International competitiveness Theme 4

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question is about how macroeconomic policies can be used to improve the UK's competitiveness. Candidates were welcome to write about any policies they wanted, but obviously they needed to make sure they could explain how that policy would help to improve competitiveness. Weaker answers could often identify different policies that were potentially relevant, but not clearly explain, with thorough chains of argument, how that policy would help to improve competitiveness. Answers also often lacked application to the real world, which limited the mark they could get. Examiners do not expect candidates to have memorised loads of statistics about the UK economy (or any other country), but candidates are expected to be able to relate the theory behind policies they have learnt to real-world situations and to be aware of key economic issues that have occurred recently and be able to use that knowledge in their answers. Some answers also either didn't fully grasp the concept of competitiveness, or after some time writing their essay, had forgotten that this was the key focus of the question. For example answers that talked about how the UK could engage in protectionism by imposing tariffs on imports weren't relevant to this question, as that isn't going to affect the UK's competitiveness. If anything this would be likely to make it worse if other countries decided to retaliate and impose tariffs on UK exports. Effective evaluation focused on evaluating the policies themselves and how/why they wouldn't help to improve the UK's competitiveness, for example discussing other factors that would affect investment decisions by firms apart from subsidies or tax breaks offered by the government. This answer discusses a number of different policies, far too many really. On the first page we have fiscal policy, then later on it moves to monetary policy, and lastly supply-side policies. Probably because the candidate has tried to write about so many different policies, there is very limited development of the points. The best-developed point is the second one about monetary policy, which manages to get into KAA level 3, but the others are very limited in chains of argument and only fit the criteria for KAA level 2. It is important to remember in a question such as this that there are loads of potential policies to write about, but candidates need to be selective and not try to write about everything. Depth of answers is what examiners are looking to see, not breadth. In terms of evaluation, this is clear throughout the answer, although it is rather brief at the end when supply-side policies are being evaluated. The evaluation here fits clearly into the level 2 criteria (at least for the first two evaluation points). There is some development of the points: they are not simply stated, and so the candidate has gone beyond level 1. However, they could have been further developed with a longer chain of argument, and so they do not meet the level 3 criteria. Overall this answer scores KAA low level 3, Evaluation level 2. There is no need to define the key words in the question. Save yourself time and get straight into answering the question. This is a top-level answer to this question, both for KAA and Evaluation. The KAA points are very clearly broken down and explained in a detailed step-by-step way along with diagrams to illustrate the points being made. For example, in the first point, the candidate hasn't just said that if the pound reduced in value it would make exports more competitive, they have explained how this could come about by starting from the beginning with cutting interest rates, and working thoroughly through to finishing with how this would increase the UK's exports. The evaluation is also very thorough and clearly in the context of the UK economy, for example talking about how 'inflation is already very high' in the first evaluation point and about the very large national debt in the second point. Also, just like with the KAA points, there is clear step-by-step explanation breaking down and explaining the argument they are making. Question In this question the focus is on macroeconomic policies to reduce UK inflation. The question did specify that candidates could not write about monetary policy, and it was pleasing to see that nearly every student understood and followed that point. Most candidates opted to focus on contractionary fiscal policies, although sometimes they wrote about both cutting government spending and raising taxes as one general point which often led to a lack of the detailed explanation required to reach the higher KAA levels. Candidates need to remember to stick to only ONE policy at a time to give themselves the time and space to really fully develop an argument about that particular policy. The other main focus was on different supply-side policies that could help to shift out aggregate supply. Again, good answers drilled down to focus on specific supply-side policies, offering clear examples of how they could work in reality in the UK. In terms of evaluation, as with question 7, the better evaluation points focused on critiquing the policies candidates had written about and explaining why they might not be effective. With supply-side policies, time lag is a common evaluation point, but candidates need to remember that they can't simply state that something like education improvements will have a time lag, they need to explain how and why there would be a time lag, and then link that to the question as who/why it therefore won't help to reduce inflation in the short term, which is particularly important at the moment. Better answers also often appreciated the context the UK economy is in at the moment, with lots of cost-push pressures causing inflation to be so high, and that affecting what policies are likely to be most effective in combatting inflation. This answer discusses contractionary fiscal policy to begin with. It has a diagram clearly illustrating how this would help to bring down inflation and some good context specific to the UK. However, the analysis isn't quite fully developed. The later explanation of supply-side policies is nowhere near as good, failing to really focus on one specific policy and therefore providing a very generic KAA level 2 point. Both evaluation points are reasonably well-developed, but are still lacking the completeness of the argument needed to achieve top level for evaluation. There is a good judgement at the end of this answer which is pleasing to read, but overall it isn't quite enough to get the whole essay into top level for evaluation. Therefore, overall this answer achieves KAA level 3 and Evaluation top of level 2. When writing about supply-side policies, don't discuss them as an overarching concept, focus on an actual, specific policy that the government could use. For example in the UK at the moment there is lots of discussion about the introduction of T-Levels to hopefully improve the quality of vocational education. This is a top-level answer that includes more points than was really needed. The first point isn't quite as well-developed as the rest of the essay, not quite making it into the top level for KAA, but everything else in the essay is clearly top-level writing. There are clear and well-developed chains of argument and it is particularly pleasing to read an answer which is clearly grounded in the real world of the UK economy. There is plenty of context throughout the answer, for example discussing how the UK is nearly at full employment and the impact of the UK leaving the European Union. Whilst this candidate has used nearly all the space provided, please don't feel that you need to do that. This writing is fairly large and also this candidate has written more points than they needed to. They could have stopped earlier and still achieved the same final mark. Examiners are definitely NOT looking for lots of different points in order to award the higher levels: it is all about the quality of the answer.

