Cambridge International Examinations

Cambridge International Advanced Subsidiary and Advanced Level

ECONOMICS 9708/42
Paper 4 Data Response and Essays February/March 2017
2 hours 15 minutes
No Additional Materials are required.
* 8 0 2 3 0 1 7 1 3 1 *

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An answer booklet is provided inside this question paper. You should follow the instructions on the front cover of
the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet.
Section A
Answer Question 1.

Section B
Answer two questions.

You may answer with reference to your own economy or other economies that you have studied where
relevant to the question.
The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 3 printed pages, 1 blank page and 1 Insert.

DC (ST/SW) 130535/3 [Turn over

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Section A

Answer this question.

1 Finance Ministers and Economic Power

The power of Finance Ministers to make a difference to an economy is exaggerated. Political
parties would argue that Finance Ministers have the ability to form policies that lead to the
creation of jobs, the building of houses, and the encouragement of economic growth. The reality
is that Finance Ministers are usually at the mercy of the economy rather than in control of it.
The Finance Minister has a limited macroeconomic range of policy measures. Interest rates,
bond markets, international trade markets, company investment policies and changes in
consumer spending are far more important than Finance Ministers in shaping the economy and
determining tax revenues.
Consider monetary policy. This is often controlled by central banks. In 2015, there were low
interest rates across much of the world. These lower borrowing costs could encourage firms to
invest and this may result in increased employment. Statistics for unemployment and the level of
interest rates for India from 2010 to 2014 are given below in Fig. 1.
Fig. 1 India: unemployment rate and interest rate (20102014)

10 9.4 9.4 16 Key

India 9
unemployment ( unemployment rate
14
rate (%) 8 interest rate
rate

7 6.3
12
interest

6
5.2 4.9 10
5
aIndi

8
4
6
Jan Jan Jan Jan Jan 10
11 12 13 14
In international trade markets some economies improved in 2015 because of the halving of the
crude oil price a benefit for companies and households with an effect on inflation that allowed
interest rates to stay low. However, part of the benefit of such a change in the general price level
would be short-term if oil prices recovered.
Another influence on the economy can be a high level of immigration which could increase the
working population and possibly increase employment and production. Immigration is not
controlled by the Finance Minister.
Some consider that the best hope for improving an economy is on the supply side. But supply-
side policies are also often the responsibility of ministers other than the Finance Minister and take
a long time to become effective.
A further economic boost could be a rise in house prices. House price rises encourage consumer
confidence and stimulate retail sales. Moving house often results in re-decoration, modernisation
and the purchase of household items. However, house price rises, or the corresponding rent
increases, can sometimes be out of proportion to wage rates and make it impossible for many
people to purchase property or to move.
Source: The Times, 18 April 2015

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(a) The information refers to supply-side policies. Explain, with two examples, what is meant by
supply-side policies. [4]

(b) Explain briefly the link between the rate of interest, investment and employment. Consider
whether this is supported by the information in Fig. 1. [4]

(c) The information refers to rising house prices and politicians sometimes say such a rise is a sign
of an improvement in the economy. Analyse how the economy is claimed to benefit from
rising house prices but can also benefit from falling oil prices. [6]

(d) Summarise the main argument of the information. Discuss whether there is sufficient evidence
in the information to support it. [6]

Section B

Answer two questions.

2 (a) Explain what is meant in economic theory by consumer equilibrium. [12]

(b) Discuss the conditions that would cause the demand for a good to (i) increase and (ii) fall
as a result of a fall in the price of the good. Use indifference curve analysis to support your
answer. [13]

3 (a) Some firms have power over their market. Explain what this means and consider why this
power might change in a contestable market. [12]
(b) Discuss the different aims a firm might have in order to continue with production. [13]

4 A politician remarked that the absence of trades unions would necessarily lead to an
improvement in all labour markets.
To what extent does economic analysis support this remark? [25]

5 (a) How might the employment composition and age structure of a developing country differ from
those of a developed country? [12]

(b) Apart from the employment composition and age structure, discuss what changes are likely
to occur in a developing country if it progresses towards developed status. Consider whether
these changes are always beneficial. [13]

6 (a) Consider how significant the level of income is in determining peoples demand for money,
according to liquidity preference theory. [12]

(b) Discuss whether an increase in the national income of a country is a reliable indication of an
improvement in the standard of living for the people in that country. [13]

7 A society that says it cares about efficiency needs to abandon the notion of a market system to
allocate resources. Markets only serve self-interest, they are never efficient.
Discuss whether this opinion is supported by economic analysis. [25]
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UCLES 2017 9708/42/F/M/17