ECON UNIT 6 DATA ANALYSIS
Here’s how an A Level student can approach and answer each part of the question clearly and
concisely:
(a)
(i) Describe the overall trend in Vietnam’s current account balance between Q1 2017 and Q2
2018.
[1 mark]
Between Q1 2017 and Q2 2018, Vietnam’s current account balance showed an increasing trend,
moving from a small surplus in early 2017 to larger surpluses by Q2 2018.
moving from a small surplus in early 2017 to larger surpluses by Q2 2018.
(ii) Calculate the value of Vietnam’s exports of fruit and vegetables to China in the first four
months of 2018.
[1 mark]
From the passage:
• Total exports (first four months of 2018) = US$1.3 billion
• China accounts for 77% of this.
So,
0.77 × 1.3 billion = US$1.001 billion
Answer: US$1.001 billion
(b)
Explain one possible demand factor and one possible supply factor that could have caused the
increase in Vietnam’s export sales of fruit and vegetables.
[4 marks]
Demand factor:
Rising global demand for healthy and fresh food, such as fruits and vegetables, may have
boosted Vietnam’s exports. With global fruit and vegetable trade growing at 3–5% annually, more
countries are importing such goods.
Supply factor:
Vietnam may have expanded agricultural land and invested in modern food processing facilities,
increasing the capacity and efficiency of production for export.
(c)
Explain how complying with administrative burdens on trade will affect Vietnam’s supply of fruit
and vegetables for export.
[2 marks]
Complying with administrative burdens like hygiene and safety regulations may increase
production costs and reduce profitability, discouraging some producers from exporting.
Additionally, smaller producers may struggle to meet standards, reducing the total exportable
supply.
(d)
Discuss whether the risks of Vietnam relying very heavily on the Chinese market for the export of
its fruit and vegetables are greater than the potential benefits.
[6 marks]
Risks:
• Over-dependence on China (77%) makes Vietnam vulnerable to any trade restrictions
or political tensions.
• If demand in China drops or tariffs rise, Vietnam’s economy could suffer.
• Lack of diversification limits market access and bargaining power.
Benefits:
• China is a large and growing market located nearby, reducing transport costs.
• Strong demand provides stable income and supports rural employment in Vietnam.
Conclusion:
While exporting to China offers clear short-term economic benefits, the risks of over-reliance
could outweigh these benefits in the long term. Diversifying export markets would reduce
vulnerability.
(e)
Using aggregate demand and aggregate supply analysis, discuss the possible impact on
Using aggregate demand and aggregate supply analysis, discuss the possible impact on
Vietnam’s economy of a sustained increase in its net exports.
[6 marks]
Aggregate demand (AD) increases with rising net exports, shifting the AD curve rightward. This
leads to:
• Higher real GDP, boosting economic growth.
• Lower unemployment due to increased production.
• Potential inflation if the economy nears full capacity.
Aggregate supply (AS) might also increase if export revenues are invested in better
infrastructure and technology.
Conclusion:
A sustained rise in net exports will likely stimulate economic growth, but if demand grows faster
than supply, it could lead to demand-pull inflation.
Here is a complete answer to the data response question on Sri Lanka’s trade and economic
growth, suitable for A Level Economics:
(a) Using Table 1.1:
(i) Identify the overall trend in Sri Lanka’s balance of trade in goods and services between
January 2022 and January 2023.
Answer:
The overall trend is an improvement in Sri Lanka’s balance of trade, as the trade deficit
decreased from –858 million USD in January 2022 to –410 million USD in January 2023.
(ii) Calculate the percentage change in Sri Lanka’s balance of trade in goods and services
between January 2022 and January 2023.
Answer:
\text{Percentage change} = \frac{(-410) - (-858)}{|-858|} \times 100 = \frac{448}{858} \times
100 \approx 52.2\%
So, the trade deficit decreased by approximately 52.2%.
(b) Explain what is meant by ‘Sri Lanka has enjoyed a comparative advantage in growing and
exporting tea’.
Answer:
A comparative advantage occurs when a country can produce a good at a lower opportunity
cost than others. In this case, Sri Lanka can produce and export tea more efficiently compared to
other goods or other countries. This has allowed it to specialize and trade tea internationally to
gain economic benefits.
(c) Consider the extent to which depreciation of the Sri Lankan rupee could improve the
country’s balance of trade in goods and services.
