Download Answers 2008 Exam

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2.3
MARKING SCHEDULE
Level 2 Economics, 2008
AS 90796 Describe economic growth and its causes
and effects using economic models
Practice credits: Four
You are advised to spend 40 minutes answering the questions in this booklet.
Check there are six pages in this booklet.
You should answer all the questions in this booklet.
This booklet must be handed to your teacher at the end of the examination
(D) Define/describe key economic terms in question
(E) Explain how or why
(R) Relate/refer to the context of the question
Achievement
Achievement with Merit
1  AC
1  AE
5 other A or M or E
1  MC
1  ME
1 other MC or ME or M
7 other A or M or E
Achievement with
Excellence
1  MC
1  ME
1 other MC or ME or M
1E
7 other A, M, or E
Codes
The suffix C in A C and M C refers to causes.
The suffix E in A E and M E refers to effects.
© Douceinator Exams 2008.
All rights reserved. No part of this publication may be reproduced by any means (including transmission by carrier pigeon,
yak or unauthorised smoke signals) or stored in brown paper bags without prior permission.
2
QUESTION ONE
Economic growth can be measured by calculating changes in productive capacity
or by measuring changes in net social welfare. Real gross domestic production
(Real GDP) could also be used to measure the growth of an economy.
(a)
Define economic growth.
An increase in the productive capacity of an economy
idea = A
(b)
Explain ONE benefit of measuring growth using changes in productive capacity and
ONE benefit of using changes in net social welfare.
Benefit of using changes in productive capacity
(D) Productive capacity is potential maximum output
(E) Because if an economy is operating at less than maximum output then
there is potential for future growth / if new resources or better technology
then productive capacity will increase so there is potential for future
growth
(R) Increases in Productive capacity mean there is the possibility for
output to increase
Benefit of using changes in net social welfare
D or E or R for both = A
or D+E+R for both = M
(D) Net social welfare is using economic and non economic quality of life
factors
(E) Because economic and non economic factors (eg HDI) measure quality
of life factors holistically rather than only output measures
(R) Net social welfare measures outcomes of growth which determine
standards of living
(c)
Explain why changes in real GDP are used to measure growth rather than nominal GDP.
(D) Real GDP = actual output (adjusted for inflation) output (including
effects of inflation ie current market prices)
(E) Because real GDP has effects of inflation removed it measures
changes in total output whereas nominal GDP measures changes in
output and prices (idea)
(R) Nominal GDP can be misleading as it may have increased if prices
increased rather than solely an increase in output (idea)
D or E or R = A or D+E+R = M
Economic growth 2008, 90796. (2.3)
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QUESTION TWO
Economists say investment will increase our real income. However, they warn
that as a nation we are poor savers.
GRAPH ONE
Production Possibility Curve
Feijoas
(kg)
Fireworks (boxes)
(a)
(b)
Movement from a point inside the
curve towards the frontier
Show an increase in real income on GRAPH ONE.
idea = Ae
Explain how an increase in physical investment causes an in increase in real income.
(D) Physical investment is the purchase of capital goods /capital stock
(E) Because with more capital goods, firms can increase production, so
total output (real incomes) increases
(R) Increase in capital stock means output increases so real incomes
increase
D or E or R = Ac or D+E+R = Mc
(c)
Describe the difference between savings and investment.
Savings is when households put excess income in a bank / income not
spent. Investment is firms purchasing capital goods / stock
difference described = A
(d)
Explain the effect of an increase in real income on inflation.
(D) Real income is real GDP
(E) Because when real GDP increases, firms output would have increased
so their profit will have increased. Investment will increase as their
confidence increased. As employment increases to produce extra output
household incomes also increase. As incomes increase, spending
increases. Aggregate demand increases. This causes demand pull
inflation
(R) Increases in real GDP cause an increase in aggregate demand so
demand pull inflation occurs
D or E or R = Ae or D+E+R = Me
1 × Mc and 1 × Me from question 2 = E
Economic growth 2008, 90796. (2.3)
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QUESTION THREE
The Speights Coast to Coast adventure race attracts about 1000 competitors and
their supporters to the Canterbury and West coast regions.
GRAPH TWO
Circular Flow Model
Households
Expenditure
Financial
Government
Overseas
Goods and
services
Firms
(a)
Explain how the Coast to Coast causes economic growth in Canterbury and the West
Coast.
