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RV Econ Paper 2
RV Econ Paper 2
Question 1
Read the extracts and answer the related questions.
1. Argentina's economy, endowed with extensive natural resources, a population with literacy
rates above 98%98%, and a robust agricultural sector, presents a multifaceted and dynamic
economic scenario. Despite its inherent strengths, the nation faces a series of economic
challenges, deeply rooted in the interplay of domestic political shifts and global economic
trends.
2. As a leading exporter, Argentina's agricultural sector, particularly its beef, soybeans, and
wheat production, is a cornerstone of the national economy. Agriculture contributes
about 60%60% of the country's total export revenues. However, Argentina's heavy
dependence on agriculture makes its economy highly sensitive to global commodity price
swings. This vulnerability is exacerbated by persistent issues such as high inflation, which
reached around 50%50% in recent years, and a volatile currency. These economic conditions,
coupled with frequent policy changes by successive governments, have led to repeated cycles
of economic recession and recovery.
3. In recent years, Argentina has shifted focus towards bolstering its energy sector, with an
emphasis on renewable energy sources and the exploitation of its abundant natural resources
such as lithium——crucial for the burgeoning electric vehicle market——and shale oil and
gas reserves. The Vaca Muerta shale formation, one of the world's largest reserves of shale
oil and gas, represents a significant opportunity for economic growth. However, fully
capitalizing on this opportunity requires stable economic policies and continuous investment
inflows.
4. Inward foreign direct investment in Argentina has fluctuated, impacted by the nation's
oscillating economic policies and the broader global economic environment. Despite its
potential, Argentina's economy has often struggled to attract consistent foreign investment. In
an effort to stabilize the economy, Argentina has sought financial assistance from
international entities like the International Monetary Fund (IMF). However, these
relationships have been complex, marked by challenges and negotiations over debt
restructuring and financial support.
5. The Argentine government's focus on social welfare programs and subsidies aimed at
supporting the lower-income population, reflects its commitment to addressing social issues.
These initiatives, critical for poverty alleviation and reducing economic inequality, have,
however, placed a significant strain on the country's fiscal health. Argentina's public debt, a
considerable portion of which is foreign debt, has remained high, posing challenges to the
nation's financial stability and economic growth prospects.
2. The country's substantial foreign debt is a major economic concern. Debt servicing takes
up a significant portion of Argentina's financial resources, limiting its capacity for investment
in key areas like infrastructure and social services. This situation also impacts Argentina's
ability to access international financial markets, making debt management a delicate
balancing act between meeting creditors' demands and ensuring national economic health.
3. The Argentine peso's (ARS) fluctuation against major currencies, particularly the US
dollar, poses ongoing challenges. This volatility affects international trade, business
investment decisions, and the cost of imports. The government has implemented various
policies, including foreign exchange controls and monetary policy interventions, to achieve
currency stability. Nonetheless, attaining a stable and predictable currency remains crucial for
Argentina's economic growth and stability.
4. Stimulating sustainable economic growth while reducing unemployment is a key focus for
Argentina. The government aims to create a welcoming environment for businesses,
encourage entrepreneurship, and address structural issues in the labour market, such as skill
gaps and informal employment. These efforts are directed towards generating jobs, especially
for the youth and in underprivileged areas, to foster inclusive and long-term economic
progress.
In 2022, the IMF approved US$$44 billion in loans to Argentina. These loans include
conditions such as fiscal consolidation, aimed at reducing the fiscal deficit; monetary policy
adjustments to control inflation; and structural reforms for economic efficiency. These
measures also focus on debt sustainability and enhancing transparency in governance. For
example, in a recent agreement, Argentina committed to a fiscal deficit target of 2.5%2.5% of
GDP by 2022, down from 3%3% in 2021, as part of its fiscal consolidation efforts. These
conditions are designed to stabilize the economy and ensure long-term fiscal responsibility.
2016 2017
2018 2019
142.0
Consumer Price Index 79.37 100.00 211.58
0
Real GDP (US$ 524.8
557.53 643.63 447.75
$ billion) 2
Exports (US$$ billion) 69.84 72.86 75.77 80.26
Imports (US$$ billion) 75.64 89.91 85.68 65.85
Question 2
Read the extracts and answer the related questions.
