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Oct 2023 MS (Unit 4)

This document contains: 1) A mark scheme for an economics exam on developments in the global economy, outlining questions, answers, and number of marks awarded. 2) Information about Pearson, the exam board, and details on qualifications, standards, and supporting education worldwide. 3) Instructions and questions for Section A of the exam, focusing on quantitative skills like ratios, percentages, and interpreting data.

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0% found this document useful (0 votes)
2K views18 pages

Oct 2023 MS (Unit 4)

This document contains: 1) A mark scheme for an economics exam on developments in the global economy, outlining questions, answers, and number of marks awarded. 2) Information about Pearson, the exam board, and details on qualifications, standards, and supporting education worldwide. 3) Instructions and questions for Section A of the exam, focusing on quantitative skills like ratios, percentages, and interpreting data.

Uploaded by

grizzly2010
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Mark scheme (Results)

October 2023

Pearson Edexcel International

Advanced Level

In Economics (WEC14) Unit 4:


Developments in the global economy
Edexcel and BTEC Qualifications

Edexcel and BTEC qualifications are awarded by Pearson, the UK’s largest awarding body. We provide
a wide range of qualifications including academic, vocational, occupational and specific programmes
for employers. For further information visit our qualifications websites at www.edexcel.com or
www.btec.co.uk. Alternatively, you can get in touch with us using the details on our contact us page
at www.edexcel.com/contactus.

Pearson: helping people progress, everywhere

Pearson aspires to be the world’s leading learning company. Our aim is to help everyone progress in
their lives through education. We believe in every kind of learning, for all kinds of people, wherever
they are in the world. We’ve been involved in education for over 150 years, and by working across 70
countries, in 100 languages, we have built an international reputation for our commitment to high
standards and raising achievement through innovation in education. Find out more about how we
can help you and your students at: www.pearson.com/uk

October 2023
Question Paper Log Number P75613RA
Publications Code WEC14_01_MS_2310
All the material in this publication is copyright
© Pearson Education Ltd 2023
Section A

Question Quantitative skills Answer Mark


Number assessed

1 - The only correct answer is D


A is not correct because this is an
economic factor
B is not correct because this is an
economic factor
C is not correct because this is an
economic factor (1)

2 QS1: Calculate, use and The only correct answer is A


understand ratios and
B is not correct because export prices of
fractions.
UK goods and services would be higher
QS9: Interpret, apply
than the average export prices of its
and analyse information
trading partners
in written, graphical,
tabular and numerical C is not correct because unit labour costs
forms. in the UK would be higher than the
average of its trading partners
(1)
D is not correct because the UK would
experience an improvement in its terms of
trade

3 QS9: Interpret, apply The only correct answer is C


and analyse information
A is not correct because it is likely to
in written, graphical,
decrease money supply
tabular and numerical
forms. B is not correct because it is likely to
decrease real output
D is not correct because it is likely to
increase the rate of unemployment
(1)

4 QS2: Calculate, use and The only correct answer is D


understand percentages,
A is not correct because the distribution of
percentage changes and
income became more equal
percentage point
changes B is not correct because there was a fall in
QS9: Interpret, apply income inequality
and analyse information
C is not correct because income inequality
in written, graphical,
fell by 3.4 percentage points
tabular and numerical (1)
forms.
5 QS9: Interpret, apply The only correct answer is A
and analyse information
B is not correct because this is associated
in written, graphical,
with relative poverty
tabular and numerical
forms. C is not correct because this is associated
with relative poverty
D is not correct because absolute poverty
is when a person earns less than $2.15 a
day at 2017 PPP values (1)

6 QS6: Calculate cost, The only correct answer is B


revenue and profit
A is not correct because government
(marginal, average,
expenditure is UVML
totals).
QS9: Interpret, apply C is not correct because government
and analyse information expenditure is UVML
in written, graphical,
D is not correct because government
tabular and numerical
expenditure is UVML (1)
forms.

Section B

Question In 2021, the Government of Pakistan made a debt servicing payment Mark
of $32.27 billion.

With reference to Figure 1, calculate debt servicing payments as a


proportion of national debt in 2021. You are advised to show your
working.

