9

18 The table shows what has happened to three economic indicators between two years in a country.

When would GDP have been the most accurate measure of the standard of living in that country?

population inflation rate income distribution

A constant low and stable equal
B constant low and unstable unequal
C rising low and stable equal
D rising low and unstable unequal

19 Which change would directly affect a country’s Human Development Index (HDI)?

A a change in average hours worked by the labour force

B a change in life expectancy of the population

C a change in the level of urbanisation

D a change in the size of the population

20 The table gives unemployment rates (%) for four countries in 1993 and 2002.

UK Japan France Italy

1993 10.5 2.5 11.4 10.1
2002 5.0 5.4 8.8 8.5

What can be concluded from the table?

A France had the lowest rate of employment in both years.

B Italy had the most employed people in 2002.

C Japan more than doubled its labour productivity between 1993 and 2002.

D The UK created most jobs between 1993 and 2002.

21 A government in a high-income economy wishes to reduce cyclical unemployment.

Which policy is likely to be most effective?

A decrease government expenditure and increase income tax

B decrease the government’s budget deficit

C increase government expenditure and decrease income tax

D increase the government’s budget surplus

© UCLES 2020 9708/03/SP/23 [Turn over

 10

22 What does the Kuznets curve represent?

A changes in income inequality over time

B changes in the Human Development Index over time

C changes in the Multidimensional Poverty Index over time

D the inverse of a Lorenz curve

23 In an open economy with a government sector, the marginal propensity to import is 0.3, the
marginal propensity to tax is 0.3 and the marginal propensity to save is 0.2.

What is the value of the multiplier?

A 1.25 B 2 C 2.5 D 5

24 Which macroeconomic policy aims are most likely to complement one another?

A high growth and low inflation

B high growth and low unemployment

C low inflation and low unemployment

D low unemployment and a balance of trade surplus

25 The central bank of a country creates cash to purchase government bonds from the commercial
banks.

What is this called?

A liquidity preference
B quantitative easing

C supply-side policy

D the multiplier

26 Which statement about government intervention is correct?

A Government failure may result from policies that have unintended side effects.

B Governments cannot identify the existence of inefficiency.

C Inefficient government policies mean that the market system will be better at resource
allocation.

D Market failure means that government action will necessarily improve the situation.

© UCLES 2020 9708/03/SP/23

 11

27 All else remaining unchanged, what would result in an outflow of capital funds from a country?

A a fall in the country’s rate of inflation

B an expected appreciation of the country’s exchange rate

C an increase in foreign interest rates

D an increase in foreign prices

28 In country X the government aims to protect jobs.

Which policy is most likely to succeed?

A decrease restrictions on immigrant labour

B decrease subsidies to domestic producers

C increase general tariffs on imports

D remove quotas on imports

29 Which row shows characteristics of a fast-growing economy?

GDP per birth rate household

capita saving ratio
A falling falling rising
B falling rising falling
C rising falling rising
D rising rising falling

30 Which adjustments to real GDP per capita might make it a more reliable indicator when comparing
standards of living in different countries?

A adjustments to allow for differences in the level of government spending in different countries

B adjustments to allow for differences in the rates of inflation in different countries

C adjustments to allow for differences in the amount of economic activity that is not reported to
the government in different countries

D adjustments to allow for differences in the value of exports from different countries

© UCLES 2020 9708/03/SP/23

 2

Section A

Answer this question.

1 Productivity in the G7 countries

The G7 is a group of countries that have some of the world’s major advanced economies.
Productivity in the G7 countries varies, as shown in Fig. 1.1 below, with United Kingdom (UK)
performance as the base index of 100.

2015 2016
140 Index (UK = 100)

130

120

110

100

90
Japan Canada UK Italy US France Germany

Source: The Sunday Times, 24 June 2018

Fig. 1.1: Gross domestic product per hour worked, G7 countries, for 2015 and 2016

Productivity in the UK was one of the worst in the G7. Poor management practices and lower
levels of skills in the workforce were the main reasons for the UK’s position. In low wage, high
employment sectors of the UK economy, the performance compared unfavourably with five of the
G7 countries. In retailing, the UK was 40% lower than the performance in the United States (US).
In hospitality industries the UK had a 45% lower rate than France.

Tackling poor productivity is about innovation, investment and improving infrastructure as well as
labour skills.

The Federal Reserve Bank of the US suggested that innovation is one of the keys to productivity
differences among the G7 countries. Innovation can occur using different factor inputs such as
IT hardware and software, investment in staff training, research and development (R&D) and
marketing. In 2015, the US had the most advanced software and IT services industries in the
world accounting for a third of the global IT market. In 2018, the industry accounted for 12% of
private sector employment and contributed 7.1% of GNP. Three of the top ten IT companies in the
world were based in the US.

In 2014, in the UK, businesses spent US$26 billion on R&D, notably on digital technology and
biomedical research projects that are world-renowned. However over the past 25 years R&D in
the UK has only averaged between 1% and 1.3% of GNP and falls behind Japan with 3.4%,
Germany 2.9%, the US 2.7% and France 2.2%.

© UCLES 2022 9708/41/M/J/22

 3

There were concerns about the UK government reducing spending but in 2018 it made a
commitment to a large investment programme in transport and communications to provide a boost
to productivity. At that time one threat to the UK economy was its decision to leave the European
Union’s single market. The decision created uncertainties for investors and the balance of foreign
direct investment (FDI) showed that there were more investments abroad than there were foreign
investments in the UK. This made some UK industries, such as car production, vulnerable. The
central bank in the UK has stated that foreign owned car manufacturers in the UK invest heavily
in R&D and their presence boosts the productivity of labour. It was thought this may change in the
future.

Sources: The Sunday Times 24 June 2018, David Smith (Economic Outlook). ‘We don’t need a new
target but we must raise our game’.
The Times 27 June 2018, David Smith. ‘Inward Investment so important to Britain is now at risk’.
Office for National Statistics, Britain, 2016

(a) Explain what is meant by productivity. [2]

(b) The information suggests that innovation and R&D are important in ensuring high productivity.
Is this statement consistent with the evidence in Fig. 1.1? [4]

(c) Use the information to comment on productivity in the US and indicate which factors
contributed to its performance. [6]

(d) Use the information to discuss whether or not it is likely that the UK’s productivity within the
G7 countries will improve. [8]

© UCLES 2022 9708/41/M/J/22 [Turn over

EITHER

1) With the help of a diagram, assess the view that government intervention can be
used successfully to correct market failure caused by positive externalities. [20]

OR

2) With the help of a diagram, assess whether imperfect labour markets will always
lead to lower wages and higher unemployment.