11. Maldives is a country of more than five hundred thousand people with a GDP per capita
of approximately US$11 000 in 2022. While they experienced high economic growth prior to
the pandemic, the loss of tourism income presented a significant challenge to the economy.
During this time period, Maldives also experienced a net loss of migration as many foreign
workers returned to their home countries. That impact, plus a declining fertility rate, meant
the overall population grew only slightly from 2019 to 2023.
22. Tourism plays a large part of the Maldives economy, with the largest number of tourists
coming from India, followed by Russia and China. Tourism accounts for one-third of GDP
and combined with services makes up three-fourths of Maldives' national income.
Recognising such a perilous situation, the government has taken steps to increase fishing and
aquaculture as industries, including subsidies for fuel.
33. Maldives' main trading partners are India, China, United Arab Emirates, and Thailand,
with the last being a net export country. The top imports include gas, household goods, and
milk. Maldives’ top exports are fish, especially tuna, and scrap iron. Maldives is a member of
the South Asian Free Trade Agreement (SAFTA) and is a member of the WTO. Maldives
signed a bilateral agreement with China in 2017, but do not have any such agreements with
other Commonwealth members.
44. A growing dispute over the placement of Indian troops in Maldives is leading to the
potential of a decline in tourism and trade with India. A 2023 tourism boycott of the Maldives
had an immediate impact on revenue, and there is a possibility that India will enact trade
barriers despite their joint membership in SAFTA. Maldives has said it will look to China for
increased ties.
55. Government spending, although fluctuating over the past five years, has continued to rise,
but so has the debt-to-GDP ratio, sitting at around 60%60% in 2022. Much of the government
investment has been in infrastructure projects including the new international airport as well
as the newly established AgroNat Corporation which focuses on agriculture. However, the
cost-conscious government has reduced social spending, including on education.
22. Maldives has looked to Singapore for increased FDI, specifically in the areas of tourism,
renewable energy, waste management, and job training. The hope is that this will contribute
to an increase in sustainable development and also include increased financial opportunities
for poorer residents living on the outer atolls(islands) that do not currently benefit from the
tourism industry.
33. Since the pandemic, Maldives has actively sought foreign aid and Official Development
Assistance from a number of places including the IMF, the World Bank, and the Asian
Development Fund. The economic impact of the loss of revenue from the tourism industry
was particularly harmful to self-employed workers, and Maldives is seeking support for those
residents.
11. As a low-lying island chain, Maldives is particularly vulnerable to the effects of climate
change, not only due to the increased risk of flooding but the impacts on coral reefs and the
fishing industry. Maldives has been very vocal about what the potential for changes in the
cost of production will do to the supply chain for tuna as fishermen have to travel further out
to sea to catch fish.
22. While Maldives has the right to fish its own waters, the dwindling stocks of fish due to
climate change could lead to depletion of the available fish. With the export market so
dependent on fish products, this could also lead to other impacts on Maldives’ trade
relationships.
33. Another impact of climate change is on the availability of potable water. Maldives now
relies on shipments of water from abroad, which can sometimes take up to two weeks to
arrive. When there are shortages of fresh water, residents have to rely on bottled plastic water
which increases in cost. Residents in outer islands generally don’t have access to this unless
the government transports it to them, which is another drain on the national budget.
