Practise identifying and evaluating causes of unemployment, from seasonal labour demand to weak AD and structural mismatch.
Sources for use with Section C
The economy of China
Figure 1 Year on year real GDP growth rate by quarter, Q1 2020 to Q2 2022
Figure 2 Youth unemployment rate (16 to 24 year olds), as measured by the International Labour Organization (ILO), January 2022 to June 2022
Extract A Economic growth In the second quarter of 2022 China experienced a low rate of economic growth. This was as a result of domestic demand for goods and services, and exports rising more slowly compared with the previous quarter. Economists estimated that China’s economy would continue to experience a low rate of economic growth until the end 5 of the year. Therefore, the country’s economic growth forecast for 2022 was reduced from 5.5% to 4.3%. This low economic growth rate resulted in a further increase in the already high rate of youth unemployment. China has too many college and university graduates for the economy to employ. In 2022 there was also a mismatch between the jobs that are 10 available and students’ qualifications. For example, at the start of the third quarter of 2022, only 0.70 jobs were available for each graduate. To increase the rate of economic growth the Government implemented a reflationary fiscal policy. It increased spending on infrastructure by over $75 billion and reduced taxes for businesses. It planned to increase science and technology‑related 15 investments by providing 100% tax breaks on research and development spending. The country’s central bank, the People’s Bank of China (PBoC), implemented a reflationary monetary policy to increase the country’s economic growth rate. For example, the PBoC decreased the base rate of interest from 3.7% to 3.65% in August 2022. There was also a reduction in the reserve asset (liquidity) requirements 20 in November 2022. This was in contrast to the policy of central banks in several advanced economies which implemented deflationary monetary policy. One economist stated that “the room for manoeuvre” for a reflationary monetary policy by the PBoC was limited because of rising US interest rates. He also emphasised the risks associated with a fall in the external value of the Chinese 25 currency, the Renminbi.
With reference to Extract A, analyse two causes of China's high youth unemployment rate.
Knowledge 2, Application 2, Analysis 2
Quantitative Skill Assessed
QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms
Knowledge and analysis
Up to 1 knowledge for identifying a cause and 1 analysis mark for linked
development of each cause, e.g.:
- Low economic growth rate of China (1K) resulting in demand-
deficient unemployment/less demand for workers (1AN)
- There was also a mismatch between the jobs that are available
and students' qualifications (1K) so Chinese graduates lack the
necessary skills to take up available jobs (1AN)
- Surplus in the labour market for young people (1K) so Chinese economy lacks jobs for skilled graduates (1AN)
Application
Up to 2 marks for use of Extract A, e.g.,
- Domestic demand for goods and services and exports rising
more slowly compared with the previous quarter /
the country's economic growth forecast for 2022 was reduced
from 5.5\% to 4.3\% (1)
- China has too many college and university graduates for the economy to employ
- At the start of the third quarter of 2022 , only 0.70 jobs were
available for each graduate (1)
(6)
Question
With reference to Extract A, examine how a reflationary fiscal policy
will impact China's circular flow of income.
Mark