CAIE A-Level Economics 4.4 Economic Growth Question Bank

The COVID-19 pandemic had a very significant impact on the global economy in 2020. Negative economic growth rates were recorded for all major economies. The speed, unexpected and unprecedented nature of the downturns has been devastating for businesses, governments and populations. Individual economies reacted to the pandemic differently. Fig. 1.1 shows quarterly economic growth rates in 2020 for four selected countries compared to the OECD (Organisation for Economic Co-operation and Development) average.

China's economic performance in 2020 was the exception. China was the first country to experience the pandemic. It has also been the first economy to recover from recession, a period of two consecutive quarters of negative economic growth. The Chinese government was quick to enforce lockdowns to limit the pandemic and there was rapidly increasing demand for exports of PPE (personal protection equipment) and other Chinese-made products.

The case of neighbouring South Korea was different. Like China, the impact of the pandemic was more effectively contained than in other economies and growth in South Korea's economy was less affected. There was, however, little evidence in the data that by the end of 2020, South Korea's economy would recover to its pre-2019 position of strong economic growth.

The economies of the US and the UK had negative quarterly economic growth throughout 2020. Economists in these countries have disagreed about how best to increase the rate of economic growth after the pandemic. The governments of both countries introduced very high government spending programmes to encourage the return to economic growth in 2021. However, monetary policies have been widely promoted by many economists as an alternative to more traditional fiscal measures.

Economic growth in Taiwan

In 2021, Taiwan's economy is forecast to grow at its fastest rate in seven years, encouraged by increasing global demand for its technology products. Gross domestic product (GDP) is expected to rise by $4.6 \%$ in 2021.

Exports from Taiwan's electronics industry include gaming devices, laptops, devices that aid cloud computing and semiconductors for car production. Taiwan is able to take advantage of a global shortage of semiconductors and it is estimated that exports will grow by $9.6 \%$ in 2021, the strongest export growth since 2017. A Taiwanese company is the world's largest producer of semiconductors, and it plans to increase its capital investment by as much as US $\$ 28$ billion in 2021 to help meet the shortage of semiconductors.

Consumption expenditure in Taiwan is also expected to grow by $3.7 \%$ in 2021 which would be the fastest rate of growth in 17 years.

It is significant that the expected growth in GDP in 2021 is higher than the expected rate of increase in the consumer price index (CPI), as is shown in Table 1.1.

The growth in the demand for Taiwan's exports has contributed to an appreciation of more than $7 \%$ in the Taiwan dollar against the US dollar during 2020. Taiwan had a trade surplus of US $\$ 58.8$ billion in 2020 and this is expected to rise to US $\$ 63.9$ billion in 2021. This increase is likely to appreciate the value of the Taiwan dollar further.

Sources: Adapted from: Forbes magazine, 22 February 2021
and: Bloomberg, 20 February 2021

GDP of a country measured at current market prices was $ 1000 bn in year 1. This had risen to $ 1100 bn in year 2.

Over the same period the general price level had risen by 5%.
What has happened to real GDP?

The table shows the annual percentage (\%) change in China's GDP and the contribution of some of its component parts between 2006 and 2012.

What can be concluded about China's economy between 2006 and 2012?

What is the least likely consequence of rapid economic growth?