Yea
Nominal GDP (US$ bil)
r
2018 5.4
2019 5.73
2020 3.71
2021 5.25
2022 6.17
Table 4: Unemployment Rate in Maldives
Define the term inward foreign direct investment indicated in bold (Text A, paragraph 4). [2]
1aii
Define the term economic inequality indicated in bold (Text A, paragraph 5). [2]
1bi
Using information from Table 1, calculate the inflation rate in Argentina from 2018-
2019. [3]
1bii
Sketch a business cycle diagram to show how frequent policy changes have impacted
Argentina's economy (Text A, paragraph 2, Table 1). [2]
1c
Using a demand and supply diagram, explain why price controls have not effectively lowered
inflation in Argentina (Text B, paragraph 1). [4]
1d
Using an exchange rate diagram, explain how monetary policy can be employed to achieve
currency stability (Text B, paragraph 3). [4]
1e
Using a production possibilities diagram, explain the impact Argentina's foreign debt has on
its ability to provide infrastructure or social services (Text B, paragraph 2). [4]
1f
Using an AD/AS diagram, explain how the development of the Vaca Muerta shale formation
will impact economic output in Argentina (Text A, paragraph 3). [4]
1g
Using information from the text/data and your knowledge of economics, discuss the impacts
of high inflation on economic growth and development in Argentina. [15]
2ai
Define the term bilateral agreement indicated in bold (Text D, paragraph 3). [2]
2aii
Define the term sustainable development indicated in bold (Text E, paragraph 2). [2]
2bi
2bii
Using the information in Table 5 and your answer to (b)(i), calculate the current account
balance. [3]
2c
Using a demand and supply diagram, explain how government subsidies on fuel may help the
Maldives economy achieve economic growth (Text D, paragraph 2). [4]
2d
2e
Using an international trade diagram, explain the effect of India imposing tariffs on imports
from Maldives (Text D, paragraphs 3 and 4). [4]
2f
Using a market failure diagram, explain the effect of climate change on the fishing industry in
Maldives (Text F, paragraphs 1 and 2). [4]
2g
Using information from the text/data and your knowledge of economics, discuss the need for
more government intervention in Maldives to promote economic development.
Mock 2
Question 1
Read the extracts and answer the related questions.
33. Morocco is a water-stressed country, and the impacts of climate change are
complicating the already significant water scarcity in Morocco. Rural communities
facing droughts and water scarcity have petitioned the government for help,
resulting in planned projects for seawater desalination plants and wastewater reuse.
44. Since 2010, literacy rates in Morocco have improved to slightly below 98% due to
the introduction of new education programs. Women have seen an increase in
literacy, with literacy rates approaching parity with men. However, there are still
issues of inequality, with Morocco ranked among the low HDI countries for
its gender inequality index. Health care remains a major concern, and the public
health system does not cover basic women’s reproductive needs like cesarean
sections. The World Bank has announced a co-partnership with Morocco to
introduce major reforms in this area.
22. Morocco faces a significant risk if it overly relies on phosphates and has
diversified into cars and insulated wire, primarily to its historic trading partners in
Spain, France, and Italy.
33. The demand for phosphates has fluctuated wildly alongside the demand for
secondary industry products for which it is a primary ingredient. It is predicted that
the need for lithium-ion batteries may push phosphate prices higher.
22. Morocco has room to take on public debt to finance these projects in the short
term as its debt-to-GDP ratio sits at around 70%. The economy, which was impacted
by the loss of tourism during the pandemic and the Marrakesh earthquake, is
expecting these two global sporting events to send GDP skyward.
22. Foreign direct investment in Colombia is prominent in the energy, mining, and
manufacturing sectors. Pacific Alliance countries have made significant investments,
leading to the development of infrastructure, technology, and even renewable
energy projects. Colombia's ongoing negotiations with member countries indicate
the possibility of additional investment and the possibility of job creation in the
energy and textiles sectors.
33. In recent years, Colombia's export revenue totalled US$41.3 bn, with major
exports including petroleum, coal, and coffee. Imports amounted to US$61.0 billion,
consisting largely of machinery, electronics, and chemical products. The agricultural
sector remains a cornerstone of Colombia's economy, employing a sizable portion of
the labour force along with contributing to economic growth. The nation’s growth
rate has fluctuated between 3.1% in 2019 to 7.3% in 2022. The human
development index HDI was recorded at 0.752.
44. Colombia's textile manufacturing sector is facing challenges which relate to the
lack of infrastructure and weak regulatory policies, which have hampered growth in
an industry that has so much potential. Government-led efforts to improve industrial
efficiency and diversify exports are in place but lack consistency mainly due to
political instability. Economists have been urging policymakers to reduce reliance on
extractive industries and seek avenues of economic growth that can be sustained
over longer periods of time. Despite some economic progress, Colombia faces
socioeconomic challenges, which include corruption and security concerns. Tackling
these issues is important for Colombia's economic growth and development within
the Pacific Alliance.
