Economics Paper 2 - 6 mark questions

Question 1

In January 2018, Australia had an unemployment rate of 5.5%.
(h) Analyse how the Australian government might reduce unemployment by using fiscal policy.

Answer 1

AO2 and AO3
* Fiscal policy (expansionary) is when the government
increases government expenditure and/or reduces
taxation
* Increased government expenditure could be in the form of
new infrastructure projects such as transport links or
employing more public sector workers such as teachers
* This should increase overall demand within the Australian
economy
* This results in firms raising output and having to employ
more workers
* Incomes will also rise resulting in further output and
employment growth within the Australian economy
* Unemployment should therefore be reduced in the
Australian economy

Question 2

Analyse the possible impact of unemployment on an economy.

Answer 2

Unemployment represents a loss of output and
therefore less GDP for a country
* This could reduce standards of living for the population
and increase poverty in the long run
* The government will receive less tax revenue as there
will be fewer workers in employment paying direct and
indirect taxes
* The government will have to pay out more in
unemployment benefits to support the unemployed
person whilst they are looking for a job
* There is great pressure on the unemployed person as
unemployment can cause social problems such as
stress and health-related problems

Question 3

The unemployment rate fell in Vietnam between 2015 and 2016 but in the same period the inflation rate increased.
(b) Analyse how a fall in unemployment may have caused an increase in Vietnam’s inflation rate.

Answer 3

A fall in unemployment may result in workers gaining an
income from their employment. This may increase
consumer spending within the Vietnamese economy
* An increase in total demand may therefore result in
more demand than the economy can supply
* This might result in demand pull inflation as costs and
prices rise
* A fall in unemployment may also result in there being
fewer workers available in the Vietnamese economy
* This could result in higher costs of production for firms
as they must increase wages to attract workers
* Higher costs of production may cause cost push
inflation for the Vietnamese economy

Question 4

The Government of Singapore had a fiscal surplus of 1.3% of GDP in 2016 and it is expected to have a 0.4% of GDP surplus in 2017.
(h) Analyse the impact of a fiscal surplus on a country such as Singapore.

Answer 4

AO2 and AO3
* A fiscal surplus is when government tax receipts are
greater than government spending, in this case 1.3% of
GDP in 2016 and expected 0.4% of GDP in 2017
* The government of Singapore has extra funds and these
funds can be allocated to pay off any government debts
* This reduces the interest payable on any debt and helps
the economy in the future
* The government of Singapore could use the fiscal surplus
to reduce taxes
* It could fund new education and training programmes or
improve existing public services such as healthcare

Question 5

In December 2017, Argentina’s Consumer Price Index (CPI) increased from 20.9% to 25%.
(d) Analyse the possible impact of high inflation on consumers in a country such as Argentina.

Answer 5

AO2 (3 marks)/AO3 (3 marks)
AO2 and AO3
* The level of consumer confidence will be an important
factor that determines the willingness of consumers to
spend, borrow and save
* Inflation reduces purchasing power for consumers
* High rates of inflation such as 25% in Argentina will
result in consumers experiencing a fall in living
standards as they cannot afford to purchase the same
amount of goods and services
* High rates of inflation make it difficult for consumers to
know what they can afford or how much they need for
purchases such as cars
* High rates of inflation may discourage consumers from
saving as they expect the value to decrease
* Consumers are more likely to demand higher wages to
keep up with inflation

Question 6

Analyse the benefits of a current account surplus for a country such as China.

Answer 6

AO2 (3 marks)/AO3 (3 marks)
AO2 and AO3
* A current account surplus means an economy is
exporting a greater value of goods and services than it
is importing
* China’s current account has been in surplus with a
high of over $900bn in January 2016
* China’s current account surplus benefits the country
in terms of employment as higher export sales help to
create jobs
* This encourages economic growth and a higher GDP
* This is likely to result in a higher standard of living for
China
* China’s current account surplus will mean that it will
have surplus foreign exchange it can use to invest in
other countries