Question 1
In 2022 Türkiye's deficit on the current account of the balance of payments was $ 48.75 billion. In the same year, Canada's deficit on the current account of the balance of payments was $ 6.65 billion.
Evaluate measures that could be taken to reduce a current account deficit on the balance of payments. Refer to a 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, Analysis (12 marks) - indicative content
- Understanding of current account deficit
Measures to reduce a current account deficit include:
- Increase income tax rates/decrease government spending (deflationary fiscal policy) to reduce disposable incomes: lowers marginal propensity to import, reducing the value of imports
- Increase in interest rates (deflationary monetary policy) to reduce the average price level/consumer spending: increases cost of borrowing and reward for saving, thus reducing marginal propensity to import
- Improvements in education and training (supply-side policy): increases human capital and productivity, increasing competitiveness, thereby reducing the cost per unit and increasing the value of exports
- Improvements in infrastructure (supply-side policy): increases efficiency and productivity, increasing competitiveness, hence increasing the value of exports
- Reduce the rate of corporation tax/offer tax relief to businesses who make investments into technological advancements/R&D (supply-side policy): increases dynamic efficiency, increasing competitiveness, thereby reducing the cost per unit and increasing the value of exports
- Policies to reduce the external value of the currency: exports become more price competitive thus increasing in value/imports become less price competitive thus decreasing in value
- Protectionist policies: e.g. tariffs increase the price of imports/quotas restrict the number of imports into the country
- Diversification/industrialisation to produce exports with more value-added
N.B. Award maximum of Level 3 ( 9 marks) if a candidate does not refer to a country of their choice 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
- Significance of measures change over time: SR v LR considerations
- Combination of measures is likely to have a more significant impact
- Discussion of the effectiveness of the measures, e.g.
- Effectiveness depends on the PES/YED/PED of imports and exports
- Depends if the Marshall-Lerner condition is met (may refer to J-curve)
- Increase in income tax/interest rates may result in a reduction in real output and increased unemployment, may inhibit long-term growth
- Effect on the price level depends on the level of spare capacity in the economy/depends on the elasticity of the LRAS
- Increase in interest rates may also cause the exchange rate to appreciate, thereby reducing price competitiveness of exports
- Time lags and implementation lags associated with the measures
- Supply-side measures may increase budget deficit and national debt
- Protectionism may result in retaliation;
distortion of comparative advantage;
not possible given membership of the WTO/trade blocs
- Issues with how time, cost, skill levels etc. relate to diversification/ industrialisation/deindustrialisation
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.