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2008 GCE A Level H1 Case Study (Suggested Answer)

The two case studies each consisted of a combination of five short extracts and a chart or table of numerical
data - and the questions set were a combination of what might be regarded as traditional data-response
items and slightly more discursive ones.

It is particularly important that candidates should tailor their answers to the different questions appropriately - and
indeed most candidates seemed able to do so, at least in most cases. Thus, Questions 1a(i), 1d(i) and only
required brief statements, and 1a(ii) and 1b brief explanations, each being for just 2 or 3 marks. However
Questions 1c, 1d(ii), required more extensive economic explanations, for 4, 5 or 6 marks each. Finally, Questions
1e, each asked the candidate to discuss or to comment; these are higher-level skills, which would be likely to
require rather more extensive responses.

It is perhaps worth repeating one further point concerning techniques of tackling case-study questions such
as these under examination conditions. This is that candidates should understand that not every part of
every extract, figure or table will be of direct relevance in answering particular questions. It is strongly
recommended that candidates should read quickly all the extracts, etc. within a case study question before
embarking on answering the part-questions that follow, but they should also be aware that some parts of
some of them may be purely for background information. They will not be irrelevant to the economic issues
raised by the case study, but may not link directly to one or more particular part-questions.

1(a)(i) Most candidates were able to identify successfully in part (i) one trend for each of
inflation and unemployment for the UK over the period.

Overall trend for unemployment. Highlight reversal of trends for inflation

1(a) (ii) Candidates MUST make relevant reference(s) to the data available in Figs. 1 and 2,
and then attempted to draw appropriate conclusions.

Fig 1: no stable relation

Fig 2: from 97-00, stable, direct relationship
From 01-06, stbale , inverse relation ( same as theory Phillps Curve)

Note: when we get such a question, where we cannot treat as either DRQ or CSQ, then data is
ALWAYS top priority. Even if against theory, it does not matter.

(b) Most candidates were able to make valid points about economic growth, inflation and the
unemployment performance of Singapore in 2006, and therefore gained appropriate credit for
drawing relevant conclusions from the data.

Main error is about the growth in total trade.

All bullets in extract 1 can be used except 2
bullet. Cos total trade can mean X+M, or no info is
given on capital account.

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(c) The most important point in answering this question was that candidates were asked to use
AD/AS analysis. Answers that were not expressed in terms of such analysis could clearly
gain no credit.

(i) Strong borrowing AD rises

(ii) Lack of spare capacity near full employment level of national income. Firms cannot
increase production to meet the existing level of AD, so raises price of goods and
services. (no shift in AS)

d (i) The main weakness was by candidates who failed to refer to the two extracts; instead
such answers tended to answer in terms of some theoretical relationship between rate of
interest and rate of inflation, which of course was not the question asked.

Similar to a(ii), data takes priority!

Extract 2: Contractionary MP reduces inflation

Taiwan: Anticipated increase in i/r has little effects on inflation rate.
Indonesia: Expansionary MP to achieve employment and growth worsens inflation.
China: The effectiveness of Contractionary MP via i/r depends on the interest elasticity of
demand to reduce inflation.

d (ii) Almost all understood that tight monetary policy referred to either increased interest rates
or currency appreciation (or both), and linked their explanation of the consequent effects to
control of the rate of inflation, though a number left their explanation in terms of reductions in
Aggregate Demand.

A bit too easy in my opinion. A standard basic analysis answer is sufficient.

Rise in i/r -> C falls; I falls. AD falls. Demand-pull inflation falls.

(e) The best answers showed a sophisticated understanding of relevant aspects of the
Singapore economy, and were able both to explain the benefits of using currency appreciation
rather than interest rates to tackle inflation, and to consider some possible downsides of such
an approach which is exactly what discuss required.

Some more limited answers only focused on the reasons for relying on currency appreciation,
whilst the weakest ones failed even to explain, either here or in part d(ii), the mechanism
connecting currency appreciation to reducing inflation.

Cause: ER policy & i/r
Effect: reduce inflation

S5: FIXED: we have to compare the effectiveness or degree of conflicts of other macro
objectives of the 2 policies. Strangely, the bulk of the answers are brainstormed, rather than
from the case. Again, a little too easy in my opinion.