OCR GCSE Economics 2012 Toolkit

The UK Economy and Globalisation

OCR F593 GCSE Economics Revision Toolkit 2016 Author: Tom White OCR GCSE Economics 2016 – After the global recession, a global recovery?

Contents

2 OCR GCSE Economics 2016 – After the global recession, a global recovery?

After the global recession, a global recovery?

This toolkit aims to make a clear link between the contents of the pre-release material for the summer 2016 F593 exam and the subject specification for your GCSE Economics course. The guide encourages you think through the issues each piece of evidence presents. Questions are posed to address these issues, and to get you thinking (and practicing) the type of answers you may be asked to give in the exam.

The toolkit has been written to match the style and structure of the F593 exam, which will generate 50% of your final mark.

The questions that follow are written in the examiner’s style, and use the same structure as you are likely to meet in the exam (see page 12)

For that reason, you could use this toolkit as a mock examination resource, and try to write out your responses in just one and a half

hours. The aim of this toolkit is to prompt you to think through the types of questions you are likely to encounter. From page 13 onwards you will see some suggested answers – but more importantly – tips for crafting successful, high mark responses.

Change in real GDP and global exports

1. In the table below, tick three statements which are correct about the change in real GDP and global exports from 2002 to 2011 [3]

Real GDP grew Global exports of in every year manufactures from 2002 to grew by 7% in 2011 2011

Manufactures were the Global exports of strongest growth fuels and mining category in every products grew by year from 2002 to 1% in 2008. 2008

Agricultural products were the strongest Real GDP growth category declined in 2008 in every year from 2002 to 2008

2. Explain how an economy could have a surplus on its export of goods, but a

deficit on its current account balance [4]

GDP growth rates for selected economies

3. State the fastest growing advanced economy in 2013 (Fig.2) [1]

4. State the fastest growing developing economy outside sub-Saharan Africa in 2013 (Fig.2) [1]

5. State the Advanced economy projected to grow fastest in 2014 (Fig.2) [1]

6. State the sub-Saharan economy projected to grow slowest in 2016 (Fig.2) [1]

What might cause different rates of economic growth?

7. With reference to Fig. 3, discuss how exports can be both a possible reason for faster economic growth AND a possible reason for slower economic growth. [6]

Some average effects of the external debt relief programme in 36 countries

8. State three areas of activity in the economies of developing economies that could benefit from ‘poverty reducing expenditure’ (Fig 4) [3]

9. Explain the term ‘debt relief’ [2]

10.Explain one reason why ‘external debt relief is not popular with some economists’ [2]

Fair Trade sales

11.Explain what is meant by ‘Fairtrade’ (Fig.5) [2]

12.Using the information contained in Fig.5, and your own knowledge, discuss the reasons why “Fairtrade was not as good a solution as some people had thought”. [8]

The value of the euro in US dollars

13.Describe what happened to the value of the US dollar (as measured in euros) between July 2014 and January 2015 (Fig.8) [2]

14.State what is meant by the term exchange rate [2]

The value of the euro in UK pounds

15.With the aid of a diagram, explain how falling demand for the Euro could impact on the Euro’s exchange rate. [6]

Lithuania joins the euro club

16.Using the information in the case study and your own knowledge of economics, evaluate the issues of adopting the European single currency, the Euro. [10]

17.State what is meant by the term multinational company. [2]

18.State and explain two negative externalities associated with trade. [4]

19.Explain what is meant by the term globalisation. [4]

Europe, the EU and the Eurozone

20.Explain how protectionism can restrict the world export of goods. [4]

21.Using the information in the case study and your own knowledge of economics, evaluate the policies that European Union governments could use to make their economies become more competitive. [12]

The 2016 Case Study – what’s left out?

