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Cambridge International Examinations Cambridge International General Certificate of Secondary Education ECONOMICS 0455/22 Paper 2 Structured Questions February/March 2015 2 hours 15 minutes No Additional Materials are required. * 1 8 7 3 4 2 4 8 8 7 * READ THESE INSTRUCTIONS FIRST An answer booklet is provided inside this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet. Section A Answer Question 1. Section B Answer any three questions. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 5 printed pages, 3 blank pages and 1 Insert. DC (ST) 96735/4 © UCLES 2015 [Turn over 2 Section A Answer this question. 1 The challenges facing India The year 2013 brought a number of challenges to India’s economy. For instance, in 2010, India’s Gross Domestic Product (GDP) rose by 9.5%. In 2012, it increased by 5.3% and, in 2013, it increased by only 4.5%. In August 2013, the Indian rupee fell to a record low against the US dollar. This pushed up the price of a range of products in India. In response, the Reserve Bank of India, India’s central bank, tried to prevent further falls in the international value of the rupee. At the same time, the Indian Government tried to reduce the deficit on the current account of the country’s balance of payments. The Government raised the tax on imports of gold, to reduce both the current account deficit and the fall in the exchange rate. Spending on imported gold is second only to spending on imported oil in India’s trade in goods. A country’s import expenditure and export revenue are influenced by a number of factors. One key influence on export revenue is changes in world GDP. Table 1 shows world GDP and India’s export revenue over the period 2008 to 2012. Table 1: World GDP and India’s export revenue 2008–2012 Year World GDP India’s export revenue (US$ trillion) (US$ billion) 2008 50 166 2009 48 189 2010 56 182 2011 58 251 2012 62 305 Investment fell in the country between 2010 and 2012. The Reserve Bank of India was considering changing the rate of interest to influence investment, that is spending on capital goods by firms, and borrowing by households. India is the world’s second largest producer of onions after China. Whilst India’s farmers produce large quantities of onions, their productivity is low. India usually exports more onions than it imports, making it a net exporter of onions. In 2013, there was a rise in the price of onions caused by poor harvests resulting from bad weather. This then led to the country having to import more onions. The Government put a tax on the export of onions to increase the supply of onions on the home market. It was also hoping that farmers would respond in a positive way to the rise in the price of onions. © UCLES 2015 0455/22/F/M/15 3 (a) Using information from the extract, explain whether India experienced a recession or economic growth in 2013. [2] (b) Explain two ways a central bank could try to stop a fall in the international value of its country’s currency. [4] (c) Using information from the extract, explain what is likely to have happened to the price of gold in India in 2013. [3] (d) Using Table 1, comment on the relationship shown between the change in world GDP and India’s export revenue. [4] (e) Explain two ways a government could try to increase investment. [4] (f) Discuss whether governments should encourage households to borrow more. [5] (g) Using information from the extract, explain the opportunity cost of exporting onions. [2] (h) Discuss whether India is likely to be a net importer or a net exporter of onions in the future. [6] © UCLES 2015 0455/22/F/M/15 [Turn over 4 Section B Answer any three questions from this section. 2 Changes in global weather conditions are increasing the risks of some of the islands of the Maldives disappearing under the sea. They are also affecting the country’s fishing industry which experiences frequent changes in equilibrium price. The country is considering whether to devote more of its resources to fishing. The country has recently created a new island, called Hulhumale, from reclaimed land. (a) Why do choices have to be made about how resources are used? [2] (b) Explain why price tends to move towards equilibrium over time. [4] (c) Using a production possibility curve diagram, analyse the effect of an increase in land on an economy. [6] (d) Discuss whether devoting more of its resources to fishing would benefit an economy. [8] 3 Tesco is a large multinational supermarket firm based in the UK. It sells a wide range of products which vary