Answer:
Depreciation of the rupee makes exports cheaper for foreign buyers and imports more
expensive for domestic consumers. This could:
• Increase demand for Sri Lankan exports like tea and textiles.
• Reduce demand for costly imports such as fuel and fertilizer, improving the
trade balance.
However, the extent depends on:
• Elasticity of demand for exports and imports (Marshall-Lerner condition).
• Import dependence: Sri Lanka relies heavily on imported raw materials, so a
weaker currency may increase costs and worsen the deficit in the short run.
• Time lag before trade volumes adjust.
Conclusion: Depreciation can help improve the trade balance, but only if exports and imports are
sufficiently price-sensitive and production capacity is strong.
(d) Assess whether the removal of all protectionism is likely to reduce the balance of trade
deficit.
Answer:
Arguments For:
• Removing import tariffs can lower costs for domestic producers (especially
those relying on imported inputs), increasing their competitiveness.
• Greater competition can improve efficiency and quality, encouraging export
growth.
• May attract foreign direct investment into export-oriented industries.
Arguments Against:
• Increased imports due to lower tariffs could widen the trade deficit in the
short run.
• Domestic industries may struggle to compete with cheaper imports, causing
unemployment or reduced output.
• Sri Lanka lacks a new comparative advantage, so liberalization without a
strategy may not translate into export growth.
Conclusion: While removal of protectionism can enhance efficiency and long-term export
potential, it may initially worsen the trade deficit unless paired with industrial and supply-side
reforms.
(e) Assess the extent to which supply-side policies will be able to ‘lead Sri Lanka back into
economic growth’.
Answer:
Supply-side policies aim to increase productive capacity and efficiency in the economy. In Sri
Lanka’s case, such policies could include:
• Infrastructure investment, e.g. developing port facilities to become a
shipping hub.
• Education and training to improve productivity.
• Subsidies or support for key industries, like tea or textiles.
• Liberalizing markets to attract investment and improve innovation.
Benefits:
• Long-term improvement in competitiveness and export growth.
• Can reduce dependency on imports by improving domestic production.
• Encourages FDI and employment.
Limitations:
• Long time lags before effects are seen.
• High costs and potential reliance on foreign aid or debt.
• Political instability and weak institutions can limit implementation.
Conclusion: Supply-side policies have the potential to lead Sri Lanka back into economic growth,
but they require strong governance, time, and complementary macroeconomic stability to be
fully effective.
Here are model answers to the questions based on the CIE Economics 9708 exam format:
⸻
(a) With reference to Fig. 1.1 describe how Turkey’s current account balance has changed
between August 2019 and April 2020. [2]
Between August 2019 and October 2019, Turkey’s current account balance was in surplus,
peaking at $3304 million in August 2019. However, from November 2019 onwards, the balance
deteriorated significantly, turning into a deficit, reaching a low of –$5062 million in April 2020.
This represents a clear shift from surplus to a growing deficit.
(b) How could the data in Fig. 1.2 be used to explain the changes in the terms of trade between
August 2019 and April 2020 as shown in Fig. 1.3? [2]
Fig. 1.2 shows a general rise in Turkey’s inflation rate from 9.26% in August 2019 to 10.94% in
April 2020. Higher domestic inflation increases export prices relative to import prices, which can
improve the terms of trade. This is reflected in Fig. 1.3, where the terms of trade index rises from
103.47 to 110.32 over the same period. The improvement is likely due to the increased prices of
exported goods relative to imports.
(c) ‘Consumer price inflation was 8.6% per annum in October 2019 and is now 11.4%, reducing
the international competitiveness of Turkey’s goods and services.’
Explain, using the concept of price elasticity of demand, how the increase in inflation has caused
the change in Turkey’s current account of the balance of payments between October 2019 and
April 2020 as shown in Fig. 1.1. [4]
Inflation increases the price of Turkish exports. If the price elasticity of demand for exports is
elastic, then a rise in price leads to a more than proportionate fall in quantity demanded,
reducing export revenue. Similarly, if imports are price inelastic, their value may rise despite
higher prices. Between October 2019 and April 2020, Turkey’s inflation rose from 8.6% to 11.4%,
making exports less competitive. As a result, the current account balance shifted from a small
surplus ($105m) to a large deficit (–$5062m), consistent with reduced export revenue and
potentially increased import expenditure.
