Practise comparative advantage, trade patterns, terms-of-trade data, WTO and trading-bloc roles, and the causes and effects of protectionism.
The share of GDP accounted for by the service sector is much higher in the UK and the USA than in Italy and Canada.
Evaluate the possible benefits of specialisation and trade to a developed country of your choice.
The table shows the maximum production possibilities for Country X and Country Y in a given year.
Which one of the following can be deduced from this table?
Neither country will benefit from specialisation and trade
Country X has a comparative advantage over Country Y in the production of bags and shoes
Country Y has an absolute advantage over Country X in the production of bags and shoes
There is no opportunity cost for either country in producing bags or shoes
In 2019 the rate of economic growth was over 6% in both India and China.
Evaluate the likely impact of rapid economic growth in emerging economies on world trade patterns. Refer to countries of your choice in your answer.
In 2021 Tanzania's index of export prices was 142.3 and its index of import prices was 121.3.
Which one of the following was Tanzania's terms of trade in 2021?
21.0
85.2
117.3
263.6
Between 2000 and 2020, Gibraltar's terms of trade worsened by 44.6% and Greece's terms of trade worsened by 14.3%. Evaluate factors that might cause a country's terms of trade to worsen.
The table shows Afghanistan's terms of trade between 2015 and 2017(2000=100).
Ceteris paribus, which one of the following can be deduced from the data?
The value of Afghanistan’s imports have risen relative to the value of its exports
The average price of Afghanistan’s exports have fallen relative to the average price of its imports
Afghanistan is likely to experience an improvement in its living standards
Afghanistan is likely to experience a deterioration in the financial account of the balance of payments
Sources for use with Section B
The economy of Turkey
Figure 1 Central bank base interest rate, January 2018 to December 2020
Figure 2 Rate of inflation, as measured by the Consumer Price Index (CPI), January 2018 to December 2020
Figure 3 Turkish lira–US dollar exchange rate*, January 2018 to December 2020
Extract A Currency depreciation
Turkey’s President, who controls the Central Bank of Turkey, is an opponent of high interest rates. He dismissed the Central Bank’s previous Governor in 2019, complaining that “he would not follow instructions on interest rates”. The Central Bank made a series of interest rate cuts after a new Governor was appointed. The President wanted a reduction in interest rates to encourage borrowing by businesses and consumers in order to stimulate Turkey’s rate of economic growth.
By contrast, some economists urged the Central Bank to raise interest rates to slow the pace of credit growth and to avoid a currency crisis. They argued that following the reduction in base interest rates, there was a further fall in the exchange rate of the Turkish lira against the US dollar. Turkey’s large current account deficit and capital flight have also contributed to the depreciation of the Turkish lira. Attempts to increase the external value of the lira while keeping interest rates low have reduced most of the Central Bank’s foreign currency reserves. Economists warned that the risk of a financial crisis in Turkey was growing.
In response, the new Governor of the Central Bank of Turkey raised the base interest rate. This increase indicated that the Central Bank was concerned about the weakness of the lira and a high rate of inflation. By December 2020 the base interest rate had increased to 17%. However, some economists argued that the Central Bank would need to raise the base interest rate further to support the weak currency.
Turkey’s long-term economic growth will depend on attracting foreign direct investment and establishing a stronger partnership with the European Union (EU) which is a customs union and common market. Turkey is an important partner for the EU on matters related to trade, investment and migration. Governments of many EU countries believe that they have an economic interest in developing a mutually beneficial relationship with Turkey.
Explain what is meant by a 'customs union' (Extract A, lines 22-23).
Sources for use with Section B
The economy of Turkey
Figure 1 Central bank base interest rate, January 2018 to December 2020
Figure 2 Rate of inflation, as measured by the Consumer Price Index (CPI), January 2018 to December 2020
Figure 3 Turkish lira–US dollar exchange rate*, January 2018 to December 2020
Extract A Currency depreciation
Turkey’s President, who controls the Central Bank of Turkey, is an opponent of high interest rates. He dismissed the Central Bank’s previous Governor in 2019, complaining that “he would not follow instructions on interest rates”. The Central Bank made a series of interest rate cuts after a new Governor was appointed. The President wanted a reduction in interest rates to encourage borrowing by businesses and consumers in order to stimulate Turkey’s rate of economic growth.
By contrast, some economists urged the Central Bank to raise interest rates to slow the pace of credit growth and to avoid a currency crisis. They argued that following the reduction in base interest rates, there was a further fall in the exchange rate of the Turkish lira against the US dollar. Turkey’s large current account deficit and capital flight have also contributed to the depreciation of the Turkish lira. Attempts to increase the external value of the lira while keeping interest rates low have reduced most of the Central Bank’s foreign currency reserves. Economists warned that the risk of a financial crisis in Turkey was growing.
In response, the new Governor of the Central Bank of Turkey raised the base interest rate. This increase indicated that the Central Bank was concerned about the weakness of the lira and a high rate of inflation. By December 2020 the base interest rate had increased to 17%. However, some economists argued that the Central Bank would need to raise the base interest rate further to support the weak currency.