It’s worth remembering that the list of questions in the toolkit isn’t an exhaustive list of everything in the specification for OCR F593 GCSE Economics. Although the great advantage of a pre-release case study is the ability to guide your preparation, there are a few bits of the specification that could be examined, even though they don’t really crop up in the case study. The questions in this toolkit have been intentionally designed

A guide to effective exam technique

The OCR Economics specification contains helpful information, so that you can go into the exam having a good idea what to expect. The most obvious and important advice is that you must attempt to answer all the questions set. You won’t get any marks knocked off for being wrong, so it would be pointless to leave any gaps on your paper. You might as well guess! Of course, you won’t be leaving gaps, because you are going to be so well prepared.

Notice that there are 80 marks available over 90 minutes. That means that you should be covering approximately a mark a minute, allowing for some reading and checking time. So a 10 mark question (see below) should take about 10 minutes. Maybe a bit more, maybe a bit less. But not 2 minutes, and not 20 minutes. The precise number of questions set varies, as does the marks for each. This toolkit represents the ‘average’ exam paper.

The answers presented over the next few pages will show you how to build up your responses, so that you go from demonstrating knowledge and understanding and then onto applying those qualities. Finally you must finish by showing the skills of analysis and evaluation in the longer 6,

8, 10 and 12 mark questions (see below).

Question distribution in this toolkit – this varies slightly each year: Question size 1 mark 2 mark 3 mark 4 mark 6 mark 8 10 mark 12 mark mark Number of 4 6 2 4 2 1 1 1 questions

Outline answers to toolkit questions

1. In the table below, tick three statements which are correct about the change in real GDP and global exports from 2002 to 2011 [3]

Real GDP grew in every year from 2002 to 2011 Global exports of manufactures grew by 7% in 2011

Manufactures were the strongest growth category in Global exports of fuels and mining products grew by every year from 2002 to 2008 1% in 2008.

Agricultural products were the strongest growth Real GDP declined in 2008 category in every year from 2002 to 2008

The exam marks schemes say ‘Where more than three ticks, accept first three only’. Don’t tick more than three (but don’t tick fewer, either!)

2. Explain how an economy could have a surplus on its export of goods, but a deficit on its current account balance [4]

An explanation question like this probably needs you to identify 2 key terms. The important term here is current account balance, which is a record of the exports of goods and services (2). Therefore an economy can record a deficit on the current account balance if the deficit on services is bigger than the surplus on goods exports (2).

3. State the fastest growing advanced economy in 2013 (Fig.2) [1] United States

4. State the fastest growing developing economy outside sub-Saharan Africa in 2013 (Fig.2) [1] China

5. State the Advanced economy projected to grow fastest in 2014 (Fig.2) [1] United Kingdom

6. State the sub-Saharan economy projected to grow slowest in 2016 (Fig.2) [1] Nigeria

7. With reference to Fig. 3, discuss how exports can be both a possible reason for faster economic growth AND a possible reason for slower economic growth. [6]

Level 3 (5-6 marks)

Candidate evaluates two or more factors from the case study that could lead to calls Notice how the marks for a 6 for greater use of protectionist policies. mark question are allocated according to the level of the Level 2 (3-4 marks) response.

Candidate analyses one or more factors from the case study that could lead to calls That means that if you want top for greater use of protectionist policies. marks, you have to be ready to

Level 1 (1-2 marks) evaluate. Here’s an idea how to do that: Candidate applies knowledge of why there could be calls for greater use of protectionist policies.

Going from ‘applies’ to ‘analyses’ to ‘evaluates’

With this question you are demonstrating and applying your knowledge. Refer to Fig 2, which links faster economic growth to the export of commodities, including oil and gas. Slower growth is associated with reliance on manufactured exports.

Analysis is all about demonstrating cause and effect links, so you should go on to explain how commodity prices (especially for oil and gas) have been high, and demand relatively strong. This has boosted export earnings, income, employment and growth. Demand for manufactured goods has grown more slowly, and supply expanded rapidly. This

20 OCR GCSE Economics 2016 – After the global recession, a global recovery? has depressed prices and growth driven by exports of manufactured goods. This discussion would get you up to 4 marks out of 6.