(D) Economic growth is an increase in productive capacity
(E) Because events cause an injection of spending in a local
economy/region incomes increase, firms profit increases so investment
increases as confidence increases, employment increases so household
income and spending increases so productive capacity increases
(R) Spending increases in the Canterbury/West Coast regions so firms
increase investment and output so growth occurs
D or E or R = Ac or D+E+R = Mc
(b)
Name the flow that best demonstrates an increase in real gross domestic production.
Goods and services flow (shows actual output so better than payments for
goods and services which is nominal GDP)
stated = A
(c)
If the level of savings increased, state a money flow that would decrease.
EG: Payments for goods and services / indirect tax (GST)
(d)
stated = Ac
With reference to specific flows in the circular flow diagram, explain the link between an
increase in savings on investment and growth.
(D) Growth is an increase in productive capacity. Savings is income not
spent. Investment is buying stock/capital goods
(E) Because an increase in savings means the financial intermediaries
have more funds to lend to firms as loans for investment so investment
can increase. More capital goods result in increased output which is
growth OR less consumption so firms confidence falls so investment falls
so growth falls.
(R) Savings flow to banks from households increases. Financial
intermediaries have more funds to lend so investment flow to producer
sector increases. Goods and services flow from producers to households
increases (this is growth)
D or E or R = Ac or D+E+R = Mc
Economic growth 2008, 90796. (2.3)
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QUESTION FOUR
Research into biological pest and disease control methods has increased the productivity
of fruit production. The technological advances have the potential to increase the primary
sectors contribution to both gross domestic production and total exports.
GRAPH THREE
Production Possibility Curve
Fridge
production
Fruit production
(a)
What is Gross Domestic Production?
Total value of all goods and services produced in a country in a year
(b)
On GRAPH THREE above, show the effect of the technological advances in fruit
production methods.
New curve shifted outwards as shown. Must have arrow
(c)
idea = A
= Ae
Explain the link between technology, productivity and growth.
(D) Technology is innovation. Productivity is an increase in the rate of production.
Growth is an increase in productive capacity.
(E) Because innovation results in increased efficiency / better ways of
manufacturing productivity increases. This results in an increase in output which
is growth
(R) Better fruit production methods results in more fruit being produced per tree
so total output increases
D or E or R = Ac or D+E+R = Mc
Economic growth 2008, 90796. (2.3)
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(d)
Explain with reference to fruit growing, how increases in technology impact on exports.
(D) Technology is innovation. Exports are NZ goods sold overseas
(E) Because technology increases result in increased efficiency or new
improved products NZ goods become more competitive / in demand
overseas so exports increase
(R) Improvements to fruit production without chemicals increase overseas
demand for NZ fruit so exports increase
D or E or R = Ae or D+E+R = Me
(e)
Explain a consequence of growth in the organic fruit industry on resource use.
(D) Growth is an increase in productive capacity. Resources are inputs
(E) Because output increases, inputs, which are resources increase /
Technological advances result in more efficient use of resources (and less
chemical resources) / resources move from sunset industries to sunrise
industries
(R) EG Land that was being used for conventional crops may now be used
for organic fruit production
D or E or R = Ae or D+E+R = Me
1 ×Mc and 1 × Me from question 4 = E
QUESTION FIVE
The government is pleased with the latest statistics which show the economy is booming.
Experts say while the outlook for the economy looks bright, businesses will have to “stay
on the ball” to benefit from future growth forecasts.
(a)
Explain the effect of economic growth on government revenue.
(D) Growth is an increase in productive capacity. Govt revenue is money
earned / taxation
(E) Because an increase in output results 1. in higher profits, firms
company tax revenue increases. 2. in increased employment so
household incomes rise so income tax revenue increases 3. in increased
sales so GST revenue increases 4. dividends from SOE’s increase
(R) As output increases, govt tax revenue increases
D or E or R = Ae or D+E+R = Me
(b)
Explain why all firms DO NOT enjoy equal benefits of growth. Use examples.
(D) Sunrise industries are new industries with increasing sales. Sunset
industries are established industries with declining sales
(E) Because technology / consumer preference changes result in
increased demand for some products (eg digital cameras) and decreased
demand for other products (eg film cameras) so profits for firms in sunrise
industries benefit from increased profits whereas firms in sunset
industries face declining profits
(R) Firms in sunrise industries benefit more from growth than firms in
sunset industries
D or E or R = Ae or D+E+R = Me
Economic growth 2008, 90796. (2.3)
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