Turkey’s long-term economic growth will depend on attracting foreign direct investment and establishing a stronger partnership with the European Union (EU) which is a customs union and common market. Turkey is an important partner for the EU on matters related to trade, investment and migration. Governments of many EU countries believe that they have an economic interest in developing a mutually beneficial relationship with Turkey.
With reference to the last paragraph of Extract A, examine two likely economic benefits to Turkey of joining the European Union.
In 2018 the UK Government introduced tariffs on imported steel. In 2022 it decided to maintain these tariffs until 2024.
Which one of the following is the most likely reason why the UK Government maintained these tariffs until 2024?
To increase the level of unemployment in the UK steel industry
To prevent dumping of steel in the UK from foreign countries
To protect transnational companies supplying steel to the UK
To decrease government revenue from tariffs on imported steel
Sources for use with Section B
The economy of Iran
Figure 1 Annual real GDP growth rate, Q1 2010–Q4 2020
Figure 2 Monthly inflation rate, as measured by the Consumer Price Index (CPI), January 2010–December 2020
Figure 3 National debt, % of GDP, 2010–2020
Extract A Trade restrictions
When Iran’s President, Mr Hassan Rouhani, was elected in 2013, he promised that his Government would solve Iran’s economic crisis. He said that he would save the country’s economy from collapsing and create positive relationships with the rest of the world. However, when Mr Rouhani resigned as President in June 2021 many economists claimed that his Government had not kept its promises.
During 2013 Mr Rouhani started discussions with the USA and other advanced economies to remove the trade restrictions imposed on Iran’s exports and imports. These restrictions had been imposed in response to Iran’s production of nuclear energy that was above the permitted international limit. After two years of negotiations, Mr Rouhani came to an agreement with these countries and the trade restrictions were gradually reduced. This resulted in an increase in oil exports, Iran’s main source of export revenue.
However, the US Government accused Iran of breaking the agreement and reimposed trade restrictions in 2018. As a result, Iran suffered a significant decline in oil exports and foreign direct investment. This led to a 75% fall in the external value of the country’s currency, the Rial, against the US dollar. Subsequently, there was a fall in Iran’s GDP, an increase in its unemployment rate and an increase in its inflation rate. In 2020 Iran experienced a trade deficit of $11.68 billion, having had trade surpluses between 2005 and 2018.
Extract B Economic development
Since 2018 the Iranian Government has implemented a strategy of diversification into non-oil exports in order to promote economic development. It has focused on a strategy of industrialisation and infrastructure development, particularly by investing in Iran’s telecommunications industries. As a result, the number of people with access to broadband increased from 590 000 in 2014 to 95 million in 2021. The number of people with access to mobile phones also increased from 59.4 million in 2013 to 131 million in 2021. However, the Iranian Government restricts the content that its citizens can access.
In addition, the Government has privatised many state-run companies. Consequently, many Iranians have invested a substantial amount of their savings in the country’s volatile stock market.
With reference to the second paragraph of Extract A, explain what is meant by 'trade restrictions'.
Sources for use with Section B
The economy of Iran
Figure 1 Annual real GDP growth rate, Q1 2010–Q4 2020
Figure 2 Monthly inflation rate, as measured by the Consumer Price Index (CPI), January 2010–December 2020
Figure 3 National debt, % of GDP, 2010–2020
Extract A Trade restrictions
When Iran’s President, Mr Hassan Rouhani, was elected in 2013, he promised that his Government would solve Iran’s economic crisis. He said that he would save the country’s economy from collapsing and create positive relationships with the rest of the world. However, when Mr Rouhani resigned as President in June 2021 many economists claimed that his Government had not kept its promises.
During 2013 Mr Rouhani started discussions with the USA and other advanced economies to remove the trade restrictions imposed on Iran’s exports and imports. These restrictions had been imposed in response to Iran’s production of nuclear energy that was above the permitted international limit. After two years of negotiations, Mr Rouhani came to an agreement with these countries and the trade restrictions were gradually reduced. This resulted in an increase in oil exports, Iran’s main source of export revenue.
However, the US Government accused Iran of breaking the agreement and reimposed trade restrictions in 2018. As a result, Iran suffered a significant decline in oil exports and foreign direct investment. This led to a 75% fall in the external value of the country’s currency, the Rial, against the US dollar. Subsequently, there was a fall in Iran’s GDP, an increase in its unemployment rate and an increase in its inflation rate. In 2020 Iran experienced a trade deficit of $11.68 billion, having had trade surpluses between 2005 and 2018.
Extract B Economic development
Since 2018 the Iranian Government has implemented a strategy of diversification into non-oil exports in order to promote economic development. It has focused on a strategy of industrialisation and infrastructure development, particularly by investing in Iran’s telecommunications industries. As a result, the number of people with access to broadband increased from 590 000 in 2014 to 95 million in 2021. The number of people with access to mobile phones also increased from 59.4 million in 2013 to 131 million in 2021. However, the Iranian Government restricts the content that its citizens can access.
In addition, the Government has privatised many state-run companies. Consequently, many Iranians have invested a substantial amount of their savings in the country’s volatile stock market.
With reference to Figure 1, Figure 2 and the last paragraph of Extract A, examine two likely economic effects of trade restrictions reimposed by the US Government on Iran.