Notes from the mark scheme and report

• supply-side policies (education, infrastructure, tax cuts), lower non-tariff barriers, depreciation
• explain each with full chains of argument to competitiveness
• apply to the UK
• evaluate with time lags, cost, deficit

Mark scheme, including the levels grid and indicative content

Examiner's comment

2a This question was poorly understood, and the common confusion between deficits and debts was in evidence. - The candidates do not have to just use Figure 2 - anything from the extract is fine (all figures) but because it is mentioned in the question this must be a very good place to start - 1 implicit mark for national debt understanding - accumulation over time - 1 mark if able to identify a valid reason - Up to 2 for development of reason - 1 application mark for trend and 1 for data reference - Examples of the opportunity costs as analysis e.g. debt servicing Common confusion between debt and deficits: The above failed to score, as the data use was also linked to debt not deficits. This scored full marks: 2b - Must be the impact on firms e.g. - costs, revenue, profit, motivation of workers - Do not award macroeconomic effects - consumption and AD A very common problem was to read the increase in unemployment from 5 to 6.1% as a 1.1% increase. It is strongly advised that the term ‘percentage points’ is used. This scored just one data mark (for the trend) but no marks for the use of 1.1%: The main problem however was not explaining the effect of increased unemployment on firms. Most gave solely macro diagrams and there were no links to the micro, so some impressive chains of reasoning involving AD shifts and multipliers did not unfortunately make a link to the question in many cases. This however scored nearly full marks (needed more evaluation): 2c - Can have one impact with the diagram (no need for 2 separate KAA points) - Do not accept supply and demand diagrams - Must be a shift - not static - Can be either - higher costs (either just AC or both MC and,AC) or increased revenue (to match explanation) and the alternative (revenues or costs) can be used as the evaluation. This answer goes on to evaluate, introduce a second point, then evaluate again, and then make a judgement. Clearly a 12/12 answer: Other diagrams were often used, but they are not advised. This scored 2/12 from the chain of reasoning, not the diagram (this was the total response, so clearly a time issue here too): 2d - 2d was much less popular. It was apparent that causes questions were more difficult for candidates to access than effects questions on this paper. - Can talk about actual or potential - Often hard to find micro factors - General lack of diagrams in the answers - EV - needs to be a criticism of their point (not just the opposite) - Needs to be in reference to the German economy in context for L4 - This answer clearly was going to be fully macro based, and the plan made it clear that the candidate was not confident in applying micro concepts in areas taught within the macro part of the specification. 2e - Needs to be in reference to German fiscal policy for L4 - Many did not successfully find a micro link to fiscal policy, but the most effect answers showed the effects on firms’ cost curves or the positive externalities in consumption of many public sector goods. This answer was clearly a L4 and L3 evaluation, right from the outset: It then goes onto a micro point, and although this isn’t perfectly drawn (MC does not going through the lowest part of AC2) there is every sense of the change costs but it does not give a verbal explanation of why there is only a change in fixed costs The answer as a whole (not fully shown here) did secure nearly full marks but would need a clear link as to why it is fixed and not variable costs changing to secure the higher level micro marks. In future the candidates taking this exam should address the following issues: Use the data in every question. This is a data response paper. Use a diagram in the longer questions if you can, even if it is not requested. For example, the essay question on government spending on public goods, or the essay question on electric cars, could have positive externalities in consumption, even if not required. Timing. Generally, allow a minute per mark, and this gives 20 minutes reading or correction time. You can achieve all the marks in this time, and you do not need to fill all the space available. Question spotting does not help. Candidates who think they know how to answer a certain type of question tend to give generic responses and do not read the data available. Explain every step in your chain of reasoning, and have multiple steps. Stick to either micro or macro in the non-25-mark questions. The questions are based on the separate four themes and you do not need to mix up your answers. Of course, synoptic answers are valid, but the safest and most reliable option is to ‘keep it simple’. Structure your answers around the material provided, rather than trying to pin the data onto a pre-learned theoretical answer. In your 25-mark essays, write an informed, critical conclusion weighing up your argument, not a summary. Return to the question, and answer it - avoiding the personal pronoun is preferred - in an informed and reasoned framework. with its registered office at 80 Strand, London, WC2R 0RL, United Kingdom

