H2Econ_Paper_1_MJC09[1]

9732/01/JC2 PRELIMINARY EXAM /MJC/2009

1

Additional materials: Answer Booklet/Paper

READ THESE INSTRUCTIONS FIRST

Do not open this booklet until you are told to do so.

Write your name, class and register number on all the work you hand in. Write in dark blue or black pen. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Answer all questions. At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question.

[Turn Over]

JC 2 PRELIMINARY EXAM 2009 9732/01 ECONOMICS HIGHER 2 18 September 2009 Paper 1 2 hours 15 minutes

This document consists of 7 printed pages


2

Question 1: The Economics of Transport Extract 1: Rising fares The cost of travelling on buses and tubes in London has risen substantially and its public transport was declared the most expensive in the world. London's mayor, Ken Livingstone, raised the cost of cash fares on the London Underground and the expanded bus network. He explains that "The huge investment that we are now making to make our transport system fit for the growth in passenger numbers is totally necessary and could not be ducked."

As details of the London fare rises emerged, private overland rail companies have taken their lead. Like the London mayor, the train companies said the increases were needed to pay for improvements. Ministers are due to release a five-year strategy for the rail network later this year.

Source: The Guardian, Jan 2007 Extract 2: Road privatization - A super-highway to traffic woes There is widespread agreement that most developing countries urgently need massive highway construction programs. Traditionally, highways have been viewed as public goods that must be financed and operated by the public sector. In UK, government expenditure on roads amounted to almost £8.6bn in 2006/2007 of which 45% was capital expenditure for the construction and improvement of strategic roads and other projects such as by-passes and local improvement schemes In recent years however, many governments have neglected maintenance because of chronic budgetary problems and traffic has grown well ahead of capacity. So, it has become increasingly accepted that highways should be built, financed, and operated by private firms and that users should pay for using them. Some argue that private firms build highways faster because they are more efficient than state-owned firms. Users are also more likely to accept the concept of paying for roads owned by the private sector. Despite these avowed advantages, the experience with highway franchising has been far from happy. In Mexico, excessively high tolls have led to empty highways and the renegotiation of the original franchise agreements. The duration of some of the toll road franchises has more than doubled, and the government has had to pump in US$2 billion to save firms (and the banks that made loans to them) from bankruptcy.

Adapted from: The World Bank Group, May 1997

Extract 3: Pay as you go

The transport secretary said the road pricing charges, aimed at cutting congestion, would replace road tax and petrol duty. This move is not unexpected given the success of road pricing in other major cities in the world like Singapore. Singapore was the first city in the world to implement an electronic road pricing (ERP) in 1998. Their road pricing charge is varied by vehicle type, location of gantry and time of the day.

In UK, the proposed satellite tracking system would be used to enforce the toll, with prices varying from 2 pence per mile for driving on a quiet road out of the rush hour to £1.34 for motorways at peak times. The satellite technology installed in the car will be able to track the vehicle’s movement. A bill for their time on the road will be sent to the drivers at a later


3

time. The department of transport says the scheme would be fairer because those who travel greater distances would pay the most. However, the cost of installing such electronic system is very costly and difficult to administer. If it’s successful, the plan could help counter a projected 45% growth in congestion problems by 2030 and lower the levels of pollution in UK.

The Environment Agency's Nick Rijke warned that shifting money away from fuel duty would take away the incentive for people to use green vehicles. Alongside with traffic congestion, pollution is also a significant problem in UK. Hence, fuel tax still plays an important role in restraining growth in transport fuel sector. Moreover, the fuel tax is administratively simple to implement. There is a need for integration of these policy actions in a consistent framework because they all contribute to the same objectives.

Adapted from: “Pay as you go road charge plan”, BBC, June 2005

Table 1: Motoring costs and rail fares in UK, 1996-2006

Retail Price

Index (RPI) Vehicle Purchase

Petrol & Oil All Motoring Costs

Rail Fares

1996 100.0 100.0 100.0 100.0 100.0 1998 106.7 101.3 115.4 108.6 106.6 2000 111.5 91.7 141.6 115.5 112.3 2002 115.5 88.6 130.1 113.9 119.3 2004 122.3 83.5 142.3 116.6 135.6 2006 129.7 77.0 163.5 119.0 146.6

Source: Transport Statistics, 2007 edition, ONS, UK

Figure 1: CO2 emissions from UK domestic transport, by source, 2007

Figure 2: Green Vehicles Sales in UK

*

* Heavy Goods Vehicles


4

Figure 2: Green vehicles sales in UK

Source: green-energy-efficient-homes.com, 2009

Answer all questions

Total marks: 30

(a) (i) Compare the changes between motoring costs and rail fares. [2]

(ii) Account for the changes observed.