in their degree of price elasticity of supply. In 2013, the firm’s profits fell in its home market and also in every other country in which it operates. For instance, in the UK, profits fell due to greater competition while in South Korea they fell as the Government placed additional restrictions on opening hours. (a) Define ‘price elasticity of supply’. [2] (b) Explain why many firms try to maximise profits. [4] (c) Analyse what determines in which countries a multinational company produces. [6] (d) Discuss whether a government should regulate supermarket firms. [8] 4 In Myanmar (Burma) people prefer using clean bank notes. The country has relied largely on cash transactions but recently the Government has been encouraging the use of other forms of money. The use of monetary policy has reduced inflation, as measured by the consumer prices index, from 35% in 2007 to 1.5% in 2012. There is even the possibility that the country may experience deflation in the future. (a) Define ‘consumer prices index’. [2] (b) Explain two functions of money. [4] (c) Analyse how monetary policy can reduce the rate of inflation. [6] (d) Discuss whether deflation always harms an economy. [8] © UCLES 2015 0455/22/F/M/15 5 5 Qatar has a fertility rate of 1.7. Males make up 75% of the country’s population. The oil and gas industries are major employers in the country but the pattern of employment is likely to change in the future. In 2013, the country had the lowest unemployment rate in the world of 0.5%. (a) Define ‘fertility rate’. [2] (b) Explain two reasons why a country may have more males than females in its population. [4] (c) Analyse why the pattern of employment in a country may change over time. [6] (d) Discuss whether a government should aim for an unemployment rate as low as 0.5%. [8] 6 Madagascar has highly fertile land but is one of the poorest countries in the world. In 2013, 92% of its population were living in poverty. In that year, Gross Domestic Product (GDP) and GDP per head declined. The country has low tax revenue and the Government is considering raising tax rates. (a) Giving an example, define the factor of production ‘land’. [2] (b) Explain two reasons why a country may have a low GDP per head. [4] (c) Analyse how a rise in tax rates may influence poverty. [6] (d) Discuss whether a fall in GDP may reduce living standards. [8] 7 The World Economic Forum has stated that Brazil is in the final stage of becoming a developed country. Brazil is, however, facing a number of economic problems including a large deficit on the current account of its balance of payments. The Brazilian Government is not considering introducing a fixed exchange rate system but it is trying to improve education and to keep more of its skilled workers in the country. (a) Define ‘developed country’. [2] (b) Explain two economic reasons why someone may decide to work in another country. [4] (c) Analyse how a more educated labour force could reduce a country’s current account deficit on its balance of payments. [6] (d) Discuss whether a country’s exchange rate should be determined by market forces or by the government. [8] © UCLES 2015 0455/22/F/M/15 6 BLANK PAGE © UCLES 2015 0455/22/F/M/15 7 BLANK PAGE © UCLES 2015 0455/22/F/M/15 8 BLANK PAGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cie.org.uk after the live examination series. Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge. © UCLES 2015 0455/22/F/M/15 CAMBRIDGE INTERNATIONAL EXAMINATIONS Cambridge International General Certificate of Secondary Education MARK SCHEME for the March 2015 series 0455 ECONOMICS 0455/22 Paper 2 (Structured Questions), maximum raw mark 90 This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners’ meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the March 2015 series for most Cambridge IGCSE® components. ® IGCSE is the registered trademark of Cambridge International Examinations. Page 2 Mark Scheme Syllabus Paper Cambridge IGCSE – March 2015 0455 22 1 (a) Using information from the extract, explain whether India experienced a recession or economic growth in 2013. [2] Economic growth (1) as GDP increased (1). Note, also accept: not possible to tell (1) as data on quarters is not given (1). (b) Explain two ways a central bank could try to stop a fall in the international value of its country’s currency. [4] • Buy the currency (1) using reserves/foreign currency (1). • Raise the rate of interest (1) to increase demand for the currency/reduce supply of the currency/attract hot money flows (1). • Impose/increase exchange controls (1) to limit