Notes from the mark scheme and report

• factors determining growth relative to other developed economies (Figure 3), actual or potential
• micro factors (infrastructure, skills, technology, labour costs) were often missing
• Level 4 needs Germany in context
• evaluation must criticise the point, not just state the opposite

Quantitative skills: QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Mark scheme, including the levels grid and indicative content

Examiner's comment

Question 6d is a 10-mark question, and students found this slightly more difficult than the previous question. This was in many instances down to students not reading the question carefully and thinking about the context they have been given. This question is about Nigeria joining the African Continental Free Trade Agreement. The key thing here is, if Nigeria did decide to join, what policies the government could put in place to alleviate the concerns of the country’s manufacturers and trade unions. If Nigeria did decide to join this trade bloc, then it would involve the country agreeing to ‘removing tariffs on 90% of goods and to liberalise services’ (Extract B lines 4-5). As such answers suggesting that Nigeria could impose protectionist policies such as tariffs or quotas against imports from other African countries simply don’t make logical sense. You can’t join a trade bloc and remove tariffs, then put those tariffs back again. This highlights the importance of students making sure their answers are sensible and plausible in light of the context of the question. The last question in Section B, question 6e, is about the benefits of increased economic integration for sub-Saharan African countries. In order to access level 3 for Knowledge, Application, and Analysis students needed to make sure they referred specifically to benefits for sub-Saharan African countries, as asked to in the question. Better answers often discussed the benefits resulting from trade creation, and the downsides (as evaluation) being caused by trade diversion. But there were other good answers on topics such as increased employment or rising incomes. In evaluation points students sometimes failed to clearly explain how it was a downside of increased economic integration, and there was sometimes a tendency to mention several different evaluative ideas rather than offer a clear explanation of a specific point. The last part of this exam paper, Section C, provides students with two essay questions. They have to choose to answer one of them. In this exam paper question 7 proved to be significantly more popular than question 8, with only around 10% of students sitting the paper choosing to answer question 8. Students, on average, did perform better on question 7, but then the numbers are so low for question 8 that this isn’t really statistically significant.

Notes from the mark scheme and report

• policies to make manufacturers competitive inside the bloc (supply-side education and healthcare, deregulation, infrastructure, temporary subsidies, lower business taxes)
• tariffs or quotas on bloc members make no sense once Nigeria has joined and removed tariffs on 90% of goods
• evaluate time lags, opportunity cost

Mark scheme, including the levels grid and indicative content

Examiner's comment

Comparative advantage and more competitive, and more efficient. Diagram does not show the change – just shows the effect of free trade. Explanation is so good that the marks are given. Allow L4. Good point that wages will rise, with a correct diagram, so L3e. Changes in income tax as micro point – well linked to labour market effects. Corporation tax has also fallen Diagram showing fall in AC shown (although shift not very clear) – analysis is correct, so L4 Eval slightly weaker as you cannot claim JSA if in labour market Some confusion on data. L2e- L4 for both, L3 + L2 eval so 16 + 7e – we are not penalising but would suggest that shifts are shown arrows.

Notes from the mark scheme and report

• Level 4 needs both micro policies (labour costs and ULCs, investment subsidies, skills, infrastructure) and macro policies (trade liberalisation, tax changes, monetary policy)
• show shifts with arrows on diagrams
• evaluate with relative competitiveness, the exchange rate, Brexit, opportunity cost, government failure

Mark scheme

Examiner's comment

In this question there is 1 mark for knowledge and 1 for analysis. The knowledge mark comes from identification of a relevant reason for Estonia's rising labour costs. The analysis mark is awarded for 'linked development', explaining/justifying how the candidate's reason could lead to higher unit labour costs. This answer achieves full marks. The candidate has identified one reason as wage-price spiral/high inflation. They then go on to analyse it by explaining how workers will ask for higher wages. Get straight on and answer the question, just like this candidate has done. This answer achieves only the knowledge mark. The candidate has mentioned a reason in the form of an increase in emigration but they have failed to explain how this could cause Estonia's unit labour costs to rise. The first two lines of this answer don't do anything to answer the question - candidates need to focus their time specifically on answering the question, that is what will earn them marks.

