A Level Edexcel Economics 3 hours 19 questions

Exam Questions

4.1 International
Economics
Globalisation / Specialisation & Trade / Pattern of Trade / Terms of Trade / Trading Blocs & the World
Trade Organisation (WTO) / Restrictions on Free Trade / Balance of Payments / Exchange Rates /
International Competitiveness

Easy (7 questions) /9 Scan here for your answers

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Medium (8 questions) /52

Hard (4 questions) /90

Total Marks /151

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Easy Questions
1 Which one of the following is most likely to happen to Argentina’s currency value as a result of capital flight,
assuming it is operating with a floating exchange rate system?

A. Appreciation
B. Depreciation
C. Devaluation
D. Revaluation
(1 mark)

2 Unit labour costs for selected European countries, 2017, base year 2010 = 100.

Country Unit labour costs

Austria 113

Hungary 120

Estonia 129

France 107

(Source: http://www.oecd-ilibrary.org/economics/data/labour/unit-labour- cost-quarterly-indicators-early-

estimates_data-00607-en)

Explain one likely reason for Estonia’s unit labour costs rising faster than in other European countries.

(2 marks)

3 Unit labour costs for selected European countries, 2017, base year 2010 = 100.

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 Country Unit labour costs

Austria 113

Hungary 120

Estonia 129

France 107

(Source: http://www.oecd-ilibrary.org/economics/data/labour/unit-labour- cost-quarterly-indicators-early-

estimates_data-00607-en)

Explain how Estonia’s competitiveness could be affected by rising unit labour costs.

(2 marks)

4 Unit labour costs for selected European countries, 2017, base year 2010 = 100.

Country Unit labour costs

Austria 113

Hungary 120

Estonia 129

France 107

(Source: http://www.oecd-ilibrary.org/economics/data/labour/unit-labour- cost-quarterly-indicators-early-

estimates_data-00607-en)

The increase in Austria’s unit labour costs between 2010 and 2017 is:

A. 3%
B. 11.3%
C. 13%

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 D. 113%
(1 mark)

5 The trade deal known as the Comprehensive Economic and Trade Agreement (CETA) is designed to eliminate
or reduce trade barriers between the European Union (EU) and Canada. It is estimated that it will increase
trade by 20% and boost EU GDP by 12 billion euros.

(Source: http://www.theguardian.com/business/2016/oct/30/eu-canada-sign-ceta-free-trade-deal-trudeau-
juncker)

Which one of the following is most likely to decrease as a result of CETA?

A. Economic growth in EU countries

B. Exports from EU countries to Canada
C. Imports from Canada to EU countries
D. Tariffs on European exports to Canada
(1 mark)

6 Which factor has enabled easier international travel and business transactions, contributing to globalisation?

A. Stricter immigration policies

B. Expensive airfare and transportation
C. Advancements in transportation and communication
D. Limitations on cross-border trade
(1 mark)

7 What is a common cause of a trade deficit on the current account?

A. High exports and low imports

B. Strong domestic demand for foreign goods
C. Strict government regulations on imports
D. Decreased foreign investment
(1 mark)

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Medium Questions
1 Nigeria is considering joining the African Continental Free Trade Agreement. Assess policies the Nigerian
government could use in response to the concerns of the country’s ‘manufacturers and trade unions’ (Extract B
paragraph 3) if they join this trading bloc (10 marks)

Extract B

Sub‑Saharan Africa is becoming more integrated

After two years of negotiations, representatives of a large number of African countries signed the African
Continental Free Trade Agreement (AfCFTA) in Kigali on March 21, 2018.

This created a trading bloc of 1.2 billion people with a combined gross domestic product of more than US$2
trillion. The agreement committed countries to removing tariffs on 90% of goods and to liberalise services.

This can be seen as a sign of rapid and steady regional integration. Sub‑Saharan Africa in particular is much
more integrated today than in the past. The level of integration in sub‑Saharan Africa is now similar to that in
the world’s other developing and emerging market economies.

