IB Economics SL Unit 4 The Global Economy Question Bank

Level 0 (0 marks): The work does not meet a standard described by the descriptors below.

Level 1 (1 mark): Vague response. The idea that it is (any one of the following is sufficient): - large scale public systems (services and facilities) of a country - necessary for economic activity - adding to the capital stock of a nation - usually supplied by the government - generates significant positive externalities.

Level 2 (2 marks): Accurate response. The idea that it is (any two of the following is sufficient): - large scale public systems (services and facilities) of a country - necessary for economic activity - adding to the capital stock of a nation - usually supplied by the government - generates significant positive externalities.

Level 0 (0 marks): The work does not meet a standard described by the descriptors below.

Level 1 (1-2 marks): There is a correct diagram OR an accurate written response. For an exchange rate diagram showing a fixed exchange rate and an increase in supply due to the capital flight OR an explanation that the capital flight implies that more francs are sold on the international market, which worsens/causes the overvaluation.

Level 2 (3-4 marks): There is a correct diagram AND an accurate written response. For an exchange rate diagram showing a fixed exchange rate and an increase in supply due to the capital flight AND an explanation that the capital flight implies that more francs are sold on the international market, which worsens/causes the overvaluation.

Candidates who label diagrams incorrectly can be awarded a maximum of [3].

For an exchange rate diagram, the vertical axis may be exchange rate, price/value of the (CFA) franc in euros, euros/(CFA) franc or euros per (CFA) franc. The horizontal axis should be quantity, or quantity of (CFA) francs. A title is not necessary.

Price of the

franc in euros

Level 0 (0 marks): The work does not meet a standard described by the descriptors below.

Level 1 (1-2 marks): There is a correct diagram OR an accurate written response. For drawing a correctly labelled trade diagram, with a downward shift of the world (or UK and/or EU) supply curve, a decrease in price, and an increase in the level of imports OR for an explanation that removing the tariff will result in a decrease in the price of fertilizer and hence an increase in the quantity of imports due to an increase in the quantity demanded and/or decrease in the domestic quantity supplied.

Level 2 (3-4 marks): There is a correct diagram AND an accurate written response. For drawing a correctly labelled trade diagram, with a downward shift of the world (or UK and/or EU) supply curve, a decrease in price, and an increase in the level of imports AND for an explanation that removing the tariff will result in a decrease in the price of fertilizer and hence an increase in the quantity of imports due to an increase in the quantity demanded and/or decrease in the domestic quantity supplied.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

The use of P and Q on the axes is sufficient for an international trade diagram. World supply may also be labelled S(E U) or S(U K) or S(E U+U K) or just P(W) or (P(U K) or P(E U) or ( P(E U+U K). The domestic demand and supply curves can just be labelled D and S. A title is not necessary.

Using information from the texts/data and your knowledge of economics, discuss the need for a balance between market-oriented policies and government intervention to promote economic development in Cameroon.

Level 0 (0 marks): - The work does not meet a standard described by the descriptors below.

Level 1 (1-3 marks): - The response indicates little understanding of the specific demands of the question. - Economic theory is stated but it is not relevant. - Economic terms are stated but they are not relevant. - The response contains no evidence of synthesis or evaluation. - The response contains no use of text/data. Level 2 (4-6 marks): - The response indicates some understanding of the specific demands of the question. - Relevant economic theory is described. - Some relevant economic terms are included. - The response contains evidence of superficial synthesis or evaluation. - The response contains limited use of text/data. Level 3 (7-9 marks): - The response indicates understanding of the specific demands of the question, but these demands are only partially addressed. - Relevant economic theory is partly explained. - Some relevant economic terms are used appropriately. - Where appropriate, relevant diagram(s) are included. - The response contains evidence of appropriate synthesis or evaluation but lacks balance. - The response includes some relevant information from the text/data. Level 4 (10-12 marks): - The specific demands of the question are understood and addressed. - Relevant economic theory is explained. - Relevant economic terms are used appropriately. - Where appropriate, relevant diagram(s) are included and explained. - The response contains evidence of appropriate synthesis or evaluation that is mostly balanced. - The use of information from the text/data is generally appropriate, relevant, and applied correctly. Level 5 (13-15 marks): - The specific demands of the question are understood and addressed. - Relevant economic theory is fully explained. - Relevant economic terms are used appropriately throughout the response. - Where appropriate, relevant diagram(s) are included and fully explained. - The response contains evidence of effective and balanced synthesis or evaluation. - The use of information from the text/data is appropriate, relevant, and is used to formulate a reasoned argument supported by analysis/evaluation. Command term

"Discuss" requires candidates to offer a considered and balanced review that includes a range of arguments, factors, or hypotheses. Opinions or conclusions should be presented clearly and supported by appropriate evidence.

