In 2014, global Gross Domestic Product (GDP) was US$78 000 billion. By the following year, this had climbed to US$80 730 billion. In earlier years, the USA and Germany might have been expected to make the biggest contribution to the rise in GDP. China made up 20% of the increase in world output in 2015. China is expected to become the largest economy. It is becoming a tougher rival in a range of markets. This greater price competitiveness comes from several factors, including keeping the exchange rate low, offering subsidies to several industries and raising labour productivity. Even so, in 2015 the Chinese Government was weighing up whether to shrink the country’s steel industry, perhaps by reducing the subsidy it received. Fig. 1 illustrates how the steel market could be influenced by this kind of change.
Fig. 1 The market for steel in China in 2015 shows a vertical axis labelled "price of steel" and a horizontal axis labelled "quantity of steel". The origin is marked "O". Two equilibrium prices are shown, with "P2" above "P1" on the vertical axis. Two quantities are shown on the horizontal axis, with "Q2" to the left and "Q1" to the right. A downward-sloping demand curve is labelled "D1". Two upward-sloping supply curves are shown, labelled "S1" and "S2", with "S2" positioned to the left of "S1".
Some developed countries have been facing difficulties recently. For example, Australia has experienced a falling economic growth rate. To stimulate domestic economic activity, the Reserve Bank of Australia has reduced interest rates.
The economic growth rates of developing and emerging economies are rising. In Africa, this is partly due to the discovery and use of oil and mineral resources. These countries use different exchange rate systems and have had varying degrees of success in attracting multinational companies. Many African countries apply protectionist measures, though some are shifting towards free trade.
In most developing and emerging economies the birth rate is declining. The effect of this change depends on how large the fall is relative to the original rate. For example, Nauru is one of the smallest countries in the world, with a population of only 10 000. Its birth rate dropped from 26 to 25 in 2015.
(a)[2]
Identify two monetary policy measures named in the extract.
(b)[4]
Explain two reasons why the birth rate may decline.
(c(i))[2]
Calculate, using information from the extract, the size in US$ of China’s contribution to global GDP growth in 2015.
(c(ii))[2]
Calculate, using information from the extract, how many children were born in Nauru in 2015.
(d)[5]
Analyse, using a production possibility curve diagram, how the discovery of new oil reserves would change an economy.
(e)[5]
Discuss whether a firm would gain from a fall in its country’s exchange rate.
(f)[4]
Explain, using information from the extract and Fig. 1, what could have happened to the market for steel in China in 2015.
(g)[6]
Discuss whether free trade improves living standards in a country.
Worked solution & mark scheme
This 30-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Interest-rate movements” …