the availability of foreign currency to buy imports (1). (c) Using information from the extract, explain what is likely to have happened to the price of gold in India in 2013. [3] Likely to have risen in price (1). Evidence given in support of a rise in price (up to 2 marks): • tax raised on imports of gold (1) higher tax would raise costs/decrease supply/shift the supply curve to the left/be likely to have been passed on to consumers(1); • Indian rupee depreciated (1) raised price of imports (1). (d) Using Table 1, comment on the relationship shown between the change in world GDP and India’s export revenue. [4] • A largely positive relationship (1) positive relationship between 2010 – 2012 (1) over most of the period was accompanied by an increase in demand for Indian products (1) expected relationship as higher world income would increase demand for exports (1). • There are exceptions to the general trend/inverse relationship 2008 – 2010 (1) example fall in world income in 2009 but rise in Indian exports/rise in world income in 2010 but fall in Indian exports (1) may be due to a time lag (1). • Indian exports rose at a faster rate than world GDP (1) particularly after 2010 (1). • Other factors influence demand for a country’s exports (1). Note: two trends with examples may gain full marks but a purely descriptive answer zero marks. (e) Explain two ways a government could try to increase investment. [4] • Lower the rate of interest (1) reduce the cost of borrowing to finance investment/increase consumer spending and so the incentive to invest (1). • Reduce corporation tax (1) increase ability/willingness to invest (1). • Reduce income tax/reduce indirect taxes/provide tax allowances (1) increase consumer spending and so profits/incentive to invest (1). • Introduce investment subsidies (1) provide finance for investment/lower cost of investment/attract MNCs (1). • Increase government spending to raise total demand (1) to stimulate firms to expand (1). • Supply-side policies (1) such as education and training which raise productivity (1). • Fix the exchange rate (1) to create greater certainty (1). • Direct government spending on capital goods (1). © Cambridge International Examinations 2015 Page 3 Mark Scheme Syllabus Paper Cambridge IGCSE – March 2015 0455 22 (f) Discuss whether governments should encourage households to borrow more. [5] Up to 3 marks for why they should: • encourage an increase in demand/spending (1) firms produce more (1) resulting in economic growth (1) lower unemployment (1); • enjoy a higher standard of living (1) households can spend more than their income (1); • enable households to spend more on education and health care (1) increase future earning potential (1). Up to 3 marks for why they should not: • households may get into debt (1) as a result lose houses/possessions (1) reduce spending in the future (1); • higher spending may result in inflation (1) demand-pull inflation (1); • may increase demand for imports (1) cause a current account deficit (1); • an increase in demand for loans may push up the rate of interest (1) this may make it more difficult for the poor to borrow (1). (g) Using information from the extract, explain the opportunity cost of exporting onions. [2] • Selling on the home market (1) onions sold abroad cannot be sold at home/definition of opportunity cost (1). • Producing another crop (1) resources to grow onions could have been used for other purposes/definition of opportunity cost (1). (h) Discuss whether India is likely to be a net importer or a net exporter of onions in the future. [6] Up to 4 marks for why it may be a net importer: • exchange rate may rise (1) making price of exports higher/imports cheaper (1) making domestic products less competitive (1); • low productivity (1) high costs per unit (1) low price competitiveness (1); • export tax may continue (1) keeping export price high (1); • bad weather may continue (1) crop may be affected by diseases (1) lowering supply (1). Up to 4 marks for why it might be a net exporter: • lower exchange rate (1) would make price of exports relatively cheaper/imports relatively more expensive (1) making domestic products more competitive (1); • high level of supply (1) may lead to economies of scale (1) lowering costs per unit (1); • tax on exports may be removed (1) lowering price of exports (1); • incomes abroad may rise (1) leading to a rise in demand for onions (1); • quality of onions grown may improve (1) due to improved farming methods/more productive labour force (1). 