Evaluation is the trickiest skill to demonstrate. Evaluative statements often start with a comment like “however” or “it depends”. Will the points you’ve raised ALWAYS happen? Oil and gas prices have recently plunged, leaving many countries that are dependent on exports of these items to stagnate. As global growth picks up, you might expect the demand (and price) of manufactured goods to increase, boosting earnings and growth from the export of these items. Furthermore, exports are only one of many factors that drive economic growth.

8. State three areas of activity in the economies of developing economies that could benefit from ‘poverty reducing expenditure’ (Fig 4) [3]

A three mark question requires you to make several points to get all the marks. Sometimes you are asked to comment on data and if so, try to illustrate a comparison, or make a calculation. Here you simply need to identify a number of points. Poverty reducing expenditure might be directed towards investment in education (1) rural infrastructure (1) or health and welfare services (1), for instance.

9. Explain the term ‘debt relief’ [2]

For your 2 marks here you simply need to break apart the key term. Here you need to establish that many countries have, or had, high levels of external borrowing (1) and that on occasions some of that borrowing has been reduced or removed (1).

10.Explain one reason why ‘external debt relief is not popular with some economists’ [2]

In your answer, try to make a link with your pre-released case study. You should be familiar with the contents, which the examiner is expecting you to be ready to talk about. You are told that ‘countries that benefitted from external debt relief might borrow more money because they think debt relief will happen again’ (1). Furthermore ‘will the benefits of debt relief benefit the poor or will the benefits go to the rich?’ (1).

11.Explain what is meant by ‘Fairtrade’ (Fig.5) [2]

Fairtrade is a licensing body (1) that allows the use of its brand to producers that meet certain production standards (1). These standards usually allow retailers to sell Fairtrade products for a higher price (1) with some of that extra income going to producers (1).

12.Using the information contained in Fig.5, and your own knowledge, discuss the reasons why “Fairtrade was not as good a solution as some people had thought”. [8]

Level 4 (7-8 marks) - Candidate evaluates how Fairtrade may not be as good a solution as some thought. Notice how this Level 3 (5-6 marks) - Candidate analyses how Fairtrade may not be as good a solution as some thought. question is marked

Level 2 (3-4 marks) - Candidate demonstrates an understanding of how Fairtrade may not be as good a solution as using the same level of some thought. response concept that Level 1 (1-2 marks) - Candidate demonstrates knowledge of how Fairtrade may not be as good a solution as some was explained on the thought. previous page. Clearly, the best way into any answer is by trying to pin down the precise meanings of any key terms posed by the question. This has two main advantages. Firstly, there’s bound to be marks for demonstrating knowledge with accurate definitions. Secondly, by starting with a clear statement of key terms you are far more likely to go on to answer the question that’s set, rather than by going off at a tangent. The previous question has already laid out the ground for you, so it’s perhaps best to quickly move on, once you’ve clearly established what you think the Fairtrade concept means.

To reach level 2 it’s important that you use the data presented in Figure 5, which explains that the impact of Fairtrade should be positive, with the sales value of chocolate, cocoa, bananas, vegetables and wine all rising. Sales of Fairtrade products in the UK rose by 14% in 2013. These rising sales would appear to be good news for many producers in the developing world, who might reasonably expect higher incomes as a result.

A level 3 answer will try to make some clear links between causes and effects. Now is your opportunity to explain why increased Fairtrade sales may NOT be an effective way to address poverty in the developing world. Rising sales of Fairtrade products do not help producers who are not taking part in the scheme (which is the vast majority). Very few Fairtraded products are manufactured goods. Fairtrade may result in higher levels of supply, which lead in turn to lower market prices. Some people see most of the benefit going to retailers in developed economies.