(d) Explain how a negative real rate of interest in Turkey will affect the function of money as:
(i) A standard of deferred payment [3]
A negative real interest rate discourages lending and borrowing for future payments. Lenders
receive less in real terms, making them less willing to accept delayed payments. This undermines
money’s role as a standard of deferred payment because its value diminishes over time.
(ii) A store of value [3]
With negative real interest rates, the purchasing power of money falls due to inflation exceeding
nominal interest rates. People lose confidence in money as a store of value, as its real worth
declines over time. This can lead to individuals switching to alternative stores of value, such as
foreign currency or assets.
(e) Discuss, with the help of an aggregate demand and aggregate supply diagram, whether
further cuts in Turkey’s interest rate are likely to ‘generate inflation’ or ‘speed up the economic
recovery’. [6]
A cut in interest rates reduces the cost of borrowing and encourages consumption and
investment, leading to a rightward shift in aggregate demand (AD). This can help stimulate
economic recovery by increasing output and employment.
However, if the economy is near full capacity, the increase in AD may cause demand-pull
inflation. Given the already rising inflation rate (from 8.6% to 11.4%), further cuts may exacerbate
inflationary pressures.
A diagram showing a rightward shift in AD intersecting either at an upward-sloping or vertical AS
curve would illustrate this.
If aggregate supply (AS) remains unchanged and output is already near potential GDP, the result
is likely to be higher prices rather than increased real output. On the other hand, if there is
significant spare capacity due to the COVID-19 pandemic, the increased AD may lead to higher
output with limited inflation.
Conclusion: Whether the interest rate cut generates inflation or promotes recovery depends on
the elasticity of AS and the level of spare capacity. Given Turkey’s rising inflation, there is a risk
that cuts may fuel inflation more than stimulate growth.
Let me know if you’d like the diagrams or a formatted document with these answers.
Here are the suggested answers to the A Level Economics data response questions based on the
information from the provided images:
---
**(a) Identify two possible reasons why the current account on the balance of payments in Chile
is in deficit in the first quarter of 2022 despite the surplus on the balance of trade in goods.**
**\[2 marks]**
1. **Fall in copper export revenue** – Despite higher copper prices, revenue fell due to a **9.2%
decrease in export volumes** and lower world demand during Covid-19.
2. **Increase in import expenditure** – There was a **38.3% increase in the value of imported
consumer goods**, worsening the current account deficit.
---
**(b) Consider the likely success of one policy that Chile could use to reduce the imports of
consumer goods.**
**\[4 marks]**
One possible policy is **increasing tariffs on imported consumer goods**. This would raise the
price of imports, making them less attractive to consumers and potentially boosting demand for
domestic alternatives.
**Likely success depends on:**
* **Price elasticity of demand** for imported goods – if demand is inelastic, the effect may be
small.
* **Availability of domestic substitutes** – if Chilean alternatives are limited or of lower quality,
consumers may continue to prefer imports.
* **WTO regulations** – Chile’s ability to impose tariffs may be limited by international trade
agreements.
Overall, while tariffs could reduce imports in the short term, they may lead to higher consumer
prices and potential retaliation from trade partners.
---
**(c) Explain what is meant by the fall in Chile’s Gini coefficient from 52.1 to 44.4.**
**\[2 marks]**
The **Gini coefficient** measures income inequality on a scale from 0 (perfect equality) to 100
(maximum inequality). A **fall from 52.1 to 44.4** indicates a **reduction in income inequality**,
meaning that income is being more evenly distributed across the population.
---
**(d) Assess the extent to which ‘the government increasing its education spending’ may
improve the incomes of poorer households in Chile.**
**\[6 marks]**
**Positive impacts:**
* **Improved access to education** reduces barriers for poorer households, increasing their
chances of gaining higher-paid jobs.
* **Free college tuition** and increased education funding can reduce skill gaps and promote
upward social mobility.
* Education is a **merit good**, often under-consumed; government intervention corrects this
market failure.
**Limitations:**
* **Time lag**: Benefits from education spending take years to materialize.
* **Quality vs. quantity**: Increased spending doesn’t guarantee better education unless it
improves quality.
* **Other barriers**: Poor households may still face challenges such as child labor or lack of
internet access.
**Conclusion:**
While increased education spending is a long-term solution that could reduce inequality, its
effectiveness depends on implementation quality and supporting policies (e.g., access to
healthca