2 (a) Why do choices have to be made about how resources are used? [2] • Scarcity/resources are finite/limited (1) not all wants can be met/wants are unlimited (1). • The use of resources involves an opportunity cost (1) not all wants can be met/wants are unlimited (1). © Cambridge International Examinations 2015 Pag P ge 4 Mar M k Sch S hemmee Sylllab S bus Pape P er Cam mbrridge e IG GCSEE – Marc ch 20 015 5 0 55 045 2 22 ( ) E (b) Exp pla ain whhy prricee teends s to o mov m ve tow waardds equ e uilibrrium ovver tim mee. [4 4] • If prrice e is s ab bovve eq quilibrrium m the t ere will be b a surp s pluus (1) ( the sur s rplu us wil w l drive dow d wn price e/p producers wilw l lo owe er price to geet rid r of the e surpplus (1). ( . • If prrice e is s be elo ow equiliibrium m thhere willl be a shoorta agee (1 1) the sh horrtag ge will p pus sh up u price e/c connsuumeers s will w bidb d up p pric p ce (1) ( ). • Pric P ces arre ssignals (1) ( alterring g in nceentivees to t the t emmarkett (11) cau c using prroduccers s and a d co onssum me ers to altter theirr be ehaavioour (1 1). • The prrice emmec cha anis smm raatio onss re esoourrces (1). ( (c) Usiing U g a prrod duc ctio on pooss sib bilitty cu urve eddia agra am m, ana a aly yse e th he efffec ct of o an a incre se in land eas d o an on n ec connoomy y. [6 6] U to 4 ma Up marks s fo or the t e diag gram: • ax xes s corr c recctlyy la abeelled ((1);; • origina al curv c ve//do own nward d sloppingg liine e to o th he axe a es (1)); • ew ne w cu urvve tto the t e rig ghtt off th he origin nal on ne (1)); • sh hiftt to o th he rrigh ht cle c earlly indicaated eith e herr by y an arro a ow w orr la abe ellin ng (1)). Up to 2 ma U marks s foor wri w itte en exp e pla ana atio on: • la and d is s a ressou urc ce/ffac ctorr off prod duc on or mo ctio ore e re eso ourrces w be s will vailab e av ble e (1); • th he am amou untt ann eco e nomyy can prroducce will w increeasse//the ere e will w b be an n in easse in pro ncre odu ucttive e ca apaaciity (1)). © Ca amb brid dge e In nterrnattion nal Ex xam mina atio ons s 20 015 5 Page 5 Mark Scheme Syllabus Paper Cambridge IGCSE – March 2015 0455 22 (d) Discuss whether devoting more of its resources to fishing would benefit an economy. [8] Up to 5 marks for why it might: • may allow an economy to specialise (1) in a product in which it has a cost/comparative advantage (1); • may increase the output of the country/GDP (1) increasing incomes/living standards (1); • may allow greater advantage to be taken of economies of scale (1) examples of economies of scale (up to 2); • demand for fishing may be increasing (1) will raise revenue (1) reason why demand may be increasing e.g. greater awareness of health benefits (1); • may increase exports of fish/reduce imports of fish (1) improve the position on the current account of the balance of payments (1); • may build up a reputation for fishing (1). Up to 5 marks for why it might not: • risk that demand may fall (1) reasons why demand may fall e.g. rise in price/quality competitiveness of other economies (1); • the country may be better at producing other products (1) this would result in a high opportunity cost of devoting more resources to fishing (1); • may result in diseconomies of scale (1) examples of diseconomies of scale (up to 2); • may result in overfishing (1) depleting fish stocks (1). CBA would help in making such a decision (1) would benefit an economy if the social benefit exceeds the social cost/ would harm an economy if the social cost exceeds the social benefit (1). 3 (a) Define ‘price elasticity of supply’. [2] • A measure of the responsiveness of supply to a change in price/formula: percentage change in quantity supplied divided by percentage change in price (2). • How price affects supply/change in supply divided by change in price (1). (b) Explain why many firms try to maximise profits. [4] • To provide an incentive/reward for entrepreneurs (1) profit is a payment for bearing risks/organising the other factors of production (1). • To provide finance for investment (1) which will allow firms to grow (1) new capital equipment may reduce costs of production (1). • To provide finance to pay dividends to shareholders (1) which may keep demand for shares high/raise price of shares (1). • To compete with rival firms (1) the most profitable firms are likely to be able to gain a larger share of the market (1). © Cambridge International Examinations 2015 Page 6 Mark Scheme Syllabus Paper Cambridge IGCSE – March 2015 0455 22 (c) Analyse what determines in which countries a multinational company