2021 Paper 2 Flashcards
Using the data in Figures 1 and 2, calculate the change in the level of total aid funding to Rwanda between 2011 and 2012 (5)
Calculate 2011 total:
10.29m X $123 = $1 265.67 million
(2) Calculate 2012 total:
10.55m X $83 = $875.65 million (2)
Change = $1 265.67 million – $875.65 million
= -$390.02 million / 390.02 million
With reference to the information provided, examine two likely benefits for the Rwandan economy of the growth in the country’s population (8)
One benefit is the increase in the size of the workforce [K]. Rwanda’s population grew from 10.8 million in 2013 to 11.4 million in 2015 [Ap]. A larger workforce means more labour is available, allowing firms to expand production, increasing aggregate supply [An
A second benefit is the increase in consumption [K]. Rwanda’s absolute poverty rate declined from 59% in 2001 to 39% in 2014 [Ap]. As more people earn higher incomes, demand for goods and services increases, stimulating aggregate demand and economic growth [An]
However, if the number of jobs does not rise accordingly, unemployment could increase, limiting economic growth [E]. Additionally, alarger population may require higher government spending on public services, which could offset the benefits of increased tax revenue
With reference to the information provided, assess the likely impact on the Rwandan economy of the change in aid received between 2017 and 2018. (10)
Areduction in aid received could lead to less funding for supply-side policies [K]such as education and healthcare, potentially slowing improvements in primary school enrolment and child mortality rates [Ap]. Aid per capita fell from $103 to $91 [Ap], meaning less government spending on social development could hinder progress in reducing poverty and inequality [An].
This may negatively impact long-term human capital development, slowing Rwanda’s economic growth
Additionally, lower aid inflows may reduce iniections into the circular flow of income [K], leading to lower aggregate demand and a fall in living standards [K]. Between 2001 and 2014, absolute poverty fell from 59% to 39%, but since 2014, progress has stagnated [Ap]. This suggests a reduction in aid may further limit poverty reduction efforts [An]. Alack of investment in infrastructure and capital accumulation (Harrod-Domar model) may also constrain future economic growth [An] Level 3 KAA
However, the impact depends on whether private investment has increased over time [E]. If Rwanda has attracted higher levels of foreign direct investment (FDI), this may offset the decline in aid, allowing continued growth in education and healthcare [E].
Additionally, the government may have become more capable of funding key services independently, reducing reliance on external aid
d) Discuss the likely impact on Rwandan consumers and clothing manufacturers of the increase in the tariff on imports of second-hand clothes. Use an appropriate diagram to support your answer (12)
Tariff diagram
An increase in tariffs on second-hand clothing raises the price of imported textiles from Pw to Pw +T [K]. This reduces affordability for low-income consumers [An]. Many Rwandans rely on cheap, second-hand clothing, so higher prices mean a lower standard of living [An]. A Tommy Hilfiger shirt costs around $5.82, and even plain shirts are much cheaper than new ones [Ap].
With fewer imports available at QD2-QS2, consumer surplus falls [An], as individuals must either pay more for clothes or reduce consumption
However, the effectiveness of the policy depends on the price elasticity of demand for second-hand clothing [E]. If demand is price inelastic, consumers may still purchase secondhand clothes despite price increases, meaning consumption may fall less significantly
Domestic clothing manufacturers gain from reduced competition [K].The
Kigali clothing factory [Ap] face difficulty competing with secondhand imports, which dominate the market. The tariff allows them to charge higher prices, increasing producer surplus [An]. The factory, operating at only 40% capacity [Ap], may see increased demand, leading to higher profits and potential employment growth [An]. If more workers are employed, national income may rise [An], leading to economic development
However, foreign retaliation could offset the benefits [E]. The US has threatened to suspend Rwanda’s tariff-free access to its markets in response to the tariff [Ap]. While Rwanda’s clothing exports to the U.S. are small ($1.5 million), a broader trade conflict could harm exports in other industries
Discuss policies, other than import tariffs, that the Rwandan government could use to develop its manufacturing industries (15)
One policy the Rwandan government could use to develop its manufacturing industries is subsidising manufacturers to invest in new machinery [K]. This would help firms increase efficiency and reduce production costs, making Rwandan goods more competitive in both domestic and international markets [An]. For example, textile manufacturers could use subsidies to purchase modern equipment, improving productivity and lowering costs [Ap]. Amore efficient manufacturing sector would create jobs, boost exports, and support economic development
However, government subsidies come with an opportunity cost. The money used for manufacturing subsidies could have been invested elsewhere, such as healthcare, education, or infrastructure, which may have a greater long-term impact on Rwanda’s economic development [E]. If the manufacturing industry does not grow as expected, subsidies may lead to wasteful spending with limited benefits
Another policy is improving
infrastructure, such as roads and ports, to make it easier for Rwandan firms to transport goods [K]. Poor
infrastructure increases transportation costs, making Rwandan exports less competitive in international markets [An]. By investing in better roads and logistics networks, the government can reduce costs for manufacturers and encourage growth in industries such as textiles and agriculture-based manufacturing [Ap]. Additionally, foreign direct investment (FDI) could be encouraged if Rwanda improves its transport and energy infrastructure, attracting multinational firms to invest in manufacturing
However, large-scale infrastructure projects take time. Roads, ports, and energy projects require significant investment, and the benefits may not be seen for several years [E].
Additionally, there is a risk of corruption, where funds allocated for infrastructure improvements may not be used efficiently, reducing their overall impact
