Edexcel A-Level Economics Core Quantitative Skills

Sources for use with Section B
The economy of Pakistan

Figure 1 National debt, $ billions, 2018–2022

Figure 2 Rupee–US dollar exchange rate, January 2022 to June 2022

Extract A Economic outlook Between January and June 2022 Pakistan’s currency, the rupee, depreciated against the US dollar. This was mainly as a result of rising global inflation rates and the strong appreciation of the US dollar. However, economists expected the external value of the rupee to increase against the US dollar in the third quarter of 2022. They anticipated 5 that the dollars earned by Pakistan from its exports would be greater than the dollars paid for its imports and debt servicing. Pakistan experienced a significant decline in foreign currency reserves from $16 billion in June 2021 to $10 billion in June 2022. Many economists believed that the economy could be on the verge of an economic collapse in the third quarter of 10 2022. In June 2022, Pakistan’s central bank, the State Bank of Pakistan (SBP), informed Pakistan’s Government that the country’s rising foreign currency gap would have a negative impact on its ability to import. The SBP claimed that the rising foreign currency gap was likely to increase further because of higher debt servicing 15 payments. To prevent these reserves from running out, the SBP suggested a temporary ban on the import of non‑essential goods. Pakistan’s Government borrowed $1.2 billion from the IMF to prevent a further fall in foreign currency reserves. This financial support enabled the Government to reduce its current account deficit of the balance of payments and to help finance the 20 country’s national debt. The loan from the IMF required the Government of Pakistan to meet certain conditions. These included a reduction in the fiscal deficit, partly by the removal of fuel and energy subsidies. The IMF also required Pakistan’s central bank to raise its base rate of interest to stabilise the rupee. 25 Previous governments of Pakistan have not always met the terms of their loan agreements with the IMF. For example, the fiscal deficit has not been reduced significantly because the government collects very little revenue from direct taxes, especially from the booming property market. Large houses cost anywhere between $500 000 and $2 million to purchase but the owners only pay a small proportion as 30 tax. The IMF proposed that high‑income households should pay significantly more income tax than low‑income and middle‑income households.

In 2021, the Government of Pakistan made a debt servicing payment of $32.27 billion.

With reference to Figure 1, calculate debt servicing payments as a proportion of national debt in 2021. You are advised to show your working.

The table shows global GDP per capita in 2002, 2012 and 2022.

A car manufacturer employs 40 engineers at a wage rate of $ 570 per week. To attract an additional worker, the car manufacturer must raise the wage rate for all engineers to $590 per week.

What is the marginal cost of employing this additional worker?