Answer

7(a) Application 2

Quantitative skills assessed:


QS1: Calculate, use and understand ratios and fractions.
QS9: Interpret, apply and analyse information in written, graphical,
tabular and numerical forms.

Up to 2 marks for calculations:


 ($32.27 billion / $145.25 billion) x 100 (1)
 22.22% (1)

NB Award 2 marks for correct answer (22.22% / 22.2% / 22%)


NB Award only 1 mark for 22.22 billion / 22.2 billion / 22 billion / 22 (2)
Question Explain what is meant by a ‘foreign currency gap’ (Extract A, line 12). Mark

Answer

7(b) Knowledge 2, Application 2

Quantitative skills assessed:


QS9: Interpret, apply and analyse information in written, graphical,
tabular and numerical forms.

Knowledge
Up to 2 marks for understanding foreign currency gap, e.g.:
 Currency inflows are less than (1) currency outflows (1)
 Lack of capital/currency inflows (1) to finance the deficit on the
current account of the balance of payments (1)
 Lack of foreign exchange/currency reserves (1)
 It is a constraint to economic growth/development (1)
 Difference between the present currency reserves (1) and the
reserves needed to achieve an increase in economic growth/
development (1)

Application
Up to 2 marks for application to foreign currency gap, e.g.:
 Significant decline in foreign currency reserves from $16 billion in
June 2021 to $10 billion in June 2022 (1)
 Between June 2021 and June 2022 foreign currency reserves fell
by 37.5% / $6 billion (1+1)
 Rising foreign currency gap would have a negative impact on its
ability to import (1)
 Rising foreign currency gap was likely to increase further because
of higher debt servicing payments (1)
 Suggested a temporary ban on import of non-essential goods (1) (4)
Question With reference to Figure 2 and first paragraph of Extract A, examine Mark
two likely effects of the depreciation of the rupee against the US dollar

Answer

7(c) Knowledge 2, Application 2, Analysis 2, Evaluation 2

Quantitative skills assessed:


QS9: Interpret, apply and analyse information in written,
graphical, tabular and numerical forms.

Knowledge and analysis


Up to 2 marks for identifying two effects and up to 2 marks for linked
explanations, e.g.:
 Improvement in Pakistan’s current account position of the balance
of payments / worsening of Pakistan’s terms of trade (1K) as its
exports become relatively cheaper/its imports become relatively
more expensive (1AN)
 Higher economic growth/lower unemployment in Pakistan (1K) due
to rise in net exports and AD (can show diagrammatically) (1AN)
 Inflationary pressures are likely to increase (1K) as a result of an
increase in aggregate demand/increase in cost of imports leading
to a decrease in SRAS (can be shown diagrammatically) (1AN)
 More inward FDI flows into Pakistan and less outward FDI flows
from Pakistan (1K) hence improving its financial account (1AN)

Application
Up to 2 marks for application to Figure 2 or Extract A, e.g.:
 The value of rupee against the dollar depreciated from Rs 175 per
dollar to Rs 205 per dollar (1)
 Between January and June 2022 the rupee depreciated by around
17%/Rs 30 against the US dollar (1+1)
 This was mainly as a result of rising global inflation rates / the
strong appreciation of the dollar (1)

Evaluation
Up to 2 marks for evaluative comments:
 Impact on current account depends on PED for imports and exports
(1) and if Marshall-Lerner condition is met (J-curve reference) (1)
 Aggregate demand may not increase as the effect of increase in net
exports can be offset by a decrease in other components (1+1)
 Firms can repatriate profits, interest and dividends (1): this is an
outflow from the primary income component of current account (1)
 Time period/SR vs LR considerations (1): exchange rate is volatile
and is expected to “increase in the third quarter of 2022” (1)
 Magnitude of depreciation is relatively large (17%) (1) hence the
impact on Pakistan’s economy is likely to be very significant (1) (8)
Question With reference to Extract A, analyse two roles of the IMF. Mark

Answer

7(d) Knowledge 2, Application 2, Analysis 2

Quantitative skills assessed:


QS9: Interpret, apply and analyse information in written,
graphical, tabular and numerical forms.