At level 4, the last part of your answer is likely to dwell on ‘however, it depends….” discussion points. Fairtrade brings other benefit to producers, such as guaranteed prices. More items may be sold under the Fairtrade label as it grows in popularity. The Fairtrade concept focuses the attention of consumers in rich countries to the conditions experienced by many poor producers. In the long term, communities supported by Fairtrade may enjoy sustained benefits.

See how a well-crafted answer builds up to an evaluative conclusion. Try to write in paragraphs, or chunks of text. Imagine each paragraph as a step on a ladder, allowing you to reach ‘higher’ points – and higher marks.

13.Describe what happened to the value of the US dollar (as measured in euros) between July 2014 and January 2015 (Fig.8) [2]

This is almost a trick question. The value of the dollar increased (1) from €1=$1.35 to €1=$1.15 (1)

14.State what is meant by the term exchange rate [2]

The exchange rate is the value of one currency (1) expressed in the terms of another (1).

15.With the aid of a diagram, explain how falling demand for the Euro could impact on the Euro’s exchange rate. [6]

Here’s a breakdown of how marks are awarded in a 6 mark graph question:

Diagram – maximum of four marks for diagram – 6 marks total Correct axes label (p, or exchange rate and q) – one mark. Original exchange rate and quantity labelled – one mark. Note how crucially important it is for you to: Demand curve shifted to the left – one mark.  Accurately label your diagram New equilibrium price (exchange rate) and quantity labelled – one mark.  Provide a supporting explanation

Explanation – maximum of two marks for explanation. One mark – state exchange rate may fall. One mark – state quantity falls.

16. Using the information in the case study and your own knowledge of economics, evaluate the issues of adopting the European single currency, the Euro. [10}

A 10 mark question is little different to other 6, 8 and 12 mark Level 4 (8-10 marks) questions, in which a stepped mark scheme rewards candidates Candidate evaluates the issues of adopting the Euro. who rise up through levels of response. Level 3 (5-7 marks) Candidate analyses the issues of adopting the Euro. The candidate begins by outlining key terms and definitions and setting out the basic argument (L1 and L2). From there, you need

Level 2 (3-4 marks) to analyse – taking the examiner through the steps of how Candidate demonstrates an understanding of the issues of introducing the Euro will bring about both advantages and adopting the Euro. disadvantages, taking you up towards Level 4. Level 1 (1-2 marks) Candidate demonstrates knowledge of the issues of adopting Your balanced conclusion, outlining positive and negative points to the Euro. adopting the Euro will earn you marks for evaluation. Ideally this conclusion will contain your judgement on the merits of adopting the Euro, although it will be in a cautious tone and one hedged with lots of ‘however’ and ‘it depends’ points.

A strong start (L1) to this type of question will give you the best springboard into effective analysis and evaluation. You need to show off your knowledge of the issues at stake. Fortunately the case study is full of clues to steer you. Be alert to the opportunities that may be available to show understanding (L2) by reference to the extracts published in your pre- release material. The introduction text gives you clues and hints that you could use, possibly even quote (very briefly). Here are some examples:

 ‘the Euro will boost investment, but would also bring deeper integration with the West’

 ‘further integration in a unified market would help boost trade and cut currency exchange costs’

 ‘To be part of a huge European market is important’

Just identifying the points can at best get you 4 out of 10, so you need to reach higher explaining why the issues you have identified are relevant. This is the skill of analysis (L3). The Euro could boost investment by raising the degree of investor confidence in countries like Lithuania, who have a troubled past of currency turbulence. By quoting prices in Euros, transactions become simpler and clearer, which may help countries integrate their economies more closely to their neighbours, helping to capture more gains from trade. Economies can thereby boost both imports and exports, which is strongly associated with higher levels of economic efficiency. If firms and household no longer need to change currencies to trade with their neighbours, exchange rate uncertainty is reduced, as is the cost of changing currencies. This reduces transactions costs, which is also likely to boost the rate of economic activity.