However, the two largest African economies, Nigeria and South Africa, refused to sign the agreement. Nigeria’s
manufacturers and trade unions are concerned about the potential negative impacts of becoming more open
to imports from other African countries with lower labour costs.

Greater interdependence can expose small economies to their partners’ recessions. After nearly 20 years of
strong economic activity, sub‑Saharan Africa experienced the downside of integration in 2015. The collapse in
commodity prices and the slowdown in economic activity in Nigeria and South Africa contributed to
sub‑Saharan African growth slowing sharply. Since 2017 growth has begun to recover. The recovery is mixed,
though, and it is unclear to what extent the slow recovery of the larger economies is still affecting the rest of
sub‑Saharan Africa.

(Source adapted from: https://www.imf.org/ and https://www.pulse.ng/)

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 (10 marks)

2 Since mid-2015 the euro has appreciated. Assess the likely impact of an appreciation of the euro on the current
account of the balance of payments for Eurozone countries (10 marks)

Refer Extract

(10 marks)

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3 Extract A

Can Turkey’s central bank avoid another rate rise?

At an annual rate of 25%, Turkey’s inflation is alarming. However, it may have peaked. This may be a turning
point for the economically struggling country, whose currency (the Turkish lira) has lost nearly a third of its
value against the US dollar in 2018. The central bank may be able to avoid tightening monetary policy further,
as a severe economic adjustment is already well under way. Turkey is highly indebted in foreign currency. The
Turkish government takes measures against excessive appreciation or depreciation of the Turkish lira to
reduce financial stability risks. The financial market faces difficulties in trying to restore foreign investors’
confidence.

Consumer prices increased by 2.7% in October 2018, a much lower rate than the 6.3% recorded in September
2018. The lira has stabilised, having risen 16% since the central bank raised interest rates by 6.25 percentage
points. However, the government wants lower borrowing costs to fuel credit growth and economic expansion.
Timothy Ash at a London investment bank says at this point it’s “illogical” to raise interest rates again in Turkey.
That’s because Turkey’s economy is already experiencing a severe slowdown.

In the long term Turkey’s economic growth is expected to be above that of other emerging markets such as
Brazil, Russia and China. Turkey’s private sector is resilient. Between 2018–50 we expect Turkey to grow by an
annual average of 3.1%. Brazil is expected to grow by an annual average of 2.1%, Russia by 1.6% and China by
2.8%. GDP growth will nevertheless be well below that recorded in 2004–07 and 2010–15. Average growth in
GDP per head will be substantially lower, mainly reflecting the expected rise in the total population.

(Source adapted from:

https://ftalphaville.ft.com/2018/11/06/1541508141000/Can‑Turkey‑s‑central‑bank‑avoid‑another‑rate‑hike‑/.
6 Nov 2018 Colby Smith and one sentence The president wants lower borrowing costs to fuel credit growth and
economic expansion from
https://www.theguardian.com/world/2018/aug/07/turkey‑urged‑to‑announce‑emergency‑interest‑rate‑hike
Larry Elliott 7/8/18 and http://country.eiu.com/article.aspx
articleid=157174199&Country=Turkey&topic=Economy&subtopic=Long‑term+outlook&subsubtopic=Summary)

Explain how the Turkish central bank intervenes in the currency market to prevent ‘excessive appreciation or
depreciation of the Turkish lira’ (Extract A, lines 7–8).

(5 marks)

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4 The trade deal known as the Comprehensive Economic and Trade Agreement (CETA) is designed to eliminate
or reduce trade barriers between the European Union (EU) and Canada. It is estimated that it will increase
trade by 20% and boost EU GDP by 12 billion euros.

(Source: http://www.theguardian.com/business/2016/oct/30/eu-canada-sign-ceta-free-trade-deal-trudeau-
juncker)

With reference to the theory of comparative advantage, explain how CETA may increase the GDP of both the
EU and Canada.

(4 marks)

5 Refer to the extract

Using the data in Figure 4 and other information provided, explain the likely change to Indonesia’s terms of
trade since 2011.