Knowledge and analysis


Up to 2 marks for identifying two roles and one mark for each linked
explanation, e.g.:

 Help ease the balance of payments adjustment/reduce a country’s


current account deficit (1K) by providing loans/temporary financial
assistance to countries (1AN)
 Promotes exchange rate stability (1K) to maintain confidence in
financial markets (1AN)
 Fosters international monetary co-operation (1K) by ensuring
orderly exchange rate arrangements to secure financial stability
(1AN)
 Offers debt relief (1K) to help reduce absolute poverty (1AN)
 Encourage economic growth/higher levels of employment (1K)
by promoting global trade (1AN)
 Provides capacity development such as technical assistance/policy
advice/training of government officials (1K) to support developing
countries strengthen their economic institutions (1AN)
 To provide research and monitoring of member countries’ (1K) to
inform policy decisions within those countries (1AN)

Application
Up to 2 marks for application to the sources (1+1):

 Pakistan’s Government borrowed $1.2 billion from the IMF to


prevent a further fall in foreign currency reserves (1)
 IMF required the Government of Pakistan to meet certain conditions
and reduce its fiscal deficit, partly by the removal of fuel and energy
subsidies (1)
 The IMF also required Pakistan’s central bank to raise its base rate
of interest to stabilise the rupee (1)
 Previous governments of Pakistan have not always met the terms
of their loan agreements with the IMF (1)
 The IMF proposed that high‑income households should pay
significantly more income tax than low‑income and middle‑
income households (1) (6)
Question With reference to the information provided and your own knowledge, discuss
the likely macroeconomic effects of an increase in income tax rates, aimed at
high-income households, on the economy of Pakistan.

Indicative content

7(e) Indicative content guidance


Answers must be credited by using the level descriptors (below) in line with the
general marking guidance. The indicative content below exemplifies some of the
points that candidates may make, but this does not imply that any of these
must be included. Other relevant points must also be credited.

QS9: Interpret, apply and analyse information in written, graphical, tabular and
numerical forms.

Knowledge, Application and Analysis (8 marks) – indicative content

 Definition/understanding of income tax


 “IMF proposed that high-income households should pay significantly more
income tax than the low-income and middle-income households.”

 Impact on incentives to work: it could act as a disincentive for Pakistan’s


citizens to take higher paid jobs; less overtime hours worked and/or less
promotion opportunities sought by high income earners
 Tax revenues: these might be expected to increase (reference to Laffer
curve analysis); improve Pakistan’s public finances and “help reduce its
fiscal deficit”
 Could cause an increase in tax evasion (illegal) and tax avoidance (legal);
could also lead to an increase in the number of tax exiles
 Increased income equality: the tax system is more progressive; if taxes
collected are used to redistribute incomes to the low-income households,
then income distribution will become more equal
 Impact on AD and economic growth, unemployment, and inflation: this
can be represented by an AD/AS diagram; reference to the multiplier
 Improvement of trade balance: increase in top rate of income tax would
cause a fall in disposable income for top earners and this reduces their
consumption and imports
 Fall in FDI flows: entrepreneurs and senior managers from TNCs would
see a fall in their disposable income, assuming they would be based in
the country for which the FDI was destined

N.B. Positive effects may be awarded as KAA and negative effects as


evaluation (or vice versa)

Level Mark Descriptor


0 No rewardable material.
Level 1 1–3 Displays isolated, superficial or imprecise knowledge and understanding
of economic terms, principles, concepts, theories and models.
Use of generic material or irrelevant information or inappropriate
examples. Descriptive approach, which has no chains of reasoning.
Level 2 4–6 Displays elements of knowledge and understanding of economic terms,
principles, concepts, theories and models. Ability to apply knowledge
and understanding to some elements of the question. Some evidence
and contextual references are evident in the answer. Chains of
reasoning in terms of cause and/or consequence are evident but they
may not be developed fully or some stages are omitted.
Level 3 7–8 Demonstrates accurate and precise knowledge and understanding of
economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using relevant
examples that are fully integrated to address the broad elements of the
question. Analysis is clear, coherent, relevant and focused. The answer
demonstrates logical and multi-stage chains of reasoning in terms of
cause and/or consequence.