Responses may include:

- a definition of economic development

- a definition of government intervention/interventionist policies

- a definition of market-oriented policies

- diagrams (eg AD/AS, poverty cycle).

Intervention which may lead to development

- Military intervention to bring stability to regions experiencing conflicts (Text D, paragraph 2).

- The high interest rates help maintain the fixed exchange rate which brings stability (Text D, paragraph 6).

- The policies under the Growth and Employment Strategy would help increase human capital and increase productivity, which may help many break the poverty cycle and increase LRAS and export revenues (which could result in higher incomes) (Text E, paragraphs 1, 3 and 4).

- Better infrastructure would bring in FDI/increased investment (Text E, paragraph 1).

- The higher minimum wage helps increase workers' well-being but comes with the possibility of unemployment and may make it difficult for the authorities to reduce the size of the informal sector (Text E, paragraph 3).

- Subsidies help to keep electricity, food and fuel prices low and accessible (Text D, paragraph 4; Text E, paragraph 4).

Limitations of intervention

- Fiscal deficits and government debt may increase (Text D, paragraphs 2 and 3).

- Some forms of intervention are too short-term such as subsidies (Text D, paragraph 4) or may not be sustainable in the long-term (Text D, paragraph 2).

- There is an opportunity cost to intervention (Text D, paragraph 4).

- Subsidies for fuel can increase external costs (Text D, paragraph 4).

- Intervention through higher interest rates to support the overvalued currency (Text D, paragraph 6) will have a contractionary impact on the economy and this could limit the impact of expansionary fiscal policy (Text D, paragraph 3).

- High interest rates also mean that entrepreneurs have more difficulty in obtaining loans (Table 3).

- The fixed (over-valued) exchange rate raises export prices, which hampers trade (but does contribute to lower prices of fertilizers etc) (Text D, paragraph 6).

- Military intervention may reduce freedoms and development (Text D, paragraph 2).

Market-oriented policies which may lead to development

- Deregulation/decrease in bureaucracy may lead to an increase in investment (Text D, paragraph 5). This may help promote local entrepreneurship.

- Membership in free trade groups allows for higher export revenue which would lead to economic growth. The EU and UK currently account for almost half of trade with Cameroon (Table 3).

- The removal of tariffs on fertilizers (Text F) would help decrease farmers' costs and lead to more competitive exports (Text E, paragraph 2). This could also help decrease the need for subsidies in the long-term (Text E, paragraph 3).

- Removal of tariffs on capital goods (Text F) may lead to higher productivity and/or reduce costs for firms.

Limitations of market-oriented policies

- Membership of free trade groups may worsen/not reduce Cameroon's persistent trade deficit if imports increase more than exports (Text D, paragraph 6).

- Without adequate provision of infrastructure and provision of education, the country will continue to lack diversification of economic activities. Economic growth may not be sustained due to the volatility of commodity prices (Text D, paragraph 2).

- Some policies such as tax incentives and subsidies may not benefit those working in the informal sector. Such policies would thus have limited effectiveness in reducing poverty due to the size of the informal economy (Text D, paragraph 3) and level of poverty (Text D, paragraph 4).

- Relative poverty may continue to increase due to disparities in benefits from export-led growth (Text D, paragraph 4).

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Define the term infant industries indicated in bold in the text (paragraph (3).

0 The work does not reach a standard described by the descriptors below.

1 Vague definition.

An explanation that they are any one of the following:
- they are new industries
- which do not benefit from economies of scale
- that need protection to compete with imports.

2 Accurate definition.

An explanation that they are any two of the following:
- they are new industries
- which do not benefit from economies of scale
- that need protection to compete with imports.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Marking guidance:

Do not award beyond Level 2 if the answer does not contain reference to the information provided.
Level ..... Marks
0 The work does not reach a standard described by the descriptors below. ..... 0
1 Few relevant concepts are recognized. ..... 1-2
There is basic knowledge/understanding.
2 Relevant concepts are recognized and developed in reasonable depth. ..... 3-5
There is clear knowledge/understanding.
There is some attempt at application/analysis.
3 Relevant concepts are recognized and developed in reasonable depth. ..... 6-8
There is clear knowledge/understanding.
There is effective application/analysis.
There is synthesis/evaluation, supported by appropriate theory and evidence.
Command term

Evaluate requires candidates to make an appraisal by weighing up the strengths and limitations.

Responses may include:
- explanation of import-substitution:
- policy to replace imports with domestically produced goods
- elements of an import-substitution policy may include any measures to support domestic producers (eg tariffs, quotas, subsidies, administrative barriers)
- explanation of economic growth
- explanation of economic development.

