MJC_H1_ECON_CSQ_Q2_REVISED

a (i) Summarize the 2010 forecast growth rates in GDP for selected countries in Table 2 [2m] 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. a (ii) With reference to data, explain one possible reason why 2010 forecast growth rates differ from country to country [2m] Differences in investment levels. Observed from Figure 3: Investments as a % of GDP  rising trend for the Asian countries but decreasing trend for G7.Increased investments within China, India and Singapore  implies firms expectations of higher demand for domestic output in the future  increase C and I  increase in AD  hence explains why China, India and Singapore are forecasted to have relatively higher growth rates than UK, US, Germany and Japan. a(iii) Is there enough evi dence to support the vi ew that there has been an improvement in the economic situation of Asian countries? Largely insufficient evidence. Data in Table 2 only representative of selected Asian countries. Extract 4 suggests that Asian economies are recovering faster from the global downturn  qualitative nature of data  insufficiency.Quantitative indicator such as the forecast GDP growth rates given in table 2 is insufficient as they are forecasted growth rates “China’s households have been saving a larger slice of their income” (extract 5) (b) Explain the impact of the above change on China’s circular flow of income [4m] Saving a large slice of their income  with every additional dollar earned, a greater proportion goes to savings  with every round of spending a higher level of withdrawal from the circular flow of income  lower level of income retained within the inner flow  reduces the size of the national income multiplier for china. (c)To what extent does the data suggest that the Chinese government should allow the currency to appreciate in 2010?[6] Disvantages of appreciation: 1. Extract 5 : an appreciation of its currency will help to “lift consumers’ real purchasing power” Chinese consumers will be able to buy more imported goods and services 2. Appreciation is also needed to discourage excessive investments into manufacturing  loss- made export firms will exit the industry  more resources channelled to other industries, for instance, service industries as quoted in extract 7 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” in fig 5, trade surplus was accumulating from 2005 to 2008 with the highest trade surplus recorded in mid 2008

Disadvantage of appreciation:  Extract 6 evidenced that China’s exports as a percentage of GDP are 32% still relatively reliant on exports earnings as a source of national income  figure 4 showed that when yuan appreciated in June 2008, trade surplus started to