[4]

(b) To what extent does the data support the view that roads should be

provided by the UK government?

[6]

(c) Evaluate the impact of “shifting money away from fuel duty” (Extract 3). [8]

(d) Evaluate the relative effectiveness of road pricing and fuel duty in

solving traffic congestion and pollution problems.

[10]


5

Question 2: Asia’s Response to the Global Economic Crisis

Extract 4: Asian Economies – pulling a great comeback? After nearly ten years of strong economic growth, Asia is suffering two recessions: an external as well as a domestic one. Americans are saving more and importing less. The nation’s return to thrift is unlikely to prove a cyclical blip. But this overstates an Asian country’s dependence on external demand as exports have high import content. China’s exports account for 36% of GDP, but about half of them are “processing exports”, which contain a lot of imported components. This implies that the impact on GDP growth of a fall in exports is partially offset if imports fall too. Nonetheless, for states such as Taiwan and Singapore, reduction in exports means the loss of the entire or half of the engine for economic growth. Asia’s export-led growth therefore seems to have reached its limits. Domestically, demand had been expected to cushion the blow of weaker exports but was instead hit by two forces - the surge in food and energy prices in the first half of 2008 and tighter monetary policy intended to curb this inflation in 2007. Weak consumption remains a thorn in the flesh for Asian countries. The popular explanations are uncertainty over pensions and social welfare and that growth in wage incomes have fallen relative to GDP. In response to this crisis, Asia has deployed its economic weapons with an unprecedented force. Every country across the region has cut interest rates and announced a fiscal pump-priming. In previous downturns, Asian governments were often constrained by dire public finances or the need to support currencies. But most countries entered this downturn with small budget deficits or even surpluses. Economists reckon that the region is more likely to suffer a credit pinch than a full-scale crunch because of healthier banking systems. Asian banks are less likely than Western ones to react to the crisis by refusing to lend. Hence interest-rate cuts and the easing of credit controls should be more potent than elsewhere. The private sector is also in better shape and able to respond by spending more. The effectiveness of fiscal easing depends on its composition as well as size. Income-tax cuts planned in South Korea and Taiwan will have only a modest impact if the money is saved not spent. Corporate tax cuts, planned in Singapore, may not spur investment when profits are plunging.

Source: The Economist, Jan 2009 Extract 5: Reflating China China’s massive 4 trillion yuan (nearly 600 billion USD) stimulus package was widely cheered at home and abroad. The snag is that, as yet, there are no details about how exactly the money will be spent and that the package as much smaller than meets the eye. Some of the infrastructure investment had already been planned, notably the extension of the rail network and rebuilding after the Sichuan earthquake. In that sense, it is not really new money. Some commentators have criticised the package for focusing too much on investment (which is already high as a share of GDP in China) rather than spurring consumption through income-tax cuts or transfer payments to farmers. Investments too, won’t work its magic overnight; it takes time to get projects started. Many foreign officials, including America’s president-elect Barack Obama, still complain that China is holding down the yuan to keep its exports competitive. It is true that China seems to have abandoned its previous policy of allowing the steady rise of the yuan: it has barely budged over the past four months against the US dollars.


6 Source: The Economist, Nov 2008

Extract 6: Malaysia would do well to adopt careful stand. It is a wonder where Malaysia’s upbeat growth rates will come from when consumers in the world’s largest economy – the US – have to battle job losses and are worried enough to save more than they customarily do. In Asia, estimates for China’s growth in 2010 range from 6.5% to 8%. That is not a rate that is as exciting as the double-digit rates it was accustomed to in the years preceding the crisis. It is important to bear in mind that a 1% growth in a rich economy could do more to boost exports from Malaysia than an 8% growth from China. This is because the low per capita incomes in China do not compensate for the huge decreases in absolute amounts that are generated in developed economies.

