Past Paper Qs

Question 1

To what extent is monetary policy the most effective way of stimulating economic growth? Refer to at least one developed country in your answer. (30 marks)

Answer 1

• Expansionary monetary policy will lower interest rates will promote spending
  Ev May increase prices of commodities as £ sold of due to hot money outflows
• WPIDEC lowers prices of exports as a result of lower interest rates may result in multiplier effect
  Ev may take a long time to occur
• may increase business borrowing and spending leading to increased AD
  Ev many UK businesses borrow from abroad as it is cheaper then in the UK
• BofE main priority to keep inflation low
  Ev since 1997 has been kept low and steady

Question 2

In 2011, Germany recorded a trade in goods surplus of 146.1 bn euros whereas the USA recorded a trade in goods deficit of 737 bn dollars and the UK a deficit of £99.7 bn. Assess the possible causes of such trade balances. (20 marks)

Answer 2

• Countries may have a comparative advantage in higher value goods
  Ev the UK has a comparative advantage in high value services
• high domestic incomes increases demand for imports
  Ev Germany a dele oped country yet has a trade surplus
• poor domestic competitiveness
  Ev large number of MNCs are based in the USA

Question 3

Assess possible reasons why the average growth rates of developing economies have been 4.5%higher than those of developed economies in recent years? (20 marks)

Answer 3

• World recession has negatively effected developed economies, leading to retraction of growth
  Ev May lead to fewer imports worsening developing economies
• growth of MNCs leading to demand of factor endowments
  Ev demand may fall in the future due to price volatility
• improved infrastructure attracts FDI
  Ev may still be politically corrupt leading to diversion of money from agreed investment