22. The government debt, which stood at 61.1% of GDP in 2022 is expected to
increase given the economic plan. The budget deficit is expected to
increase 5.4% to 13.1% of GDP. However, around 40% of this budget deficit is
structural in nature, which is a cause of concern for the government. This will require
deficit financing either from internal or external sources.
33. The task force is seeking to prioritise investments in education and vocational
training to equip its labour force with the skills necessary in aligning with the
structural changes the economy will face in the coming months. Infrastructure
projects, including transportation networks, energy production, and digital
connectivity, are focal to Colombia’s economic plan to improve efficiency and
facilitate economic growth and development.
33. Colombia’s textile manufacturing sector employs 19% of its labour force, while
the agricultural sector employs 25% while contributing 26.7%and 8.2% to the
nation’s gross domestic product (GDP) respectively. The unemployment rate has
fallen in recent years from 13.9% in 2021 to 10.7%in 2022. However,
unemployment is rampant among the youth, which is recorded at 21.6%.
44. The expected increase in human capital owing to the economic plan is expected
to facilitate economic activities in these sectors and attract further investment.
Define the term gender inequality index (GII) indicated in bold (Text A, paragraph 4). [2]
1aii
Define the term economic growth indicated in bold (Text A, paragraph 1) [2]
1bi
Using information from Table 1, calculate the inflation rate in Morocco from 2022 −
− 2023. [3]
1bii
In 2016, Morocco’s population was 34 487 000. Using information from Table 1 and
Morocco’s 2016 population, calculate Morocco’s real GDP. [2]
1c
Using an exchange rate diagram, explain the expected consequences of the Moroccan
government's 2019 decision to ease foreign currency controls, enabling expatriate Moroccans
to send dirhams back to the country more easily (Text A, paragraph 5) [4].
1d
Using a demand and supply diagram, explain how the need for lithium-ion batteries will
impact the market for phosphates (Text B, paragraph 3). [4]
1e
Using an AD/AS diagram, explain how the loss of tourism during the pandemic impacted the
Moroccan economy (Text C paragraph 2). [4]
1f
Using a monetarist/new classical AD/AS diagram, explain the impact of Morocco improving
infrastructure by renovating 6 stadiums and building a new stadium (Text C, paragraph 1). [4]
1g
Using information from the text/data and your knowledge of economics, evaluate the
effectiveness of the Moroccan government’s actions to promote economic growth and
economic development. [15]
2ai
Define the term human development index indicated in bold (Text D, paragraph 3). [2]
2aii
Define the term budget deficit indicated in bold (Text E, paragraph 2). [2]
2bi
Using information from Table 4, calculate Colombia’s trade deficit in 2021. [3]
2bii
State two benefits of foreign direct investment in Colombia (Text D, paragraph 2). [2]
2c
Using a demand and supply diagram, explain how the lack of infrastructure may have
affected the manufacturing sector in Colombia (Text D, paragraph 4). [4]
2d
Using an exchange rate diagram, explain how the import of capital stock can affect the value
of the peso (Text F, paragraph 1). [4]
2e
Using a production possibilities diagram, explain the impact of investments in education and
vocational training on Colombia’s economic potential (Text E, paragraph 3). [4]
2f
Using an AD/AS diagram, explain how lower corporate tax rates can affect the Colombian
economy (Text E, paragraph 1). [4]
2g
Using information from the text/data and your knowledge of economics, discuss possible
outcomes for economic growth that might arise from Colombia’s new economic reforms.
Prediction Paper
Question 1
11. Pakistan's economic landscape witnessed a significant shift during the fiscal year
2023, as the strong post-pandemic recovery that the nation had been experiencing
came to an abrupt halt. This downturn was primarily attributed to the delayed
withdrawal of COVID-19 stimulus, resulting in the accumulation of large economic
imbalances. This contributed to mounting pressures on various fronts, including
domestic prices, external and fiscal balances, exchange rates, and foreign exchange
reserves. Surging global commodity prices, tightening monetary policies worldwide,
catastrophic flooding, and domestic political uncertainties all played pivotal roles in
exacerbating these challenges.