produces. [6] • Size of market (1) if demand for the product/s produced is high in the country (1) higher revenue may be earned (1). • Costs of production (1) e.g. low wages/low raw material costs may attract multinational companies (MNCs) (1). • Availability of raw materials (1) certain raw materials e.g. copper may be found in a small number of countries (1). • Trade protection (1) MNCs may set up in a country to get round tariffs (1). • Government subsidies (1) financial help may be given to companies setting up in some countries (1). • Fewer government regulations (1) MNCs may set up in countries with fewer rules and laws (1). • Skills of workers (1) highly skilled workers will produce products of a good quality (1). Note: up to a maximum of 3 marks for a list-like approach. (d) Discuss whether a government should regulate supermarket firms. [8] Up to 5 marks for why it should: • to prevent market failure (1); • a supermarket may have monopoly power (1) which may drive up prices (1) reduce quality (1) reduce choice (1) make it difficult for small shops to enter the market/survive (1); • supermarkets may not take into account external costs and external benefits (1) may e.g. disturb people living nearby by staying open for long hours (1); • supermarkets may sell harmful products (1) to people who do not realise their effects e.g. cigarettes; • supermarkets may exploit workers (1) e.g. making them work long hours (1) working in an unsafe environment (1). Up to 5 marks for why they should not: • complying with regulations may increase supermarket costs (1) reduce their output (1) lower employment (1); • may discourage MNCs setting up in the country (1) may encourage firms to move overseas (1); • may lead to inefficiency (1) may reduce responsiveness to changes in market conditions (1) may reduce innovation (1) may reduce choice e.g. to shop late at night (1) may be government failure (1). 4 (a) Define ‘consumer prices index’. [2] • A measure of the change in the price level/rate of inflation (1). • A weighted measure or identification of another feature e.g. based on prices paid by households/prices of a basket of goods and services/uses a base year (1). (b) Explain two functions of money. [4] • Medium of exchange (1) enables people to exchange products/used to buy and sell products (1). • Store of value (1) enables saving to occur (1). • Unit of account/measure of value (1) enables the value of items to be compared (1). • Standard of deferred payments (1) enables borrowing and lending to occur (1). © Cambridge International Examinations 2015 Page 7 Mark Scheme Syllabus Paper Cambridge IGCSE – March 2015 0455 22 (c) Analyse how monetary policy can reduce the rate of inflation. [6] • Deflationary/contractionary monetary policy may be used (1). • A rise in the rate of interest (1) may reduce consumer expenditure (1) lower investment (1) as borrowing is more expensive (1) saving more rewarding (1) lower demand (1) reduce demand-pull inflation (1). • A reduction in the money supply/reduction in the growth of the money supply (1) will reduce demand (1) lower demand-pull inflation (1). • A rise in the exchange rate (1) will lower import prices and raise export prices (1) reduce costs of imported raw materials (1) put pressure on domestic firms to lower costs (1) reduce cost-push inflation (1). Note: up to a maximum of 3 marks for a list-like approach. (d) Discuss whether deflation always harms an economy. [8] Up to 5 marks for why it might: • consumers may reduce the amount they spend (1) in expectation that prices will be lower in the future (1) this may reduce firms’ output (1) lower investment (1) increase unemployment (1) lower economic growth (1); • increases the burden of debt (1) the amount people will have to pay back will have more purchasing power (1). Up to 5 marks for why it might not: • it will increase purchasing power if incomes do not fall (1); • it may increase the value of savings (1) and lenders may gain if the money they are repaid will have a higher value (1); • if it results from advances in technology (1) costs of production will fall (1) may make the country’s products more internationally competitive (1) increase exports and reduce imports (1) improve current account position (1) raise employment (1) increase output (1). 