Note:
- If more than two impacts are referred to, reward the best two.
All annotation ( K APP AN L2) should be in the left margin.
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Indicative content
Responses may include:
AO1 Knowledge and understanding
Definition of relevant terms from lines 69-70 (max K1 mark):
- Depreciation of exchange rate - a fall in the value of one currency in terms of another.
- Inflation - an increase in the general price level.
- Taxation includes income and corporation tax and indirect taxes such as VAT. Changing levels of taxation is an element of fiscal policy.
Knowledge of impact of changes in the economic environment on CQ:
- Decreased demand for goods (increase in taxation).
- Higher costs (inflation and/or depreciation of exchange rate).
- Increased export earnings (depreciation of the exchange rate).
AO2 Application
Max one APP for application for the first element and max one APP for application for the second element.
- Linking ER depreciation to imports of bamboo from the US or exports of shoes to the US.
- CQ objective is to increase sales to US.
- Linking taxation to demand for shoes and/or CQ's premium prices.
- Linking inflation to wage demands of workers at factory in country P.
- Linking taxation to CQ's proposed investment in sustainability.
AO3 Analysis
Limited analysis AN - candidate shows one link in the chain of analysis.
Developed analysis L2AN - candidate shows two or more links in the chain of analysis.
- Depreciation will make imports of bamboo from the US more expensive therefore increasing CQ costs AN and increasing price or reducing gross profit margin. L2 AN
- Depreciation will reduce price of CQ shoes to US importers and therefore result in an increase in sales volume (and value) AN helping to meet CQ objective of growth. L2 AN
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- Inflation may result in an increase in wage demands from workers at the factory in country P increasing costs of CQ AN and therefore reducing profit margins. L2 AN
- An increase in income tax will reduce consumers' disposable income leading to a decrease in demand for goods and therefore a decrease in sales revenue AN resulting in a decrease in profits. L2 AN
- Unique nature of CQ's product may mean that changes in price and income may have only a limited impact on sales and profit. AN
- Increase in corporation tax will reduce retained profit and could therefore result in delay in CQ's plans such as the investment in sustainability AN limiting future profit of the company. L2 AN
Accept all valid responses.
