IB Examination style paper 2
China’s economic recovery
Markscheme answers
a. (i) Define the term recession. (Paragraph 1) [2]
A recession is two consecutive quarters of negative economic growth.
(ii) Using a circular flow of income diagram explain what might happen to household incomes in a
recession. (Paragraph 1) [4]
When real GDP falls in a recession the
value of goods and services produced
decreases and this means less revenue is
being received by businesses which can
be paid to households in the form of
wages, interest, profits and rent. This fall
in income is shown by the decrease in the
income flow in the circular flow of
income diagram.
b. Using an aggregate demand and supply diagram explain the effect 'weak' consumer confidence
might have on real GDP and the average price level. (Paragraph 2) [4]
Weak consumer confidence could lead to
a fall in consumer expenditure in China
and lead to a decrease in its aggregate
demand. AD would shift to AD1 in the
diagram and this could lead to a fall in
the average price level from P to P1 and a
decrease in real GDP from Y to Y1.
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InThinking www.thinkib.net/Economics 1
c. (i) Define the term real GDP. (Table 1) [2]
Real GDP is the money value of all final goods and services produced by a country in a given time
period with an allowance made for inflation.
(ii) Calculate the Chinese real GDP values for 2018, 2019 and 2020. (Table 1) [3]
See the real GDP values in the table.
Year Nominal GDP GDP deflator Real GDP Economic growth
$trillion $trillion %
2018 14.23 97 14.67
2019 15.13 99 15.28 4.16
2020 14.98 100 14.98 -1.96
(iii) Using the real GDP figures calculate China’s growth rate in 2019 and 2020. (Table 1) [2]
See economic growth data in the table.
d. Explain how the income and substitution effects of a fall in the price of folding smartphones
might lead to an increase in quantity demanded for them. (Paragraph 3) [4]
When the price of folding smartphones falls the quantity demanded increases because of an income
effect where a lower price for a good means more consumers with a given income can now afford to
buy a folding smartphone. The substitution effect means consumers will switch to a folding
smartphone as its price falls because it offers greater utility per unit of money spent compared to a
substitute good such as a Samsung folding smartphone.
e. Using a demand and supply diagram illustrate the effect of a subsidy on the market price and
output of Soybeans. (Text C, paragraph 4) [4]
A subsidy paid to producers of soybeans
means the supply curve for soybeans
shifts downwards by the value of the
subsidy. This is shown in the diagram as S
shifts to S1 in the diagram. As supply
increases the price of soybeans decreases
from P to P1 and quantity increases from
Q to Q1.
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f. Using information from the text and your knowledge of economics, evaluate the benefits to the
Chinese economy of government intervention to support the economy. [15]
Answers might include:
• An explanation of how government support through expansionary monetary and fiscal policy
can help the Chinese economy in recessionary conditions by increasing aggregate demand
(‘Chinese government which has been using expansionary monetary and fiscal policy to try
and deal with the recession’).
The diagram shows how
increasing government
expenditure and cutting tax
(expansionary fiscal policy),
combined with lower interest
increases AD to AD1 and combats
the recession in China.
• An explanation that Chinese government action to prevent the rise in the value of the Yuan
had helped exports because an appreciation in the Yuan would have made Chinese exports
more expensive and reduced the quantity demanded for them (Chinese exports grew
strongly helped by government action to prevent the value of the Yuan appreciating).
• An explanation that the Chinese government's support for agricultural producers had helped
businesses in these sectors such as subsidies on Soybeans. This protects employment in the
agricultural sector and reduces the price of food for consumers (‘Chinese government and its
annual spending on farming subsidies is over $200 billion’).
• An evaluation/synthesis might include a discussion of the weaknesses of government policy
to support the Chinese economy such as low consumer confidence (‘relatively weak
domestic consumer confidence’) in the recession which might hinder consumption
expenditure and economic growth. Government expansionary fiscal policy might also add to
the Chinese budget deficit. Government support through subsidies to certain industries such
as agriculture might lead to retaliation through trade barriers (‘there is the threat of
retaliatory tariffs from China’s trading partners’). It is also worth considering how industries
such as Huawei are growing in global markets without government support ‘continuing to
increase their presence in global markets’.
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InThinking www.thinkib.net/Economics 3
Marking Criteria for the 15 mark final question Mark
There is no answer to the question but some limited: 1-3
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is a vague answer to the question with limited: 4-6
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is an answer to the question with satisfactory: 7-9
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is a clear answer to the question with good: 10-12
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is clear answer to the question with excellent: 13-15
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
Total [40]
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InThinking www.thinkib.net/Economics 4