Notes from the mark scheme and report

• one reason (faster growth, low unemployment, minimum wage rise, low productivity, labour shortage) plus linked development, e.g. workers can bargain for higher pay

Quantitative skills: QS 5 (calculate and interpret index numbers)

Mark scheme

Examiner's comment

In this question there is one knowledge mark available for an understanding that competitiveness will fall/decrease (or words to that effect). The second mark, for analysis, is for explaining how rising unit labour costs will lead to reduced competitiveness. This answer achieves 1/2 marks. The knowledge mark is awarded for saying that Estonia will be less internationally competitive. The rest of the answer which focuses on FDI doesn't answer the question. This answer achieves full marks. The candidate straight away gets the knowledge mark for saying that competitiveness will decrease. The analysis mark is awarded for the explanation of how this means higher costs of production. Be accurate and concise in these answers - this answer isn't very long but the candidate has done what is required and so gets full marks.

Notes from the mark scheme and report

• rising unit labour costs reduce competitiveness: exports become dearer than those of e.g. France
• points about FDI do not answer the question

Answer

C

Mark scheme

Notes from the mark scheme and report

• index 113 with base 100 means a 13% rise (C)
• 113% confuses the index with the change, 11.3% and 3% are misreadings

Quantitative skills: QS 5 (calculate and interpret index numbers)

Mark scheme, including the levels grid and indicative content

Examiner's comment

An effective question in terms of discrimination, on which well-prepared candidates scored well, responding to the single request rather than having to look at more than one variable as in 2(e). Candidates gave a good amount of evaluation with this question. This was a question about the factors affecting competitiveness, not about the effects of improved competitiveness. However, the advantage of this was that it made it into a question based on Year 13 work, much more in line with 2(e) in terms of difficulty, and one in which the data on productivity and the Living Wage in the passage could be used to great effect. Many answers focused on the Brexit issue, which was clearly on the minds of many candidates, but many failed to realise that at the time of the exam the UK had not actually left the EU and therefore is unable to alter independently its level of protectionism. There were some stronger answers using the prospect of Brexit, and in particular, the effect of exchange rate changes since June 2016, but it should be advised that the data provided is the best place to start in choosing points to make. Better candidates recognised this and were able to discuss both price and non-price factors that impact on competitiveness and particularly refer to the "productivity puzzle" concerning the UK. There was a tendency to provide far too many influences at not sufficient detail but generally there were good responses with evidence based analysis and evaluation of both micro and macro. However, as with the other essays, far too many candidates offer separate influences rather than observing how a micro influence is also linked to a macro influence making their essays longer and time consuming. These responses rarely achieve higher than L3 and are often confused, fragmented and with very limited chains of reasoning. Another frequent problem was misunderstanding of the data on productivity in Figure 6, and answers and evaluation which strayed into the effects rather than the causes of competitiveness. A frequent discussion was the effects of a low exchange rate, for example, with the Marshall-Lerner condition, but it was difficult to see how this related to the question. This answer refers to effects rather than causes in paragraph 3 of the first page, but the benefit of doubt was given as the answer does return to causes several times. There is significant misunderstanding of the data in Figure 6 (very common) and the links made are not extended. This starts as a narrow and repetitive response, but develops into strong L4 on the penultimate page, with some judgement at Level 3 on the final page. KAA L2 (10): L3 (weak data, some errors), L3 - (OMS) EV L2 (3): E2; not sustained 13/25 Read data based on an index very carefully. If countries are at 100 it does not mean they are all the same. KAA L4 (14): L4-, repeat, L3 (too similar), L4 EV L3 (7): E2, E3-, E3- 21/25 Definitions are not required (unless specifically requested in a question) but they are a useful way to keep the answer focused on the question. This candidate left the definition until the end of the final page, but the understanding was clearly there throughout the whole answer.

Notes from the mark scheme and report

• asks for influences on competitiveness, not the effects of it
• productivity (Figure 6, the productivity puzzle), unit labour costs, NLW, real exchange rate, infrastructure, price and non-price factors
• avoid long lists of influences
• UK had not yet left the EU

Quantitative skills: QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)