intermediate output/uniRR.k Increase Real output for China producing final goods assembly. Evaluation: Beggar thy neighbor effect /barb2right many countries can gain Globalization –volatility of macro variables • Evidence: Extract 4 “Hardest hit”/uniRR.k “export plunged’ /uniRR.k 60% of exports end up in the rich world” implies that the integration of economy lead to dependence on external performance of the economy to determined the achievement of macro aims within a domestic economy. • Evidence Extract 6: Export Led – growth economies will experience greater degree of volatility • Evidence extract 5: china building its domestic engine /barb2right need to decrease dependence on external economies /barb2right shows less desirability for globalisation To analyze with AD-AS analysis • Increased mobility of capital ( gross fixed capital e.g. machinery, raw materials ) • Evidence: Extract 7: one of the factors that determine longer productivity growth is openness of an economy to FDI • Use AD-AS framework to analyse. • Globalization – negative implications on government budget position Evidence: “biggest fiscal stimulus” – in the context of extract 2 – the example of the recent financial crisis required a larger magnitude of increased in G exp in order to increase AD of the economy. • Increased mobility of labor and other factors of productions across countries - FOP can now be easily overcome with inflow of labor and capital resource Evaluation: /barb4right/barb4right/barb4right/barb4right Whilst globalization increases the d In light of the issues raised in the data, discuss the desirability of globalisation. [10]

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