CIE IGCSE Topical Past Paper 2
6.2 Globalisation, free trade and protection
0455/22/F/M/24
New Zealand is a high-income country with a low unemployment rate and a surplus of imports over exports. Recently, its government has made some important economic decisions. In 2022, it banned everyone born after 2008 from buying cigarettes. A year before, it gave permission for firms to explore for oil in the country.
c) Analyse why a country’s exports may decrease. [6]
0455/22/O/N/22
While 15% of US exports go to Mexico, 80% of Mexico’s exports go to the US. In 2019, the US government imposed some methods of protection to reduce imports from Mexico. This US action caused a fall in Mexico’s foreign exchange rate. Despite a rise in its inflation rate, Mexico’s central bank reduced the rate of interest from 7.75% at the end of 2019 to 6.5% in March 2020.
d) Discuss whether or not a decrease in the rate of interest will increase a country’s GDP. [8]
0455/22/F/M/24
In 2021, the Suez Canal was blocked by one of the world’s biggest container ships. This affected some firms’ profits and caused a shortage in a number of products. The delivery of luxury chocolate and salt, for example, was delayed. These two goods have differences in their price elasticity of demand. The disruption to international trade created particular difficulties for those countries which import most of the food they consume.
d) Discuss whether or not a country should import most of the food it consumes. [8]
0455/22/O/N/23
In 2020, Singapore experienced a decrease in both its population size and its labour force. 2020 was a year of great change in a number of Singaporean markets. Some moved from disequilibrium to equilibrium. Despite all these changes, Singapore managed to increase its exports of goods and services.
d) Discuss whether or not an increase in exports will benefit an economy. [8]
0455/22/O/N/23
Botswana uses both capital goods and labour in its diamond mining industry. The country had an average economic growth rate of 3.8% between 2015 and 2019 compared to a global average of 2.8%. Over this period, the country experienced a low inflation rate and a move away from protectionism and towards free international trade.
c) Analyse how a government could reduce protectionism and move towards free international trade. [6]
0455/22/M/J/23
In 2019, China’s economic growth rate was 6.1% and Chinese households increased their spending. More Chinese people attended sports events and the earnings of top sportspeople increased. China exported more despite a rise in tariffs on some of its products. For example, the US imposed higher tariffs on the imports of Chinese tea and coffee.
c) Analyse the reasons for imposing tariffs on imports. [6]
0455/22/F/M/23
Vietnam has a high number of female entrepreneurs. Some of their firms have grown and now compete with foreign multinational companies (MNCs) and public sector firms. The Vietnamese government encourages MNCs to locate in Vietnam as a host country. It also intervenes in the economy to encourage the consumption of merit goods.
b) Explain two benefits that an MNC can bring to its host country. [4]
0455/23/O/N/22
Palau is a small island country in the Pacific Ocean. It has received considerable financial support from the US. Living standards are thought to be lower in Palau than in the US. Palau imposes some of the highest tariffs in the world. These trade tariffs affect Palau’s current account of its balance of payments. In 2019, commercial bank lending to firms and households in Palau increased.
c) Analyse the reasons why a country may impose tariffs on imports. [6]
0455/23/O/N/22
Romania’s indirect tax rate was 19% between 2017 and 2019. There is a high proportion of foreign multinational companies (MNCs), especially US MNCs, in Romania. MNCs have helped to increase productivity in Romania and lower its unemployment rate. There are also benefits of MNCs to their home countries.
b) Explain two benefits of MNCs to their home countries. [4]
0455/22/O/N/22
While 15% of US exports go to Mexico, 80% of Mexico’s exports go to the US. In 2019, the US government imposed some methods of protection to reduce imports from Mexico. This US action caused a fall in Mexico’s foreign exchange rate. Despite a rise in its inflation rate, Mexico’s central bank reduced the rate of interest from 7.75% at the end of 2019 to 6.5% in March 2020.
a) Identify two methods of protection. [2]
b) Explain two reasons why a government may want to reduce imports. [4]
0455/21/O/N/22
Bulgaria is part of the European Union (EU), but it has much lower corporation tax rates than other EU members. However, regulation by the Bulgarian government has discouraged foreign investment into Bulgaria. In addition, Bulgaria’s economic growth rate has decreased in recent years, due in part to a steady fall in its quantity of labour.
c) Analyse how differences in the rates of corporation tax between countries may affect multinational companies (MNCs). [6]
0455/22/M/J/21
Turkey’s birth rate is falling which is likely to reduce its supply of labour. However, improvements in the quality of labour and the increase in foreign multinational companies (MNCs) operating in Turkey (the host country to the MNCs) may help the economy avoid a recession. One reason why economists are worried that a recession may occur is an expected rise in the interest rate.
