PODAR INTERNATIONAL SCHOOL

IGCSE EXAM- 2015

ECONOMICS

0455/02

Paper 2 Structured Questions

Time : 2.15 hours

Date: July 2015

Marks: 90

NameClassCandidate No

Additional Materials: Answer Booklet/Paper

INSTRUCTIONS TO CANDIDATES
Write your name, Centre number and candidate number in the spaces provided on the answer
booklet / answer paper.
Answer Question 1 (Section A) and any three questions from Section B.
Write your answers on the separate answer paper provided.
If you use more than one sheet of paper, fasten the sheets together.

INFORMATION FOR CANDIDATES

The number of marks is given in brackets [ ] at the end of each question or part question.

Section-A
1 Fiscal policy and an ageing population in Japan
A sales tax was introduced in Japan in 1989, initially at a rate of 3%, and this was later increased to
5% in 1997. The intention is to increase the rate to 8% in 2014 and to 10% in 2015. This will still
leave the tax rate below other countries. The tax increase in 1997 was not opposed by many of the
Japanese people, but since then Japans Gross Domestic Product (GDP) has fallen by 10%. It was
US$5069 billion in 2011. There has been deflation and this has badly affected tax revenue, which
has fallen 22% since 1997, leading to a doubling of the Japanese Governments debt. The Japanese
Government was required to spend a great deal of money in March 2011 when a devastating
earthquake and tsunami (coastal flooding) struck the countrys north-eastern coast, leaving 20 000
people dead or missing; it has been estimated that the rebuilding work will cost US$260 billion. The
Japanese Governments debt is now at a very high level, as can be seen in Table 1.

The Japanese Government has decided to increase sales tax to help pay for the pensions and
health care of the ageing population. The problem is that the higher tax rate might lead to a fall in
consumption, leading to an increase in unemployment. It may not help the country to get out of
recession. The average annual growth in Gross Domestic Product over the last five years has been
0.3%.
Many Japanese people are anxious and worried about the future, especially fearing that the
government might try to reduce its public sector debt, leading to further increases in unemployment.
The rate of unemployment in Japan is currently above its average rate over the last ten years.
Economists in Japan are thinking of ways to promote economic growth to get the country out of
recession, such as through encouraging increased productivity and greater entrepreneurship.
It is certainly the case that there is a high savings ratio in Japan. This is despite the fact that interest
rates are at their lowest ever level. There is a strong tradition of saving in Japanese culture and the
level of interest rates is clearly only one influence on the decision of how much people save.

The ageing population is a particular problem in Japan. The percentage of the Japanese population
that is over the age of 60 is 30.5%. The life expectancy of Japanese men is now 80.1 years and
Japanese women 87.2 years, giving an average of 83.7 years. Table 2 shows how this compares
with a number of other countries.

9 (a) Explain what is meant by deflation.

[2]
9 (b) Using information from the extract, calculate the level of government debt in US$ in
9
Japan in 2011.
[1]
(c) Using information from the extract, explain two reasons why Japans government debt,
as a percentage of Gross Domestic Product, is so high.
[4]
(d) Discuss whether an increase in the rate of a sales tax will cause unemployment.
[6]
9 (e) Analyse how increased productivity and greater entrepreneurship could help an economy
9
to get out of recession.
[6]
9 (f) Using information from the extract, explain two influences, other than interest rates, on
9
how much people save.
[4]
9 (g) Using Table 2, calculate the difference between average life expectancy in Japan
9
and Kenya.
[1]
9 (h) Discuss whether an ageing population is always a problem for an economy.
[6]

Section-B (Answer any THREE Questions)

2 All countries face the economic problem and so choices have to be made.
(a) Explain what is meant by the economic problem.

[2]

(b) Describe the two main features of the factor of production, enterprise.

[4]

(c) Using a production possibility curve diagram, explain how the curve can be used to
show the consequences of a change in the allocation of resources between the production
of two goods.

[6]

(d) Discuss whether a decision by a government, with limited financial resources, to increase
expenditure on education by 25% over a three year period, is likely to be an
appropriate decision.

[8]

3 A government decides to encourage the use of public transport by the provision of a

subsidy.
(a) Using a demand and supply diagram, analyse the effect of a subsidy on the equilibrium
price and the equilibrium quantity in such a market.
(b) Explain what factors influence the price elasticity of demand for public transport.

[6]
[6]

(c) Discuss whether transport in a country should be provided by the public sector or by the
private sector.

[8]

4 The types of business organisation in India vary a great deal.

(a) Describe two features of a partnership.

[4]

(b) Explain why a partnership might become a private limited company.

[5]

(c) Distinguish between internal and external economies of scale.