With that job done, start a new paragraph and reach out to the top markets (L4) by asking yourself ‘however’ and ‘it depends’ points. There are further clues in the extract to help guide you:

 ‘some Lithuanians feared price rises’

 ‘some opinion polls suggested that almost 60% of the population did not want the new currency’

 ‘there were reports of much scepticism in the country after recent bailouts for existing Eurozone members’

 ‘Many people appeared confused about the switch to the Euro’

Adopting the Euro limits an economy’s ability to be flexible with interest rates and exchange rates. Firms may take the opportunity to push up prices to their customers. Everyone will take time to adjust, and they may find it difficult to adapt. Not everyone will welcome closer trade and integration with neighbouring economies. There will be winners as well as losers. Try to finish off with an evaluative comment that might end up sounding a bit like “the benefits of adopting the Euro may be felt in the long term, rather than the short term”. Alternatively, “some smaller economies with a history of currency instability probably have the most to gain from adopting the Euro”. “Economies who really need to integrate more deeply with their neighbours are more likely to be enthusiastic about the Single Currency”. Finish with a judgement like this – a balanced and reasoned evaluation.

17.State what is meant by the term multinational company. [2]

Companies are private sector firms (1) with operations (marketing or production, for instance) based outside the main host’s country (1)

18.State and explain two negative externalities associated with trade. [4]

Examples could include significant transport costs (1) that present environmental costs on the wider environment e.g. CO2 emissions (1) Additional supply of imported goods could generate bankruptcies and closures (1), so short term welfare expenditure may fall on taxpayers (1)

Level 2 (3-4 marks) The next two questions are not broken up into the 2+2 style of question 18. Instead you are back to the ‘ladder’ approach of making a statement and then Candidate analyses one or more supporting that statement with a short paragraph of development, expanding on factors. ‘how’ and ‘why’ points. Level 1 (1-2 marks)

Candidate applies knowledge.

19.Explain what is meant by the term globalisation. [4]

Globalisation is the process leading to increased integration of the world economy (L1). Multinational companies set up supply chains that link two or more economies, by assembling products or services made up from inputs sourced from around the world (L2). Globalisation is driven by advances in container shipping, airline and telecommunication services (L1). These are necessary components of a trading world economy that links production across the globe by significantly reducing transport and transactions costs (L2).

20.Explain how protectionism can restrict the world export of goods. [4]

Protectionism is the erecting of barriers to protect local industries (L1). These barriers take various forms such as tariffs, quotas and legal barriers such as environmental and safety regulations which make it harder to export goods (L2). The European Union and international bodies like the WTO seek to reduce the impact of protectionism (L1). Removing or lowering protectionist barriers in Europe has helped to boost exports and helped to integrate EU economies (L2).

The 12 mark question Don’t be intimidated by the big 12 mark question. As you’ve seen, even the 6, 8 and 10 mark questions require you to reach up to an evaluation. The 12 mark question will probably give you scope to have plenty of things to talk about, so you’ll have more room to show off those top drawer skills you’ve been practicing. The format isn’t very different, but you’ll want to be extra careful in using a paragraph structure to build up your answer. Effective knowledge and understanding of key terms allows you to analyse much more effectively. And when you’ve done that, it’s much easier to build up to interesting and balanced points of evaluation.

21.Using the information in the case study and your own knowledge of economics, evaluate the policies that European Union governments could use to make their economies become more competitive. [12]

Level 4 (10-12 marks)

