Oct 2023 MS (Unit 4)
Oct 2023 MS (Unit 4)
October 2023
Advanced Level
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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
Section B
Question In 2021, the Government of Pakistan made a debt servicing payment Mark
of $32.27 billion.
Answer
7(a) Application 2
Answer
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
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
Application
Up to 2 marks for application to the sources (1+1):
Indicative content
QS9: Interpret, apply and analyse information in written, graphical, tabular and
numerical forms.
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%.
Indicative content
QS9: Interpret, apply and analyse information in written, graphical, tabular and
numerical forms.
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
QS9: Interpret, apply and analyse information in written, graphical, tabular and
numerical forms.
N.B. Accept why structural fiscal deficit is more serious as KAA and why
it is not as EV, or vice versa
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.
Understanding of FDI