22. The withdrawal of policy stimulus measures, alongside the imposition of import,
periodic exchange rate interventions, and creditworthiness downgrades, led to a
decline in confidence. This economy experienced a contraction in growth,
accompanied by price shocks. The situation was worsened by the recent floods,
which hurt low-income groups significantly.
33. Amidst these challenges, the approval of the International Monetary Fund Stand-
By Arrangement (SBA) in July 2023 provided a lifeline in the form of new external
financing, thereby preventing a balance of payments crisis. However, the underlying
imbalances and structural constraints continued to pose significant challenges.
Short-term economic stability depended on effectively following the SBA,
maintaining fiscal discipline, and receiving external financial support. Additionally,
weak investor confidence, and low investment is dampening growth prospects.
44. The slowdown in economic activity was profound across different sectors, with
contractions in both industry and services, alongside muted growth in
agriculture. Real gross domestic product (GDP) experienced a decline of 0.6% in FY
2023, a stark contrast to the growth rates witnessed in previous years. The
agricultural sector bore the brunt of devastating floods, which caused heavy crop
and livestock damages, worsening the supply chain.
22. One of the main concerns is the surge in inflation, reaching a multi-decade high
of 29.2% in FY 2023. Flood-related disruptions, energy tariff adjustments, and
currency depreciation were identified as the primary drivers of inflation.
Consequently, the State Bank of Pakistan (SBP) opted for a tight monetary stance,
whereby interest rates were raised to an all-time high of 22%. However, this meant
that the real interest rates were negative.
33. Pakistan has a population of 231.4 million, out of which 4 510 000 are
unemployed while 74 399 456 are employed. The adverse economic conditions had a
profound impact on poverty, with the poverty headcount estimated to reach 39.4%, a
significant increase from the previous year. Record-high food and energy prices
owing to increased taxes, coupled with reduced labour incomes and crop losses,
worsened the dilemma of low-income families. Despite some mitigating measures
such as cash transfers and fuel subsidies, overall efforts fell short in protecting the
most segments of society.
11. Externally, Pakistan's position weakened due to tight global financing conditions
and declining foreign investor confidence, resulting in a worsening current account
deficit, and plummeting foreign exchange reserves. The fiscal deficit remained high,
driven by increased interest payments amid weakening currency. Public
debt continued to rise, primarily financed through domestic borrowing, further
exacerbating financial sector risks.
22. Tourism revolves around Angkor Wat and other cultural sites. This sector,
contributing significantly to the country's balance of payments through foreign
exchange earnings, has seen a steady increase in international visitors. It not only
boosts foreign exchange reserves but also creates significant employment
opportunities. Agriculture, employing a substantial portion of the labour force, is
dominated by rice farming. The emphasis on diversifying agricultural products,
including rubber, cassava, and silk, is a strategic move towards increasing the
country's export diversity. However, one challenge in this sector is the reliance on
monsoon rains, which can be unpredictable, affecting crop yields and posing a risk to
food security and export revenues.
33. Prior to the COVID-19 pandemic, Cambodia's GDP growth averaged about 7%
per year from 2010 to 2019. As of 2022, the economy has been recovering with a
growth rate of 5.2%, marking it as one of the fastest-growing economies in the
region. However, the country confronts challenges like a lack of skilled labour,
dependence on a few key sectors, and susceptibility to external economic shocks.
Inflation has remained relatively stable, but issues such as poverty reduction and
improving living standards, particularly in rural areas, persist.