(5 marks)

6 Refer Extract

With reference to Figure 1, calculate the percentage change in the value of the euro in pounds from the start of
2009 to the start of 2015.

(5 marks)

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7 Figure 2: US dollar per 100 Chile pesos exchange rate, 2007–2015

With reference to Figure 2, explain one likely reason for the change in the Chile peso exchange rate between
2013 and 2015.

(5 marks)

8 With reference to Extract A and Figure 1, examine the likely impact of the change in the sterling exchange rate
on the UK economy.

The UK economy since the financial crisis

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Figure 1: Pound sterling to US$ exchange rate, 2016-17

Extract A

UK companies use forward currency market

The Norfolk-based picture frames maker Nielsen Bainbridge recently made forward contracts in the foreign
exchange market to reduce the impact of currency fluctuations. The pound’s post-Brexit referendum
depreciation has been a test of nerve for Nielsen Bainbridge and many other importers. At present the
company’s suppliers are located in Europe or China. “Currency therefore has a big impact on our business and
the margins we can obtain,” says Ms Burdett, the Finance Director. Forward contracts enable institutions,
businesses and individuals to lock in an exchange rate over a certain period of time regardless of how the rate
moves during that time. Ms Burdett buys currency as soon as Nielsen Bainbridge confirms a large order as a
way to fix costs. One third of UK business managers are considering shifting from EU to UK suppliers.

(Source: adapted from ’UK companies use pound strength to hedge forex risk’ by Roger Blitz, Markets, ©
FT.com, 16 May 2017. https://www.ft.com/content/d50ce580-3968-11e7-ac89-b01cc67cfeec)

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 (8 marks)

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Hard Questions
1 The British pound fell by over 10% to a 30-year low against the US dollar after the UK voted to leave the
European Union.

To what extent will this depreciation impact on future economic growth in the UK? (25)

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 (25 marks)

2 Discuss the likely benefits of increased economic integration for sub‐Saharan African countries (15)

Extract B

Sub‑Saharan Africa is becoming more integrated

After two years of negotiations, representatives of a large number of African countries signed the African
Continental Free Trade Agreement (AfCFTA) in Kigali on March 21, 2018.

This created a trading bloc of 1.2 billion people with a combined gross domestic product of more than US$2
trillion. The agreement committed countries to removing tariffs on 90% of goods and to liberalise services.

This can be seen as a sign of rapid and steady regional integration. Sub‑Saharan Africa in particular is much
more integrated today than in the past. The level of integration in sub‑Saharan Africa is now similar to that in
the world’s other developing and emerging market economies.

However, the two largest African economies, Nigeria and South Africa, refused to sign the agreement. Nigeria’s
manufacturers and trade unions are concerned about the potential negative impacts of becoming more open
to imports from other African countries with lower labour costs.

Greater interdependence can expose small economies to their partners’ recessions. After nearly 20 years of
strong economic activity, sub‑Saharan Africa experienced the downside of integration in 2015. The collapse in
commodity prices and the slowdown in economic activity in Nigeria and South Africa contributed to
sub‑Saharan African growth slowing sharply. Since 2017 growth has begun to recover. The recovery is mixed,
though, and it is unclear to what extent the slow recovery of the larger economies is still affecting the rest of
sub‑Saharan Africa.

(Source adapted from: https://www.imf.org/ and https://www.pulse.ng/)

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 (15 marks)

3 Refer Extract

With reference to the information provided and your own knowledge, evaluate the likely microeconomic and
macroeconomic influences on the UK’s international competitiveness.

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 (25 marks)

4 Three of Africa’s main trading blocs have agreed to form the Tripartite Free Trade Agreement (TFTA). This will
create one of the world’s largest free trade areas, stretching across 26 countries with a combined GDP of
around £1trillion.

(Source: https://uk.reuters.com/article/uk-africa-trade/mega-african-trade-bloc- paves-way-for-continental-

commerce-idUKKBN0OR28M20150611)

Evaluate the effects of the growth of trading blocs such as the TFTA on global trading patterns.

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 (25 marks)

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