2016 H2 Economics Paper 1 Case Study 2: Suggested Answers
The case study contrasts inflation in Brazil and Japan, drawing on it to test the incidence of a sales tax, the causes of inflation through aggregate demand and supply, and the effectiveness of interest rate policy.
An AI guided TYS coach, on every question.
Every ETG student gets access to our AI guided Ten Year Series coach on the ETG learning management system. It walks you through exactly how to approach every single essay question and every single case study question from the last ten years, step by step. TYS Crashcourse students get the same access.
A two mark question asking what happened to consumer prices in Brazil and Japan between 2011 and 2012, read from the table of annual rates of increase in the consumer price index.
In Brazil, consumer prices continued to rise but at a slower rate, as the rate of increase in the consumer price index fell from about 6.6 per cent to about 5.4 per cent.
In Japan, consumer prices continued to fall, but by a smaller extent than before, as the rate of change moved from about minus 0.28 per cent towards minus 0.03 per cent.
Read both series correctly: Brazil rising but disinflating, Japan still in deflation but by less.
Tests: Inflation
A four mark question on the factors that decide how much of Japan's sales tax rise is reflected in a higher consumer price, supported by a diagram.
A sales tax raises firms' costs, shifting the supply curve leftward, or equivalently upward by the tax amount, so the price consumers pay rises. How much of the tax is passed on to consumers depends on the price elasticity of demand.
When demand is price inelastic, consumers are less responsive to price, so suppliers can pass on a larger share of the tax. The price rises by more, from P0 to the higher inelastic price. When demand is price elastic, consumers are more responsive, so suppliers bear more of the burden to avoid losing sales. The price rises by less, from P0 to the lower elastic price. The size of the price increase is therefore larger the more inelastic the demand.
Show supply shifting up by the tax and make the price rise depend on the price elasticity of demand.
A four mark question asking, using aggregate demand and supply analysis, for the causes of inflation in Brazil in 2014.
Brazil's inflation in 2014 had both a demand and a supply cause.
Demand-pull inflation. Rising consumer incomes and higher government spending raised consumption (C) and government spending (G), two components of aggregate demand. With the economy at or near full employment, the rightward shift of AD from AD0 to AD1 raises the general price level from P0 to P1 along the steep section of the AS curve, producing demand-pull inflation.
Cost-push inflation. The case also points to higher labour costs. Rising labour costs raise firms' costs of production, shifting the short run aggregate supply curve upward from AS0 to AS1. This raises the general price level from P0 to P1 while reducing output, which is cost-push inflation. Both forces together explain Brazil's inflation.
Identify a demand-pull cause and a cost-push cause, each linked to a shift on the AD and AS diagram.
Tests: Aggregate demand and supply, Inflation
A two mark question on how the strengthening of the US and EU economies might affect prices in Brazil.
Stronger US and EU economies raise incomes there, lifting demand for Brazilian exports. Higher net exports (X minus M) raise Brazil's aggregate demand, and if Brazil is near full employment this can add to demand-pull inflation.
In addition, stronger US and EU economies may strengthen the dollar and the euro, so the Brazilian currency depreciates against them. Imports then become more expensive in domestic currency, raising the prices of imported goods in Brazil.
One demand channel through exports and one channel through a weaker currency and dearer imports.
Tests: Inflation, Exchange rate policy
An eight mark question on how well adjusting interest rates would work as a way to tackle Japan's economic difficulties.
- Set up how lower interest rates are meant to work through consumption and investment on aggregate demand.
- State the intended effect on output, employment and the price level given Japan's deflationary context.
- Develop the limitations specific to Japan, naming the constraint that blunts the interest rate channel.
- Add the behavioural and structural reasons why the channel may be weak, citing the case evidence.
- Reach a judgment on effectiveness and state why a wider policy mix would be needed.
This part is gated. The full model answer with the worked ad and as analysis and the evaluative judgment, with the diagrams and the full evaluation, is in the ETG TYS Answers book from SAP and is worked live in the TYS Crashcourse. ETG students also get the AI TYS coach that guides them through this exact question. Message the team to find out more.
A ten mark question comparing Brazil and Japan to judge which one faces the worse and longer lasting problem with rising prices.
- Define a damaging and persistent inflation problem and set up the comparison between the two economies.
- Characterise Brazil's price pressures and the nature of their cause, drawing on the case evidence.
- Characterise Japan's price experience and how its underlying challenge differs.
- Select the criteria that decide which problem is more damaging and more persistent.
- Apply the criteria to reach a comparative judgment on which economy faces the worse problem.
This part is gated. The full model answer comparing the two economies and the evaluative judgment, with the diagrams and the full evaluation, is in the ETG TYS Answers book from SAP and is worked live in the TYS Crashcourse. ETG students also get the AI TYS coach that guides them through this exact question. Message the team to find out more.
Tests: Inflation, Aggregate demand and supply
Questions students ask
Where can I get the full worked answers to the 2016 H2 Economics paper 1 case study 2?
The full model answers, with the diagrams and the higher mark evaluation, are in the ETG TYS Answers book published by SAP and sold at Popular, and are worked live in the TYS Crashcourse. Every ETG student also gets the AI TYS coach on our learning management system, which guides you through how to tackle every essay and every case study question from the last ten years.
Are these the official 2016 A Level Economics answers?
No. SEAB sets and marks the A Level paper. These are suggested answers by Mr Eugene Toh, author of the H1 and H2 A Level Economics TYS answer keys, published by SAP and sold at Popular.
How are these case study suggested answers structured?
The lower mark parts are answered in full. The higher mark parts are outlined here, with the full worked answers reserved for the ETG TYS Answers book and the TYS Crashcourse.
Get the printable Summary and Diagrams pack.
The notes are free to read because the concepts should be. Join the mailing list for the 112 page Summary and Diagrams pack, drawn the way ETG teaches them, plus new chapters and worked answers as we publish. You can also follow along on Telegram.
Form not loading? Open the sign-up form.