Possible strengths:
- reduction in imports means a reduction in import spending, which will reduce the trade deficit and contribute to economic growth
- increased real GDP (may refer to diagram in part (b))
- increase employment, which may contribute to economic growth and development
- Ecuador has moved from trade deficit to trade surplus so its policy seems to be effective (paragraph ())
- Ecuador's exports are largely primary products, and so import-substitution may be necessary for Ecuador to diversify and/or produce products with more value-added such as chocolate (Table 1 and paragraph 3 )
- it is important that countries have the right to set and enforce product standards to protect their people from below-standard products (paragraph (2))
- firms like Pica may be able to increase output, thereby achieving economies of scale; this may allow it to become an exporter and further help Ecuador's trade balance (paragraph ©), thereby resulting in economic growth; possible job creation and breaking of poverty cycle for those with jobs
- any policies to support domestic producers may be seen as interventionist supply-side policies, which will increase long-run aggregate supply (paragraph ©).

Possible weaknesses:
- the government may not be able to correctly identify the industries that will be able to compete with imports
- domestic products are likely to be more expensive than imports, which is harmful to consumers; impact on low income earners will be significant
- producers like Toni Industries will have to buy from more expensive domestic producers, which increase costs of production (paragraph ( ))
- higher tariffs on capital equipment and raw materials will feed through to higher costs of production leading to (cost-push) inflation (diagram) (paragraph ©)
- allows domestic producers to remain less efficient than foreign producers (paragraph 6)
- less choice of consumer goods
- misallocation of resources
- danger of retaliation (paragraph ( ).

Any reasonable evaluation.

Level 0 (0 marks): The work does not meet a standard described by the descriptors below.

Level 1 (1 mark): Vague definition An understanding that it is one of the following: - economic activity that is not officially recorded - economic activity that is not regulated - economic activity that is not taxed.

Level 2 (2 marks): Accurate definition An understanding that it is two of the following: - economic activity that is not officially recorded - economic activity that is not regulated - economic activity that is not taxed

US dollar price $=400 \times \frac{1}{84.5}=4.7337 \ldots$ [1]

Price in 2019 = ($) 4.73 [1]
An answer of 4.73 without working is sufficient for [1].
For full marks to be awarded, the response must provide valid working. Units ($) need not be provided since they are stated in the question.

(The exchange rate has) depreciated. [1]

Level 0 (0 marks): The work does not meet a standard described by the descriptors below.

Level 1 (1-2 marks): There is a correct diagram OR an accurate written response. For a correct tariff diagram with appropriate labelling, showing a shift upwards of the world supply curve (world price line) and a fall in imports to the US, and showing a fall in revenue earned by Bangladeshi producers O R for providing an explanation that the tariff causes (higher prices for imports and therefore) imports to decrease, leading to lower revenue for the Bangladeshi producers.

Level 2 (3-4 marks): There is a correct diagram AND an accurate written response. For a correct tariff diagram with appropriate labelling, showing a shift upwards of the world supply curve (world price line) and a fall in imports to the US, and showing a fall in revenue earned by Bangladeshi producers AND for providing an explanation that the tariff causes (higher prices for imports and therefore) imports to decrease, leading to lower revenue for the Bangladeshi producers.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

The use of P and Q on the axes is sufficient for an international trade diagram. The world supply curve must be labelled Sw, or Sworld or SBangladesh, Pworld Pw or PBangladesh or any similar label indicating the horizontal line is the world (Bangadesh) price/supply. A title is not necessary.

Candidates may indicate the fall in revenue through either:

- a reference to the revenue dropping from A B Q d Q s to CDQd2Qs2 OR

- a reference to imports (exports) decreasing from QsQd to Qs2Qd2

Level 0 (0 marks): The work does not meet a standard described by the descriptors below.

Level 1 (1-2 marks): There is a correct diagram OR an accurate written response. For a correct exchange rate diagram with appropriate labelling, showing the supply curve shifting right and the equilibrium exchange rate falling OR for an explanation that increasing imports leads to a higher supply of the Bangladeshi taka, as importers need to sell Bangladeshi taka and buy foreign currencies, which causes a depreciation of the exchange rate.

Level 2 (3-4 marks): There is a correct diagram AND an accurate written response. For a correct exchange rate diagram with appropriate labelling, showing the supply curve shifting right and the equilibrium exchange rate falling AND for an explanation that increasing imports leads to a higher supply of the Bangladeshi taka, as importers need to sell Bangladeshi taka and buy foreign currencies, which causes a depreciation of the exchange rate.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

For an exchange rate diagram, the vertical axis may be exchange rate, price (or P) of taka in other currencies, other currency/taka or other currency per taka. The horizontal axis should be quantity or Q or quantity of taka. A title is not necessary.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Marks

Level descriptor

0

- The work does not reach a standard described by the descriptors below.