Source: The Star, Jun 2009. Figure 3: GINI coefficient in selected countries

Source: the Economist, Aug 2007 Table 2: Consumption, exports and imports as percentage of GDP in selected countries, 2000 – 2007 Australia

Year 2000 2001 2002 2003 2004 2005 2006 2007 Consumption (%) 58.7 59.5 58.9 59.0 58.6 58.0 56.6 55.6 Exports (%) 19.9 22.7 21.2 19.4 17.5 18.7 20.3 20.6 Imports (%) 21.9 22.4 21.1 21.5 20.1 21.2 21.8 21.8 China Year 2000 2001 2002 2003 2004 2005 2006 2007 Consumption (%) 46.2 44.9 43.7 41.8 39.9 38.6 38.0 37.1 Exports (%) 23.3 22.6 25.1 29.6 34.0 37.3 39.9 40.7 Imports (%) 20.9 20.5 22.8 27.6 31.4 31.7 32.1 31.4 Singapore Year 2000 2001 2002 2003 2004 2005 2006 2007 Consumption (%) 42.2 46.0 46.6 46.1 42.6 41.1 40.1 39.6 Exports (%) 195.6 191.6 192.3 212.5 225.4 238.5 246.2 240.9 Imports (%) 182.0 176.5 175.5 185.0 200.1 209.8 216.3 202.0

Adapted from Asian Development Bank, 2008


7

Table 3: Share of the direction (in percentage) of exports in 2006 and changes from 2000 in parenthesis

Direction

NIES ASEAN5 China Industrial

Asia Rest of

the world NIES1 14.0

(1.7) 12.2 (3.7)

25.4 (17.5)

8.3 (-5.1)

38.3 (-18.7)

ASEAN52 21.6 (0.3)

9.7 (5.4)

11.1 (8.9)

16.0 (-10.9)

39.6 (-5.1)

China 22.8 (-18.4)

4.6 (1.7)

NA 11.5 (-3.8)

59.7 (19.1)

Exp

ortin

g re

gion

/ co

untr

y

Industrial Asia3 21.4 (2.6)

8.9 (1.1)

14.8 (12.5)

6.6 (-0.7)

46.9 (-16.2)

1NIES = Newly industrializing economies 2ASEAN5 = Singapore, Malaysia, Thailand, Indonesia, Philippines 3Industrial Asia = Japan, Australia, New Zealand

Adapted from International Monetary Fund, 2008

Answer all questions (a) (i) Account for the differences in the imports as a percentage of GDP for

Singapore and China between 2000 and 2007. [4]

(ii) With reference to the data, explain the different average propensities to

consume in Singapore and Australia in the period 2003 to 2007. [3]

(b) Using AD-AS analysis, comment on the causes of recession in Asia in

2008. [5]

(c) Discuss whether the data provided is sufficient to conclude that standard

of living in China has improved since 2000. [8]

(d) Governor of the People’s Bank of China, Zhou Xiaochuan said that

China’s “greatest contribution to the world” is to keep the Chinese economy running smoothly amidst the global recession.

Discuss the extent to which economic intervention by the Chinese government would contribute to economic recovery in the ASEAN countries.

[10]

Total marks: 30 END OF PAPER


COVER SHEET

ECONOMICS HIGHER 2

PAPER 1

Name: ______________________ Civics Group: _______________ Register Number: _____________ Economics Tutor: ___________ 14 September 2009 2 hours 15 minutes


Write your name, civics group, register number and economics tutor’s name in the spaces at the top of this cover page and on all the work you hand in. At the end of the examination, fasten this cover sheet to your answer scripts for Question 1 with the string provided before submission.

QUESTIONS ATTEMPTED

MARKS

(a) (i)

(a)(ii)

(b)

(c)

(d)

TOTAL /30

MERIDIAN JUNIOR COLLEGE

JC2 PRELIMINARY EXAM 2009

Question 1

9732/01


COVER SHEET

ECONOMICS HIGHER 2

PAPER 1

Name: ______________________ Civics Group: _______________ Register Number: _____________ Economics Tutor: ___________ 14 September 2009 2 hours 15 minutes


Write your name, civics group, register number and economics tutor’s name in the spaces at the top of this cover page and on all the work you hand in. At the end of the examination, fasten this cover sheet to your answer scripts for Question 2 with the string provided before submission.

QUESTIONS ATTEMPTED

MARKS

(a) (i)

(a) (ii)

(b)

(c)

(d)

TOTAL /30

MERIDIAN JUNIOR COLLEGE

JC2 PRELIMINARY EXAM 2009

Question 2

9732/01

H2Econ_Paper_1_MJC09[1]

Documents

Transcript of H2Econ_Paper_1_MJC09[1]