5 (a) Define ‘fertility rate’. [2] • Average number of children (1) a woman gives birth to (1). • The number of children born per 1000 women (1) of child bearing age (1). (b) Explain two reasons why a country may have more males than females in its population. [4] • Higher immigration of males/higher emigration of females (1) more men may come to live in the country in search of employment/more women may emigrate e.g. in search of employment (1). • Longer life expectancy of males (1) e.g. males may receive more and higher quality health care (1). • More boys born than girls (1) with similar infant mortality rates (1). © Cambridge International Examinations 2015 Page 8 Mark Scheme Syllabus Paper Cambridge IGCSE – March 2015 0455 22 (c) Analyse why the pattern of employment in a country may change over time. [6] • Changes in the pattern of demand (1) income levels may change (1) tastes may alter (1). • Changes in government policy measures (1) e.g. the government may subsidise certain industries encouraging them to expand (1). • Decrease in the role of the government in the economy (1) reducing public sector employment (1). • Emergence of rival industries in other countries (1) leading to some industries declining (1). • Advances in technology (1) creating new jobs (1). • Changes in education (1) creating new skills/influencing proportion of younger workers (1). • Changes in social attitudes (1) resulting in more women in the labour force (1). • Rise in retirement age (1) resulting in more older workers (1). • Firms/workers wanting more flexibility (1) resulting in more part-time jobs (1). • Change in laws/rise in relative income in the country (1) attracting more migrant workers (1). • Improvement in facilities/change in social attitudes (1) enabling more people with disabilities to work (1). • Changes in business opportunities (1) influencing the number of people self-employed (1). • Change in laws/minimum wages (1) influencing the proportion employed in organised and unorganised sectors of the labour market (1). • As countries become more developed (1) employment in the primary sector/agriculture tends to decline (1) employment in the secondary sector/manufacturing at first increases and then tends to decline (1) employment in the tertiary sector/services increases (1). Note: up to a maximum of 3 marks for a list-like approach. (d) Discuss whether a government should aim for an unemployment rate as low as 0.5%. [8] Up to 5 marks for why it should: • result in high output/GDP (1) high incomes/high living standards (1); • lead to high government tax revenue (1) this could be spent on e.g. education/health care (1); • cause low government spending on unemployment benefits (1) reduce opportunity cost/allow tax revenue to be spent on other items (1); • full employment is one of the main aims of government policies (1). Up to 5 marks for why it should not: • 0.5% is usually regarded as being below full employment/difficult to achieve (1) always likely to be some frictional unemployment (1); • at 0.5% unemployment, the level of demand is likely to be high (1) economy operating at full capacity (1) may cause inflation (1) demand-pull inflation (1) may also drive up wages due to a shortage of labour (1) cost-push inflation (1); • higher level of demand may increase demand for imports (1) causing a current account deficit (1). 6 (a) Giving an example, define the factor of production ‘land’. [2] Example (1) Natural resources/gifts of nature (1). © Cambridge International Examinations 2015 Page 9 Mark Scheme Syllabus Paper Cambridge IGCSE – March 2015 0455 22 (b) Explain two reasons why a country may have a low GDP per head. [4] • Low level of investment (1) leading to low output/high costs of production (1). • High proportion of the labour force employed in agriculture (1) fluctuations in supply/low value added/demand not rising in line with income (1). • Low levels of education (1) low productivity (1). • High rate of unemployment (1) low output (1). • High population growth/high population relative to GDP/low GDP relative to population (1) resources have to be devoted to e.g. looking after children/GDP per head is GDP /population (1). • A proportionately large informal sector (1) with economic activity undeclared (1). • Importing more than exporting (1) net exports making a negative contribution to GDP (1). • Low aggregate demand (1) caused by e.g. contractionary fiscal policy (1). • High proportion of population are economically inactive (1) plus example/not contributing to GDP (1). • Lack of resources (1) resulting in low output (1). (c) Analyse how a rise in tax rates may influence poverty. [6] • A rise in progressive taxes (1) taking a higher proportion of the income of the rich (1) may reduce relative poverty (1) may increase absolute poverty (1) as may reduce the incomes of the