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Advanced Subsidiary GCE
ECONOMICS
Unit F582: The National and International Economy
MOCK PAPER 3
Time: 1 hour 30 minutes
INSTRUCTIONS TO CANDIDATES
Answer all the questions
INFORMATION FOR CANDIDATES
 The number of marks for each question is given in brackets [ ] at the end of each
question or part of question
 The total number of marks for this paper is 60
ADVICE TO CANDIDATES
 Read each question carefully and make sure you know what you have to do
before starting your answer.
 You will be assessed on the quality of written communication in the question
marked with an asterisk (*).
Japanese Downturn
The IMF has forecast that the export dependent Japanese economy is to see a 6%
decline in real GDP in 2009. Japan is in its deepest economic crisis since World War
II.
Fig 1: UK and Japanese Economic Growth Rates 2004 – 2008
Growth of Gross Domestic Product
Annual rate of growth of real GDP (%)
4
4
Percent
3
3
United Kingdom
2
2
1
1
Japan
0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
-5
Q1
Q3
Q1
Q3
04
05
United Kingdom [ar 4 quarters]
Q1
Q3
Q1
06
Japan [ar 4 quarters]
Q3
07
Q1
Q3
08
Japanese exports have fallen by 50% since early 2008 as demand has fallen due to
the global recession and rising value of the yen. Demand for electronic products and
cars have been particularly hard hit and domestic firms have slashed production.
Firms such as Sony and Toyota have suffered with a significant loss in sales.
Domestic consumption which represents more than half of Japan’s GDP dropped by
0.4% in the last quarter of 2008 reflecting the fact that Japanese households are
slashing consumption. Firms in the country have responded in a similar manner with
capital investment spending falling by 5.3% in the same quarter.
Falling consumption, investment and exports is impacting hard upon the level of
aggregate demand in the economy. The Bank of Japan has cut interest rates from
0.5% in March 2008 to 0.1% in March 2009 in response to the economic crisis.
Unemployment has reached a three-year high. Many of those still in work face
shorter working hours, job-sharing and lower pay.
A sizeable £11bn fiscal stimulus is being targeted at the labour market unemployment in Japan is not that high by international standards but it is set to
jump much higher over the coming months as the downturn in output hits jobs. The
extra government spending will include finance for workers undergoing training,
payments for people who are laid off without unemployment insurance, and
subsidies for companies that retain surplus staff.
Answer all questions
(Time Allowed: 1 hour 30mins)
1 (a)
(b)
Define:
(i)
Exports
[2]
(ii)
GDP
[2]
(i)
Using the information from the text, identify two reasons why
aggregate demand in Japan is falling.
(ii)
Describe how a cut in the rate of income tax may increase aggregate
demand.
[2]
[4]
(c)
(i)
Using Fig 1, compare Japan’s and the UK’s economic growth record for the
period 2004 to 2008.
[3]
(ii)
Comment on the extent to which a worsening in the Japanese
economy is likely to hinder the performance of the UK economy.
[6]
(d)
(i)
(ii)
Using evidence from the extract, say whether Japan’s government
budget is likely to have improved or worsened during the period under
consideration .
[3]
Using an aggregate demand and aggregate supply diagram, analyse the
effect of a cut in interest rates on an economy.
[8]
(e) (i) Analyse two possible reasons why the Japanese yen has risen in value.
(ii) Comment on the likely effects of falling exports on the Japanese economy.
(f)* Discuss the effectiveness of fiscal policy in reducing the level of unemployment
in an economy
[6]
[6]
[18]
Paper Total: [60 marks]