Practise explaining why current account deficits or surpluses arise, using country data, trade flows and evaluation of demand or price effects.
In 2021 Singapore's surplus on its current account of the balance of payments was over $60 billion.
Evaluate possible causes of a current account surplus. Refer to a developed country of your choice in your answer.
Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.
QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms.
Knowledge, Application and Analysis (12 marks) - indicative content
- Understanding of current account surplus
- Higher productivity - more educated/skilled workforce, reducing unit costs and therefore more competitive in terms of labour costs
- Fall in the external value/depreciation of a country's currency - makes exports relatively cheap and imports relatively more expensive
- Relatively low inflation rates - Singapore's rate of inflation is relatively lower than most developed countries
- Increase in demand for goods and services from the rest of the world
- Falling real wages/incomes in Singapore, reducing demand for imports
- Lower regulation/bureaucracy in Singapore, reducing costs of production
- Protectionist policies designed to reduce country's dependence on imports
- Reputation for producing high quality and highly reliable goods/services
- Previous investment in modern technology, e.g. on machinery/equipment
- Rise in price of key commodity exported, e.g. Singapore and petroleum
- Firms in Singapore benefiting from external economies of scale
- Abundance of raw materials - highly demanded by other countries, e.g. Saudi Arabia and oil
- Increase in the world price of commodities;
more relevant to countries in which commodities are a high proportion of exports
N.B. Award maximum of Level 3 (9 marks) if a candidate does not refer to a developed country in their answer
Level
Mark
Descriptor
0
No rewardable material.
Level 1
1-3
Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models.
Use of generic material or irrelevant information or inappropriate examples.
Descriptive approach which has no chains of reasoning.
Level 2
4-6
Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models.
Limited application of knowledge and understanding to economic problems in context.
A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3
7-9
Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer.
Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4
10-12
Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question.
Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.
Evaluation (8 marks) - indicative content
- Short-run versus long-run considerations: reasons why surplus may not be maintained over the longer term
- Significance of causes of current account surplus change over time
- Prioritisation of causes: e.g. rising petroleum prices may be the most important
- Inadequacies of data: the data provided is only for one year;
it is likely that the surplus may not be maintained over a longer time period
- Hard to identify if Singapore's surplus is relatively small or large: perhaps surplus as a percentage of GDP would be more significant
- Different combinations of causes affect different countries
- Depends on which component of current account is causing the surplus
Level
Mark
Descriptor
0
No rewardable material.
Level 1
1-3
Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2
4-6
Evidence of evaluation of alternative approaches.
Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.
Level 3
7-8
Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.
Question
In Libya the HDI was 0.80 in 2010 and it was 0.72 in 2019.
Evaluate interventionist strategies that a government in a developing country of your choice might use to increase economic development.
Indicative content