11. China’s Belt and Road Initiative (BRI), a global infrastructure and investment
strategy, has brought about changes in Cambodia, influencing its economic growth
and development. The BRI has led to infrastructure improvements, including over ¥14
billion Chinese yuan (CNY) invested in building the Phnom Penh-Sihanoukville
Expressway and new airports. As of June 2021, China had constructed 3,287
kilometers of new roads and eight main bridges in Cambodia as part of the BRI,
enhancing connectivity and reducing transport costs. Infrastructure development
has increased the competitiveness of Cambodia's exports, and lowered prices for
domestic consumers and producers. In addition to physical infrastructure, the BRI
includes investments in agriculture and energy, exemplified by the 700-megawatt
power plant in Sihanoukville. There is also evidence of increased employment
generation through these projects, although concerns remain about the limited
spillover to the local economy and the allocation of better-paying jobs primarily to
Chinese nationals.
22. A key outcome of the BRI projects is the Sihanoukville Special Economic Zone
(SSEZ), which has attracted foreign direct investments and boosted the
manufacturing sector, leading to employment creation and increased exports. The
SSEZ has accommodated around 175 companies from various regions, generating
nearly 30,000 jobs.
33. Cambodia's increasing economic reliance on China is a concern, with 42.7% of its
$9.5 billion debt owed to China as of 2021. This dependence raises questions about
vulnerability to economic shocks and the need for diversifying trade and investment
partners. The Sihanoukville Special Economic Zone (SEZ), predominantly housing
Chinese firms and managed by a Chinese company, highlights the limited local
community benefits. The transformation of Sihanoukville into an entertainment and
leisure center focused on gambling, while not a direct objective of the BRI, is an
indirect consequence, raising concerns about its social impact on local communities.
11. A Free Trade Agreement between China and Cambodia, officially effective from
January 1, 2022, marks a milestone in bolstering the bilateral economic relations
between the two nations. The China-Cambodia FTA (CCFTA), is set to enhance the
prosperity of both countries by exempting 98% of Cambodia’s exports to China and
90% of China’s exports to Cambodia from tariffs.
Define the term exchange rates indicated in bold (Text A, paragraph 1). [2]
1aii
Define the term real gross domestic product (GDP) indicated in bold (Text A, paragraph
4). [2]
1bi
1bii
State two costs to the government of Pakistan of rising public debt(Text C, paragraph 1). [2]
1c
Using a demand and supply diagram, explain how taxes have affected energy prices in
Pakistan (Text B, paragraph 3). [4]
1d
Using an exchange rate diagram, explain how a decline in foreign investor confidence has
affected the rupee (Text C, paragraph 1). [4]
1e
Using a production possibilities diagram, explain how a potential increase in foreign direct
investment can impact the Pakistan economy in the long run (Text C, paragraph 2). [4]
1f
Using an AD/AS diagram, explain how recent floods have caused inflation in Pakistan (Text
B, paragraph 2). [4]
1g
Using information from the text/data and your knowledge of economics, evaluate the
effectiveness of the proposed policies to achieve economic growth. [15]
2ai
Define the term balance of payments indicated in bold (Text D, paragraph 2).[2]
2aii
In 2022, a borrower took out a loan with a nominal interest rate of 8% nominal interest rate.
Using data from Table 3, calculate the real interest rate of the loan in 2022.[2]
2bii
Based on data in Table 4, draw a Lorenz Curve to show the change in wealth inequality in
Cambodia from 2000 to 2022.[2]
2biii
State whether inequality has increased or decreased in Cambodia from 2000 to 2022. (Table
4)[1]
2c
Using a supply and demand diagram, explain the impact of rising labour costs on Cambodia’s
garment industry (Text D, paragraph 1).[4]
2d
Using an exchange rate diagram, explain the impact on the Cambodian riel of the over ¥14
billion (CNY) in BRI investments by Chinese firms including the Phnom Penh-Sihanoukville
Expressway and new airports in Siem Reap and Phnom Penh. (Text E, paragraph 1).[4]
2e
Using an AD/AS diagram, explain how infrastructure development has increased the
competitiveness of Cambodia's exports, and lowered prices for domestic consumers and
producers (Text E paragraph 1).[4]
2f
Using a tariff diagram, explain the benefits for Cambodian consumers of the elimination of
tariffs on Chinese cotton (Text F, paragraph 2).[4]
2g
Using information from the text/data, discuss China’s role in Cambodia’s economic growth
and economic development.