2018 H2 Economics Paper 1 Case Study 2: Suggested Answers
The case study looks at Bangladesh's pursuit of inclusive economic growth, drawing on exchange rate movements, the Gini coefficient, the nature of road networks, income elasticity, infrastructure spending and supply-side policy.
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A one mark question, from Table 1, stating what happened to the nominal exchange rate of the Taka between 2000 and 2014.
The Taka depreciated between 2000 and 2014, as more Taka were needed to buy one US dollar over the period.
State a depreciation, supported by the rising Taka per dollar figures.
Tests: Exchange rate policy
A two mark question on whether you would expect the change in the current account balance to lead to the change in the value of the Taka.
A worsening current account generally leads to a depreciation, since rising imports raise the supply of the currency and falling exports lower demand for it. This fits the periods 2000 to 2005 and 2010 to 2014.
However, between 2005 and 2010 the current account improved from deficit to surplus while the Taka still depreciated, which does not fit. This suggests other factors, such as capital flows, investor sentiment or government policy, dominated the value of the Taka in that period.
Apply the current account to exchange rate link, then note the period where the data deviate and explain why.
A two mark question on what can be inferred from the change in the Gini coefficient for Bangladesh.
The Gini coefficient measures income inequality on a scale from 0, meaning perfect equality, to 1, meaning perfect inequality. A lower value indicates a more equal distribution of income.
The slight fall in Bangladesh's Gini coefficient implies a marginal reduction in income inequality, a small improvement in distribution, but the change is too small to indicate any major reduction in inequality.
Define the coefficient and interpret the small fall as a marginal, not major, improvement in equality.
Tests: Gini coefficient
A three mark question explaining why a new road network in a country should not be classified as a public good.
A public good is non-excludable and non-rivalrous. A road network does not fully meet either test.
It can be excludable. Access can be restricted by charging tolls or putting up barriers that require payment, as with toll roads, so non-payers can be kept out.
It can be rivalrous. When a road becomes congested, each extra vehicle slows traffic for others and reduces the road's usefulness, so one person's use does diminish what is available to others.
Because it shows potential excludability and rivalry, a road network is better described as a quasi-public good rather than a pure public good. Where the later syllabus is tested, non-rejectability also fails, since drivers can choose not to use the road.
Define the two public good characteristics and show a road fails both, naming it a quasi-public good.
Tests: Public goods, Market failure
A four mark question on one possible reason for the difference in the income elasticity of demand for electricity between Bangladesh and Australia.
Income elasticity of demand measures how responsive demand is to a change in income, other things held constant. In Australia the value is positive but below 1, so electricity behaves as a necessity whose demand grows more slowly than income.
In Bangladesh the value is above 1, so electricity behaves more like a luxury. This can be attributed to lower average incomes and the high set-up cost of getting electricity into a home, which makes access less universal, so as incomes rise demand for electricity rises more than proportionately.
Define YED, classify each country's value as necessity versus luxury, and give a reason for the difference.
Tests: YED and XED
An eight mark discussion of how infrastructure spending may have different impacts on aggregate demand in Bangladesh and Singapore.
- Identify infrastructure spending as a component of aggregate demand and the channel through which it raises AD.
- Reason about how the relative size of the spending differs between a developing and a developed economy.
- Define the crowding out effect and the financing conditions under which it bites in each economy.
- Bring in the effect on private investment and how it modifies the net impact on AD.
- Weigh the factors and conclude on why the impact on AD differs between the two economies.
This part is gated. The full model answer comparing the size of spending and the crowding out effect across the two economies, 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 discussion of whether supply-side policies are the most appropriate policies to achieve inclusive economic growth in Bangladesh.
- Define inclusive economic growth as the goal and supply-side policy as the approach under test.
- Build the case for an education and retraining policy through its effect on capacity and on the wages of lower income workers.
- Set out the limitations and time lags of the supply-side approach.
- Introduce a redistributive alternative aimed directly at inclusivity and weigh its strengths and weaknesses.
- Compare the approaches and conclude with a judgment on the most appropriate policy mix for the country's context.
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.
Tests: Supply-side policies, Inclusive and sustainable growth
Questions students ask
Where can I get the full worked answers to the 2018 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 2018 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.
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