Evaluation (6 marks) – indicative content

 Depends on the extent of the disincentive effects of the income tax; high
income earners in Pakistan might continue to work hard to maintain their
standard of living
 Tax revenues may fall if the tax rate is increased beyond the optimal rate;
reference to the Laffer curve analysis; also depends on the overall impact
on AD and on economic growth
 Depends on powers of Pakistan’s tax authorities to collect taxes; extent of
tax evasion and tax avoidance; income tax is not the only factor influencing
a person’s decision on where to live
 Depends on how the tax revenues are used by Pakistan’s Government and
whether other fiscal changes offset the impact of this increase in income tax
rates
 Depends on the elasticity of the LRAS/level of spare capacity; impact could
depend on the changes in other components of AD; if savings are reduced
to pay for the higher income tax, then the effects will be minimal
 Depends on taxpayer’s marginal propensity to consume/marginal propensity
to import; depends on the PED of Pakistan’s imports
 Other factors also affect FDI flows and are not just dependent on changes in
income tax, e.g. business confidence, rate of economic growth, interest rate
 Overall impact would depend on how many people in Pakistan are affected
by the top rate of income tax
 Impact depends on magnitude of the increase in the top rate of income tax
 Pakistan’s Government should focus on increasing property taxes as only a
small proportion of tax is currently raised from this source; opportunity for
significant increases in tax revenue if the proportion of property tax is raised
Level Mark Descriptor
0 No rewardable material.
Level 1 1–2 Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2 3–4 Evidence of evaluation of alternative approaches
Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.
Level 3 5–6 Evaluation recognises different viewpoints and/or is critical of the
evidence. Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.
Section C

Question Between 2000 and 2020, Gibraltar’s terms of trade worsened by 44.6% and
Greece’s terms of trade worsened by 14.3%.

Evaluate factors that might cause a country’s terms of trade to worsen.

Indicative content

8 Indicative content guidance


Answers must be credited by using the level descriptors (below) in line with the
general marking guidance. The indicative content below exemplifies some of the
points that candidates may make but this does not imply that any of these must
be included. Other relevant points must also be credited.

QS9: Interpret, apply and analyse information in written, graphical, tabular and
numerical forms.

Knowledge, Application, Analysis (12 marks) – indicative content

 Understanding of terms of trade


 Understanding of worsening in terms of trade

Possible factors could include:

 Low relative inflation rates: decreases relative export prices


 Higher relative productivity rates: reduces cost per unit and therefore
export prices
 Lower relative labour costs (both wage and non-wage costs): decreases
cost per unit and therefore export prices
 Depreciation/devaluation of the exchange rate: reduces export prices and
increases import prices
 Higher relative levels of capital investment: increases productivity,
thereby decreases cost per unit and export prices
 Change in the price of commodities, e.g. oil (a fall in the price of
commodities for net exporters, and rise in price of commodities
for net importers)
 Falling competition in the markets of a country's main imports/
rising competition in the markets of a country's main exports
 Protectionist policies, e.g. if a country raises a tariff on imported goods
then this would cause an increase in import prices

N.B. Award maximum of Level 3 (9 marks) if a candidate does not refer


to a country of their choice in their answer

Level Mark Descriptor


0 No rewardable material.
Level 1 1–3 Displays isolated, superficial or imprecise knowledge and understanding
of economic terms, principles, concepts, theories and models.
Use of generic material or irrelevant information or inappropriate
examples. Descriptive approach which has no chains of reasoning.
Level 2 4–6 Displays elements of knowledge and understanding of economic terms,
principles, concepts, theories and models.
Limited application of knowledge and understanding to economic
problems in context.
A narrow response or superficial, only two-stage chains of reasoning in
terms of cause and/or consequence.
Level 3 7–9 Demonstrates accurate knowledge and understanding of economic
terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of the
question. Some evidence and contextual references are evident in the
answer.
Analysis is clear and coherent. Chains of reasoning in terms of cause
and/or consequence are evident, but they may not be developed fully
or some stages are omitted.
Level 4 10–12 Demonstrates accurate and precise knowledge and understanding of
economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using
appropriate examples which are fully integrated to address the broad
elements of the question.
Analysis is clear, coherent, relevant and focused. The answer
demonstrates logical and multi-stage chains of reasoning in terms of
cause and/or consequence.