1-3

- The response indicates little understanding of the specific demands of the question.

- Economic theory is stated but it is not relevant.

- Economic terms are stated but they are not relevant.

- The response contains no evidence of synthesis or evaluation.

- The response contains no use of text/data.

4-6

- The response indicates some understanding of the specific demands of the question.

- Relevant economic theory is described.

- Some relevant economic terms are included.

- The response contains evidence of superficial synthesis or evaluation.

- The response contains limited use of text/data.

7-9

- The response indicates understanding of the specific demands of the question, but these demands are only partially addressed.

- Relevant economic theory is partly explained.

- Some relevant economic terms are used appropriately.

- Where appropriate, relevant diagram(s) are included.

- The response contains evidence of appropriate synthesis or evaluation but lacks balance.

- The response includes some relevant information from the text/data.

10-12

- The specific demands of the question are understood and addressed.

- Relevant economic theory is explained.

- Relevant economic terms are used appropriately.

- Where appropriate, relevant diagram(s) are included and explained.

- The response contains evidence of appropriate synthesis or evaluation that is mostly balanced.

- The use of information from the text/data is generally appropriate, relevant, and applied correctly.

13-15

- The specific demands of the question are understood and addressed.

- Relevant economic theory is fully explained.

- Relevant economic terms are used appropriately throughout the response.

- Where appropriate, relevant diagram(s) are included and fully explained.

- The response contains evidence of effective and balanced synthesis or evaluation.

- The use of information from the text/data is appropriate, relevant, and is used to formulate a reasoned argument supported by analysis/evaluation.

Command term
"Discuss" requires candidates to offer a considered and balanced review that includes a range of arguments, factors or hypotheses. Opinions or conclusions should be presented clearly and supported by appropriate evidence.

Answers may include:
- Definition of sustainable economic growth
- Definition of full (and productive) employment
- An explanation of the links between growth and inclusivity/equality
- Diagrams (e.g AD/AS, poverty cycle...)

Positive consequences of the RGM sector towards achieving SDG \#8 may include:
- Provides opportunities for women to get employment (Text A, paragraph 2; Table 2)
- Reduces the wage gap between men and women (Text A, paragraph 2)
- Both the above will lead to more equality and result in better health and education for families (Text A, paragraph 1; Table 2)
- Facilitates the movement of the economy towards the manufacturing sector, which promotes growth and reduces poverty (Text A, paragraph 2; Table 2)
- Despite high GDP growth and rising GNI per capita, unemployment is increasing due to the rising labour force (which is rising faster than the population). Therefore, the sector is needed to provide jobs (Table 1)
- Can take advantage of preferential trade agreements because Bangladesh is a designated Economically Least Developed Country (ELDC) (Text B, paragraph 2)
- Rising exports will increase AD and real GDP (Text B, paragraphs 1 and 2;

Table 1)
- As wages in China increase, there is the possibility that exports, providing revenue and foreign exchange, will increase significantly (Text B, paragraph 1)
- Could attract FDI from China, which will provide funds, possibly helping to break the poverty cycle (Text C, paragraph 2)
- FDI will provide foreign exchange to buy imports, which exceed exports and are growing faster than exports. Imports (eg of capital and raw materials) are essential for growth (Text C, paragraph 3; Table 1)
- As more "green" firms are established, they will improve the environment and promote more exports (Text A, paragraph 6)
- If the sector can market itself more effectively (eg with more branding) and diversify, it can compete better globally (Text C, paragraph 2).

Negative consequences of the RGM sector towards achieving SDG \#8 may include:
- Workers are sometimes exploited and work in unsafe conditions (Text A, paragraph 3)
- Job security is low and the need to reduce costs may make it lower (Text A, paragraph 5)
- The bigger firms (possibly MNCs) and stricter safety regulations are driving out the smaller firms which may lead to reduced competition as large firms may dominate the market. This may result in higher profits for the larger firms (and thus lead to inequality) and labour being exploited (Text A, paragraph 3)
- Exports are too specialized, which raises risks if demand or supply conditions change. Therefore, need to diversify to keep growth sustained (Text A, paragraph 5; Text B, paragraph 1; Text C, paragraph 2)
- There is a lot of competition from other countries, which puts pressure on firms (Text A, paragraph 4; Text C, paragraph 1)
- When Bangladesh is no longer eligible for preferential trade agreements as an ELDC, export earnings may decrease (Text B, paragraph 2) and therefore growth may not be sustained
- More FDI may lead to more worker exploitation and/or damage to the environment (Text C, paragraph 2)
- More manufacturing leads to increasing urbanization, which may cause negative externalities of production, such as congestion and pollution (Table 2) and therefore growth may be unsustainable.