poor (1). • A rise in regressive taxes (1) taking a higher proportion of the income of the poor (1) may increase relative (1) and absolute poverty (1). • Tax revenue may be used to help the poor (1) e.g. provide benefits/housing/education/ health care (1) lower absolute poverty (1). • A rise in indirect taxes will increase price of products (1) a rise in direct taxes will reduce disposable income (1) which may mean the poor will not be able to afford basic necessities (1) lower demand may increase unemployment (1). • A rise in direct taxes may reduce the incentive to work (1) increasing unemployment (1). Note: up to a maximum of 3 marks for a list-like approach. (d) Discuss whether a fall in GDP may reduce living standards. [8] Up to 5 marks for why it might: • if GDP falls and the population stays the same or increases (1) GDP per head will fall (1); • lower incomes may reduce the goods and services people can buy (1) lowering material living standards (1); • a fall in GDP may indicate higher unemployment (1) the unemployed are likely to have low incomes (1); • a fall in GDP may reduce tax revenue (1) lowering availability and quality of public services (1); • a fall in GDP may reduce the amount of health care/education people can enjoy (1) lower living standards indicated by lower HDI value (1). Up to 5 marks for why it might not: • if population falls by more than GDP (1) GDP per head may rise (1); • incomes may fall but working conditions may improve (1) working hours may decline (1) environmental conditions may improve (1); • incomes may fall but life expectancy may increase (1) quality of education may rise (1); • the distribution of income may become more even (1) this may mean that the living standards of many people may rise (1); • if there is deflation (1) people may be able to buy more goods and services (1). © Cambridge International Examinations 2015 Page 10 Mark Scheme Syllabus Paper Cambridge IGCSE – March 2015 0455 22 7 (a) Define ‘developed country’. [2] • A country with a high GDP per head/high income (1). • A country with high living standards/long life expectancy/high savings ratio/high levels of education/high levels of health care/a high proportion of workers employed in the tertiary sector/high productivity (1). (b) Explain two economic reasons why someone may decide to work in another country. [4] • Higher wages abroad (1) leading to higher living standards (1). • Better working conditions (1) e.g. longer lunch breaks/better health and safety conditions (1). • Greater chance of promotion (1) leading to higher income (1). • Greater opportunity to follow a particular career (1) more job opportunities (1). • Opportunity to gain experience in another country (1) skills gained may increase job opportunities/income when return home (1). (c) Analyse how a more educated labour force could reduce a country’s current account deficit on its balance of payments. [6] • A more educated labour force is likely to be more skilled (1) and so more productive (1) leading to lower costs of production (1) may make domestic products more price competitive (1) increase exports and lower imports (1). • A more educated labour force may produce higher quality products (1) make domestic products more quality competitive (1) increase exports and lower imports (1). • A more educated work force could be more innovative (1) more entrepreneurial (1). (d) Discuss whether a country’s exchange rate should be determined by market forces or by the government. [8] Up to 5 marks for market forces: • an exchange rate determined by the demand and supply of the currency (1) is a floating exchange rate (1); • should automatically move the current account position to a balanced position (1) if e.g. a deficit, exchange rate will fall (1) lowering export prices and raising import prices (1); • avoids the need for reserves to influence the exchange rate (1) foreign currency can be used for other purposes (1); • avoids the exchange rate being a policy objective (1) can pursue other policy objectives (1) e.g. can alter the interest rate to influence the price level (1). Up to 5 marks for the government: • a fixed exchange rate is maintained by the government/central bank (1) buying and selling the currency (1); • promotes certainty (1) this can enable firms to plan ahead (1) may encourage investment (1); • the rate may be set low (1) to increase economic growth/employment (1); • the rate may be set high (1) to reduce inflation (1). Note: up to a maximum of 3 marks for a list-like approach. © Cambridge International Examinations 2015