Evaluation (8 marks) – indicative content

 Prioritisation and significance of the most important factor


 Different factors will be more important at different time periods, e.g.
since 2020 relative inflation rates are likely to be more significant
 It is likely to be a combination of factors that has led to a significant
worsening in the terms of trade
 Different factors will be important in different economies, e.g. the price
of oil will be highly important in Saudi Arabia, but not in other countries
 Depends what production of goods and services the country specialises in
 Importance of labour costs depend on whether country tends to import
and export more labour-intensive or capital-intensive goods and services
 Exchange rates are very volatile and may not be the most significant
factor as it could change frequently
 Retaliation by countries in response to protectionist policies could quickly
reverse the changes in terms of trade
Level Mark Descriptor
0 No rewardable material.
Level 1 1–3 Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2 4–6 Evidence of evaluation of alternative approaches.
Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.
Level 3 7–8 Evaluation recognises different viewpoints and/or is critical of the
evidence, leading to an informed judgement.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.
Question In 2021 it was estimated that a large proportion of the fiscal deficits in both
Brazil and Suriname was structural.

To what extent is a structural fiscal deficit more serious than a cyclical fiscal
deficit? Refer to a developing country of your choice in your answer.

Indicative content

9 Indicative content guidance


Answers must be credited by using the level descriptors (below) in line with the
general marking guidance. The indicative content below exemplifies some of the
points that candidates may make but this does not imply that any of these must
be included. Other relevant points must also be credited.

QS9: Interpret, apply and analyse information in written, graphical, tabular and
numerical forms.

Knowledge, Application and Analysis (12 marks) – indicative content

 Understanding of fiscal deficit


 Meaning of structural fiscal deficit: estimate of how large the deficit would be
if the economy were to operate at a normal, sustainable level of employment
and activity/long-run trend rate of output
 Meaning of cyclical fiscal deficit: usually caused by a deficiency in aggregate
demand, e.g. when the economy is in a period of recession
 Structural deficit could be permanent if no measures are taken to reduce or
eliminate it, and this would imply continuous fiscal deficits and an increasing
national debt
 Structural deficits may require tax rises and/or cuts in public expenditure
 Analysis of problems of a rising national debt include:
o reduction in the credit rating
o cost for the future generations
o crowding out (resource and financial)
o cost implications of servicing the debt
o danger of increased inflationary pressures
 Cyclical deficit is likely to be temporary
 Cyclical deficit may be necessary to generate economic growth during a
period of economic decline

N.B. Accept why structural fiscal deficit is more serious as KAA and why
it is not as EV, or vice versa

N.B. Award maximum of Level 3 (9 marks) if a candidate does not refer


to a developing country in their answer
Level Mark Descriptor
0 No rewardable material.
Level 1 1–3 Displays isolated, superficial or imprecise knowledge and understanding
of economic terms, principles, concepts, theories and models.
Use of generic material or irrelevant information or inappropriate
examples.
Descriptive approach which has no chains of reasoning.
Level 2 4–6 Displays elements of knowledge and understanding of economic terms,
principles, concepts, theories and models.
Limited application of knowledge and understanding to economic
problems in context.
A narrow response or superficial, only two-stage chains of reasoning in
terms of cause and/or consequence.
Level 3 7–9 Demonstrates accurate knowledge and understanding of economic
terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of the
question. Some evidence and contextual references are evident in the
answer.
Analysis is clear and coherent. Chains of reasoning in terms of cause
and/or consequence are evident but they may not be developed fully
or some stages are omitted.
Level 4 10–12 Demonstrates accurate and precise knowledge and understanding of
economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using
appropriate examples which are fully integrated to address the broad
elements of the question.
Analysis is clear, coherent, relevant and focused. The answer
demonstrates logical and multi-stage chains of reasoning in terms of
cause and/or consequence.