Candidate evaluates the extent to which trade plays an essential role in raising incomes with a conclusion reached – complex issues are discussed with clear reference to data. Complex issues have been expressed clearly and Take a moment to read the mark scheme fluently using a style of writing appropriate to the complex subject matter. Sentences and paragraphs are to the left, which is an adapted version of consistently relevant, and have been well structured, using appropriate technical terminology. There may be few, if any, errors of spelling, punctuation and grammar. Candidate has been able to demonstrate and apply knowledge the commentary typically seen in the and understanding. The candidate should have analysed with reference to the question. examiners’ report. It’s a final reminder of Level 3 (7-9 marks) the importance of structuring your arguments. Candidate analyses the extent to which trade plays an essential role in raising incomes. Relatively straightforward ideas have been expressed with some clarity and fluency. Arguments are generally relevant, though may stray from To score above 6 marks it is necessary the point of the question. There will be some errors of spelling, punctuation and grammar, but these are unlikely to be intrusive or obscure meaning. Knowledge and understanding has been demonstrated and applied/understood. for you to really clearly establish how and

Level 2 (4-6 marks) why European Union governments could try to make their economies become more Candidate demonstrates an understanding of ways in which trade plays an essential role in raising incomes – simple ideas are expressed in an appropriate way. Some simple ideas have been expressed in an appropriate competitive. It’s not enough just to make context. There are likely to be some errors of spelling, punctuation and grammar of which some may be noticeable statements: you need to talk the examiner and intrusive. A basic knowledge and understanding has been demonstrated. through the stages. For instance, your Level 1 (1-3 marks) discussion is almost certain to work

Candidate demonstrates knowledge of ways in which trade plays an essential role in raising incomes – some through government policies designed to simple ideas have been expressed. There will be some errors of spelling, punctuation and grammar which will be reduce the cost burdens faced by local

28 OCR GCSE Economics 2016 – After the global recession, a global recovery? noticeable and intrusive. Writing may also lack legibility. firms. In clearly structured paragraphs you need to analyse how these policies could work.

This question gives you a lot of things to talk about in your analysis (L3). A paragraph themed around the labour market could be very rewarding, with plenty to say (and for you to evaluate later). An economy that can hold down wage costs should be able to contain prices in the goods and services it produces, boosting the competitiveness of exports. Low wages aren’t the only way of doing this. A more important concept is productivity. Workers can enjoy higher wages AND an economy can remain competitive if productivity gains can be made that run ahead of wage increases. Higher levels of productivity can be attained by governments making smart investments in human capital, such as investment in education and training. More highly skilled workforces can produce more, for less.

Another paragraph could talk about further steps that governments can take to hold down the price level – or the rate of inflation – in their economies. One policy to support this is to encourage the correct level of investment into infrastructure, so that an economy can expand without restrictions in supply that force up prices. If governments can directly boost spending on road, rail and energy infrastructure then firms should face lower price pressure on transport and electricity costs. Governments can create the conditions and policies that also encourage domestic and foreign firms to make investments too. These investments might be in infrastructure too, but they should also be in buildings, equipment, management and training that lead to more productive workforces, leading to lower unit costs and greater competitiveness.

Since your last question talked about the Single Currency, you might even have enough confidence to mention exchange rates. Countries with their own currencies sometimes see governments pursuing policies that force down the value of their currency. This make exports less expensive to foreigners, and thereby attain a degree of additional competitiveness on world markets.

Of course, you will want to finish with evaluation (L4). This is a great opportunity for you to sound cautious, and hedge your bets. Government policies to boost competitiveness won’t work for all economies, all the time. Why not? Evaluative statements sound like these:

 “Investments in education and training are hard to get right. Governments don’t always make correct choices in where to make their investments, and to implement education and skills policies that actually work. And even if they do work, the benefits that arise from these investments can take many years before they are felt”.

 “Investments by firms and governments into transport and energy infrastructure can have a negative impact on the natural environment. Although these steps may be seen as a way of boosting competitiveness, they may have a serious impact on future competitiveness in some sectors of the economy, such as health, travel and tourism”.

 “ Joining the Single Currency may reduce an economy’s competitiveness in the short run, because it is much harder for individual countries to force down their exchange rate. But in the long run, an economy that uses the Single Currency to effectively integrate into the European economy may find that they become more competitive as transactions costs fall, and the economy absorbs more investment into offices and factories”.