[4]

(d) Discuss whether all small firms will eventually become large firms.

[7]

5. Many people like to save some of their income and commercial banks usually have
various ways of encouraging people to save.
(a) Analyse two motives that people may have for saving money.

[4]

(b) Describe why different groups of people are likely to save different proportions of
their income.
(c) Explain the different ways that commercial banks can encourage people to save.

[4]
[5]

(d) Discuss whether a government should be worried if more people in a country decide
to save a large proportion of their income.

[7]

6 Inflation and unemployment are two economic problems that governments usually have to
deal with.
9 (a) Distinguish between demand-pull and cost-push inflation.
[4]
9 (b) Explain three reasons why inflation is regarded as a serious economic problem.
[6]
9 (c) Distinguish between frictional and cyclical unemployment.
[4]
(d) Discuss whether there is likely to be a conflict between the government aims of low
inflation and low unemployment.

[6]

9
9

7 Whilst in recent years more countries have adopted freely floating exchange rates, a
number of countries have been increasing the protection they are giving to their domestic
industries.
(a) Define the term exchange rate.

[2]

(b) Explain what determines the value of a freely floating exchange rate.

[6]

(c) Describe two methods of trade protection.

[4]

(d) Discuss whether a country should impose more trade restrictions.

[8]

PODAR INTERNATIONAL SCHOOL

IGCSE Examinations
ECONOMICS

0455/ 1

PAPER-1 Multiple Choice

45 minutes

DATE: July 2014

30 Marks

------------------------------------------------------------------------------------------------------------------------------Additional Materials: Multiple Choice Answer Sheet

Soft clean eraser
Soft pencil (type B or HB is recommended)
Name Candidate No. Class.
------------------------------------------------------------------------------------------------------------------------------READ THESE INSTRUCTIONS FIRST

Write in soft pencil.

Do not use staples, paper clips, highlighters, glue or correction fluid.
Write your name, Centre number and candidate number on the Answer Sheet in the

spaces provided unless this has been done for you.

There are thirty questions on this paper. Answer all questions. For each question there
are four possible answers A, B, C and D.
Choose the one you consider correct and record your choice in soft pencil on the
separate Answer Sheet.
Read the instructions on the Answer Sheet very carefully.
Each correct answer will score one mark. A mark will not be deducted for a wrong
answer.

-----------------------------------------------------------------------------------------------------------1 A power station was built to provide electricity to rural villages in Namibia. What was its
opportunity cost?
A the cost of producing the electricity
B the school which could have been built instead
C the time given up by the architect to design the power station
D the wages of the workers who built the power station
2 Using all available resources, an economy produces different combinations of two types of
goods, clothes and food, shown by the production possibility curve (PPC) below.

What does the PPC indicate?

9 A It is more efficient to produce more of clothes than food.
9 B It is only possible to increase the output of clothes by reducing the output of food.
9 C The best situation is to produce equal units of clothes and food.
9 D The cost of producing a unit of clothes is always higher than that of food.
9
3 What is most likely to reduce the supply of factors of production in an economy?

9 A increasing the age of retirement

9 B introducing new methods of irrigation
9 C lowering the cost of borrowing from banks
9 D raising the rate of tax on profits
5 4 The government of a developed country subsidises local private businesses, and
encourages large foreign companies to locate in the country. Which type of economic system
is this?
9

A free market

B mixed
C planned
D subsistence
5 What would cause a movement down the demand curve for cars?
9 A a fall in the price of cars
9 B a fall in the price of petrol
9 C a rise in the price of car insurance
9 D a rise in the price of public transport
5 6 An area attracts tourists to see rare animals but the tourists have few hotels in which
to stay. The local government has given permission for a developer to build a hotel.
Conservationists say that the area will be ruined as the animals will move away and the
nature of the area will be changed.
5
5 What is likely to happen as a result of this decision to the private benefit of the tourists
and the external cost?

7 Russia is the worlds third largest exporter of grain but much of the countrys farmland was
damaged by fire in 2010.
How would this be represented on demand and supply diagrams for the Russian grain market
and for a country importing Russian grain?

9
5 8 What may cause an individual to save a higher proportion of their income?
9 A a belief that the price of goods will rise in the future
9 B a fall in the rate of interest paid by the countrys banks
9 C a fear that income will fall in the future
9 D a rise in the individuals wish to enjoy higher consumption immediately
9
5 9 Why are unskilled workers paid less than skilled workers?
9 A There is a higher demand for unskilled labour than skilled labour.
9 B There is a larger supply of unskilled labour than skilled labour.
9 C Unskilled labour belong to trade unions.