Evaluation (8 marks) – indicative content

 Significance: in some developing countries, structural deficit is a little smaller


than the overall deficit - the remaining ‘cyclical’ part of the deficit would
disappear automatically as the economy returns to its trend rate of growth
 Asymmetric information – it is hard to know precisely what the sustainable
level would be, so these estimates are always uncertain/unreliable
 Depends how large either type of deficit is (both in money terms and as a
percentage of GDP) and how long they last for
 Depends on what the fiscal deficit funds e.g. infrastructure spending will
result in higher future economic growth and reducing the future fiscal deficit
 Cyclical deficit might also have a long-term effect on the national debt
 Might not be easy to determine whether deficit/debt is structural or cyclical
 Depends on the size of the fiscal deficit as a percentage/proportion of GDP

Level Mark Descriptor


0 No rewardable material.
Level 1 1–3 Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2 4–6 Evidence of evaluation of alternative approaches.
Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.
Level 3 7–8 Evaluation recognises different viewpoints and/or is critical of the
evidence, leading to an informed judgement.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.
Question In the first quarter of 2022 the USA and Australia both experienced inflows of
foreign direct investment (FDI) $67 billion and $59 billion respectively

Evaluate the potential economic benefits to a developed country of FDI inflows.

Indicative content
10 Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the
general marking guidance. The indicative content below exemplifies some of the
points that candidates may make but this does not imply that any of these must
be included. Other relevant points must also be credited.

QS9: Interpret, apply and analyse information in written, graphical, tabular and
numerical forms.

Knowledge, Application, Analysis (12 marks) – indicative content

 Understanding of FDI

Economic benefits could include:


 Inflows into the financial account of the balance of payments
 Long term improvement on the current account of balance of payments if
exports rise (a rise in foreign currency earnings)
 Economic growth - greater injection into the circular flow; AD/AS analysis
and multiplier effects on real GDP
 Increase in skills of the workforce if TNCs invest in training programmes
 Increased employment in the host country
 Development of new infrastructure by TNCs
 New methods of production and working practices
 Use of cleaner technology resulting in less negative externalities/
environmental degradation
 Productivity and technology transfer
 Increased tax revenue to government
 Could help close the country’s savings gap

N.B. Award maximum of Level 3 (9 marks) if a candidate does not refer


to a developed country in their answer

Level Mark Descriptor


0 No rewardable material.
Level 1 1–3 Displays isolated, superficial or imprecise knowledge and
understanding of economic terms, principles, concepts, theories
and models. Use of generic material or irrelevant information or
inappropriate examples.
Descriptive approach which has no chains of reasoning.
Level 2 4–6 Displays elements of knowledge and understanding of economic terms,
principles, concepts, theories and models.
Limited application of knowledge and understanding to economic
problems in context.
A narrow response or superficial, only two-stage chains of reasoning in
terms of cause and/or consequence.
Level 3 7–9 Demonstrates accurate knowledge and understanding of economic
terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of the
question. Some evidence and contextual references are evident in the
answer.
Analysis is clear and coherent. Chains of reasoning in terms of cause
and/or consequence are evident but they may not be developed fully
or some stages are omitted.
Level 4 10–12 Demonstrates accurate and precise knowledge and understanding of
economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using
appropriate examples which are fully integrated to address the broad
elements of the question.
Analysis is clear, coherent, relevant and focused. The answer
demonstrates logical and multi-stage chains of reasoning in terms of
cause and/or consequence.

Evaluation (8 marks) – indicative content

 Negative impact on the current account of balance of payments due to the


repatriation of profits and dividends by TNCs abroad
 Higher competition for domestic producers who may not be able to compete
 Impact on economic growth depends on the value of the multiplier and/or
the level of spare capacity in the economy
 Poorly paid employment and low-skilled jobs if TNCs bring their own skilled
workers and managers from abroad
 Increased dependence of economy on decisions made by managers abroad.
Significant if the investment is withdrawn in the future which could lead to
economic and social disruption (given TNCs are footloose)
 Domestic firms might not benefit if technologies are protected by patents
 Increase in negative production externalities/environmental degradation
 Tax avoidance schemes and transfer pricing could be used by TNCs
 TNCs may exert political influence, e.g. on governments tax policies
 Impact on the economy might be small (if there is little value added)
 Overall impact depends on net FDI (inflows minus outflows)
 FDI inflows as a proportion of GDP is more significant than absolute values
e.g. Australia FDI inflows are a larger proportion of GDP compared to USA

Level Mark Descriptor


0 No rewardable material.
Level 1 1–3 Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2 4–6 Evidence of evaluation of alternative approaches.
Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.
Level 3 7–8 Evaluation recognises different viewpoints and/or is critical of the
evidence, leading to an informed judgement.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.

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