d) Discuss whether or not MNCs improve the economic performance of the host countries in which they operate. [8]
0455/22/O/N/20
Wage rate growth has increased recently in Kazakhstan, but its economic growth rate has slowed. This is, in part, due to a fall in exports. To try to increase the economic growth rate, the government has increased its spending on investment. In August 2015, it adopted a floating foreign exchange rate system in an attempt to improve the country’s macroeconomic performance.
b) Explain two reasons, other than methods of protection, why a country’s exports may fall. [4]
0455/22/O/N/20
Mexico has a history of trade deficits. The government is moving the economy closer to free trade, to try to improve its macroeconomic performance. It was predicted in 2017 that Mexico’s economy would experience a small rise in its unemployment rate. In 2017 the economy’s inflation rate was 6.6%, the highest rate since 2001. A number of policy measures may be used to reduce inflation, including increasing the rate of income tax.
b) Explain two benefits producers may gain from free trade. [4]
0455/21/O/N/20
South east Asian countries have reduced tariffs between themselves through the ASEAN Free Trade Agreement. ASEAN member countries are also removing non-tariff methods of protection. The intention is to raise economic growth through more international trade. This should enable small and medium-sized firms in ASEAN countries to grow and increase their exports.
a) Define tariffs. [2]
b) Explain two non-tariff methods of protection. [4]
0455/23/M/J/20
Ireland has one of the lowest rates of corporation tax in Europe. This has encouraged many multinational companies (MNCs) to produce in Ireland. Other reasons why firms want to produce in Ireland include access to freer trade with other European countries, higher labour productivity and government grants.
d) Discuss whether or not MNCs always benefit their host countries. [8]
0455/23/M/J/20
Ireland has one of the lowest rates of corporation tax in Europe. This has encouraged many multinational companies (MNCs) to produce in Ireland. Other reasons why firms want to produce in Ireland include access to freer trade with other European countries, higher labour productivity and government grants.
a) State two benefits of free trade. [2]
0455/22/F/M/23
Vietnam has a high number of female entrepreneurs. Some of their firms have grown and now compete with foreign multinational companies (MNC) and public sector firms. The Vietnamese government encourages MNCs to locate in Vietnam as a host country. It also intervenes in the economy to encourage the consumption of merit goods.
b) Explain two benefits that an MNC can bring to its host country. [4]
0455/21/M/J/22
Australia’s foreign exchange rate fluctuates. The value of Australia’s exports is regularly greater than the value of its imports. Australia is Papua New Guinea’s main trading partner. In 2019, the government of Papua New Guinea increased income tax to reduce its inflation rate. It used other policy measures to increase its economic growth rate.
b) Explain two reasons why the value of a country’s exports may be greater than the value of its imports. [4]
0455/22/F/M/22
South Africa (SA) experienced a recession in the second half of 2019 and an unemployment rate of 29%. Only a small proportion of this unemployment was frictional. South Africa’s foreign exchange rate fell from 1 SA rand = US$0.08 in 2018 to 1 SA rand = US$0.06 in 2019. South Africa had reduced import tariffs, but in 2019 some South African economists suggested tariffs should be used to protect its infant industries.
b) Explain why an infant industry may need protection. [4]
0455/22/F/M/19
Ireland has attracted a significant number of foreign multinational companies (MNCs) to set up production in the country. These firms employ approximately 10% of the country’s labour force and make a high proportion of Ireland’s exports. The surplus on the current account of Ireland’s balance of payments fell in 2016 while government spending rose.
a) Identify two reasons why an MNC may decide to start producing in a foreign country. [2]
b) Explain two reasons why someone may want to work for an MNC. [4]
0455/21/O/N/18
In 2016, there was a global surplus in the steel market pushing down steel prices. This situation led to various calls for protectionist measures by other steel producers such as those in the EU and the USA. However, such measures were not supported by car producers as approximately 22% of a car manufacturer’s costs depend on steel prices.
a) Define protectionism. [2]
b) Explain two methods of trade protection. [4]
0455/23/M/J/18
In the 1990s Cambodia became a mixed economy. One of the results of this was specialisation in the clothing industry. In 2005, import quotas for clothing in the key markets of the USA and the EU were removed. Clothing now accounts for 80% of Cambodia’s exports. The increased role of the private sector has resulted in a rise in malnutrition in Cambodia.
a) Define import quota. [2]
c) Analyse the impact on an economy of the removal of import quotas imposed by other countries. [6]
0455/22/M/J/18
World output has grown in recent years, but a number of countries have experienced a recession. The removal of trade restrictions such as import tariffs has slowed down, reducing the growth of world trade.
a) Define import tariff. [2]
0455/22/F/M/18
The effects of a depreciation of a currency are influenced by the price elasticity of demand of exports and imports. Worldwide there has been a reduction in trade barriers including tariffs. There has also been an increase in the movement of goods and services between countries and, to a lesser extent, the movement of people. Some countries experience net emigration with more people leaving the country than entering it.
c) Analyse how a reduction of its import tariffs could increase a country’s output. [6]