LOWER SIXTH ECONOMICS

ESSAY PRACTIE QUESTION

SECTION 4

Answer 1 question only

1. (a) Explain the likely causes of a deficit on the current account of the balance of
payments for an economy that relies heavily on agricultural products. [8]

(b) The largest economy in the world, the United States (US), records a persistent
deficit on its current account of the balance of payments. Discuss what is likely to be
the most effective way to reduce this deficit. [12]

2.(a)How might opportunity cost help to explain the pattern of international trade? [8]

(b) Discuss whether the formation of regional trading blocs, such as ASEAN and
NAFTA, is desirable. [12]

3. (a) Explain, with the help of a diagram, how a government can maintain a stable
foreign exchange rate. [8]

(b) Discuss whether a government should be more concerned by an unstable foreign

exchange rate or by an unstable domestic price level. [12]