2023 H2 Economics Paper 1 Case Study 2: Suggested Answers
The case study examines the economic impact of an ageing population, including the old age dependency ratio, the effect of population decline on aggregate demand and supply, why firms may cut investment despite falling interest rates, and whether immigration is the best route to growth.
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A three mark question, with reference to Extract 5, to calculate and compare the old age dependency ratio for Singapore in 1990 with that in 2020.
The old age dependency ratio is residents aged 65 and over per hundred residents aged 20 to 64.
In 1990 the ratio is (260 divided by 1,720) multiplied by 100, which is about 15 (rounded from 15.1).
In 2020 the ratio is (614 divided by 2,626) multiplied by 100, which is about 23 (rounded from 23.4).
The old age dependency ratio has more than doubled in 2020 compared with 1990, a significant increase.
Compute both ratios from the table and state the comparison. It is acceptable not to round to whole numbers.
Tests: The Singapore economy
A two mark question asking for one reason for the increase in Singapore's old age dependency ratio between 1990 and 2020.
The resident population aged 65 and over increased more than the population aged 20 to 64. This reflects higher birth rates in the period from 1925 to 1955, whose cohorts moved into the 65 and over age band between 1990 and 2020, raising the numerator faster than the denominator.
Alternatively, rising life expectancy from 1990 to 2020 meant more people lived past 65, again raising the number aged 65 and over relative to the working age population.
One valid reason that raises the 65 and over group relative to the 20 to 64 group, such as past birth rates or higher life expectancy.
Tests: The Singapore economy
A four mark question on how the population changes shown in Figure 3 might affect aggregate supply and aggregate demand in those countries.
Figure 3 shows a population decline for the listed countries between 2006 and 2030.
Effect on aggregate demand. A smaller population means fewer consumers, so consumption (C) falls, lowering aggregate demand, since AD equals C plus I plus G plus (X minus M). A shrinking market may also worsen investment sentiment, reducing investment (I) and lowering AD further. On an AD and AS diagram this is a leftward shift of AD, reducing real national income and the general price level.
Effect on aggregate supply. A declining population also means a shrinking labour force, a key factor of production. This reduces the economy's productive capacity, shown as a leftward shift of the long run aggregate supply curve, constraining potential output.
Trace population decline to a leftward AD shift via C and I, and to a leftward LRAS shift via the labour force.
A three mark question, with reference to Extract 5, on why firms may cut investment in the domestic economy substantially even as interest rates fall.
The Marginal Efficiency of Investment theory says that when interest rates fall, the cost of borrowing falls, so more investment projects become financially viable and profitable, which would normally raise investment.
However, firms may still cut domestic investment if the economic outlook is pessimistic, as with a shrinking population. A declining population means fewer consumers and so lower expected sales and profits from new projects.
Even with lower borrowing costs, firms may judge the domestic market less attractive and cut domestic investment, reallocating funds to more promising markets or ventures.
Acknowledge the MEI link between interest rates and investment, then explain why pessimism over a shrinking market overrides it.
An eight mark discussion of whether the benefits to an economy of having an ageing population outweigh the costs.
- Frame the question as a trade off across the macroeconomic objectives and the budgetary constraint.
- Set out the cost side through the demand and supply channels and the fiscal pressure, each tied to a macroeconomic objective.
- Set out the benefit side through the channel by which an ageing workforce can still add value.
- Identify what the net outcome depends on, distinguishing economies that adapt from those that do not.
- Reach an evaluative judgment on whether benefits outweigh costs, stating the conditions it rests on.
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: Economic growth, Fiscal policy
A ten mark discussion of whether immigration is the best way of promoting economic growth in an economy with an ageing population.
- Define the growth objective and set up immigration as one possible approach for an ageing economy.
- Build the case for immigration through its effect on the labour force, productivity and consumption, naming the AD and AS channels.
- Build the counter case from the drawbacks and limits of immigration.
- Introduce at least one alternative or complementary approach and explain its mechanism.
- Weigh immigration against the alternatives and reach a judgment on whether it is the best route.
This part is gated. The full model answer with the worked ad and as analysis and the evaluation, 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: Economic growth, Supply-side policies
Questions students ask
Where can I get the full worked answers to the 2023 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 2023 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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