9 D Unskilled labour is more productive than skilled labour.

9
9
5 10 Between 2009 and 2010 the number of potential jobs for qualified law students fell
by 16%. During the same period the total number of applicants for places on law courses
increased.
5 What is the most likely explanation for this?
9 A an economic recession and an increase in general unemployment
9 B an increase in crime rates and the possibility of high salaries in the legal profession
9 C an increase in the retirement age for existing lawyers and an increase in law course
fees
9 D the merger of law firms and the closure of law courses
9
9
5 11 A trade union is negotiating a wage rise for its members. What will increase the
chance of the wage rise being granted?
9 A The companys product has many substitutes.
9 B The economy is entering a period of recession.
9 C The government has made strike action illegal.
9 D Wages are a small part of the companys costs.
9
5 12 Which type of economy of scale results from a firm producing a diverse range of
products?
9 A buying
9 B financial
9 C risk bearing
9 D technical
9
9
13 A market changes from perfect competition to monopoly.

What is likely to happen in this market?

14 The diagram shows the fixed costs, variable costs and total costs of a firm.

Which distance represents the firms fixed costs?

A PS

B QR

C QS

D RS

5 15 When it produces 100 units, a firms total variable cost is $300 and its total fixed
cost is $2700. What is the average cost?
9 A $3
5 16

B $24

C $27

D $30

Which are two aims that a Government normally pursues when managing the

performance of the whole economy?

9 A to encourage an increase in production and to prevent high inflation
9 B to ensure no one is unemployed and to reduce exports

9 C to give everyone equal incomes and to increase government revenues

9 D to protect the environment and to reduce interest rates
9
5 17 The Mexican government has passed a law which prevents any monopoly charging
a price significantly above its production costs. Any monopoly that breaks the law is fined.
Which type of policy measure is this?
9 A minimum price
9 B regulation
9 C subsidy
9 D tax
9
5 18

Governments aim to encourage stable prices because inflation can result in a

current account deficit on the balance of payments.

9 How does high inflation contribute to a current account deficit?
9 A Countries have to barter manufactured goods for raw materials.
9 B Goods manufactured for export lose their competitiveness.
9 C Numbers of foreign visitors increase.
9 D Spending on imported goods is reduced.
9
5 19 A government collects the following revenue in a year.

What is the amount of indirect tax revenue?

A $30m

B $70m

C $100m

D $500m

20 What is the definition of inflation?

9 A an increase in demand
9 B an increase in output
9 C an increase in the general price level
9 D an increase in wages
9
5 21 It was reported in 2011 that an economy had negative economic growth for six
months in a row. What would be evidence for such a situation?
9 A an increase in GDP
9 B an increase in profit levels
9 C an increase in the level of unemployment
9 D an increase in the standard of living
9
9
5 22 The diagram shows the rate of unemployment and the periods of recession in
Britain between 1978 and 2012.
9

What can be concluded from the diagram?

9 A Each recession lasted for more than two years.
9 B Recessions occurred at regular intervals.
9 C The unemployment rate peaked in a recession period.
9 D The unemployment rate rose during recession periods.
23 In which case is success for the government in achieving the first aim likely to cause
problems in achieving the second?

9
5 24 Which statement about poverty is correct?
9 A Absolute poverty occurs when income falls below what is needed for survival.
9 B An advanced economy is likely to have a higher level of absolute poverty than
relative poverty.
9 C It is impossible for relative poverty to rise as absolute poverty falls.
9 D Relative poverty measures the same goods and services in all countries.
9
9
5 25 Developing countries often wish to prevent the population in rural areas moving to
the towns. Investment grants are given to companies if they set up their businesses in rural
areas. What is this policy intended to achieve?
9 A decreased transport costs
9 B decreased external cost
9 C increased economies of scale
9 D increased use of labour
9
9
5 26 The table shows data collected in 2010 for the average number of children a woman
gave birth to and the education she received during her lifetime.

What can be concluded from this information?

9 A Average fertility was 2.8 in 2010.
9 B Most girls do not go to school.
9 C Providing more education for girls would reduce fertility rates.
9 D There is no relationship between education and fertility rates.
9
27 The table gives information about four countries. Which country has the lowest standard
of living?

5 28 The Sri Lankan government decides to offer financial support to local firms. Of
what is this an example?
9 A a quota

9 B a subsidy
9 C a tariff
9 D exchange control
9
5 29 In 2012 the UK held the Olympic Games which attracted a large number of visitors
from foreign countries. Which item of the UKs current account balance will have benefitted
directly from this event?
9 A export trade in goods
9 B export trade in services
9 C import trade in goods
9 D import trade in services
9
30 Countries in Europe were in a recession in 2012. Usually a recession would mean oil
prices fall. In fact in 2012, oil prices rose. Which international events might have explained
these changes?