Refer to lines 70–75. Evaluate the most likely impact on IPA of the fiscal and monetary policy changes.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2025). The mark or mark type is shown in brackets.

1. [1] Knowledge: Fiscal policy is the management of aggregate demand through changes in taxation and government spending.
2. [1] Knowledge: Monetary policy involves changes in the money supply, interest rates and the exchange rate.
3. [1] Knowledge: Impact of generic fiscal and/or monetary policy changes on IPA: Increase or decrease in demand for products.
4. [1] Knowledge: Impact on tax paid by IPA affecting retained profits.
5. [1] Knowledge: Impact on costs of labour.
6. [1] Knowledge: Impact on borrowing costs.
7. [1] Application: Telecommunications infrastructure affects the usefulness of mobile phones to households/business.
8. [1] Application: Marketing objective of increasing sales volume by 60%.
9. [1] Application: Limited internet connectivity as a barrier to sales in rural areas.
10. [1] Application: Ambitious expansion plans of IPA.
11. [1] Application: IPA sales of mobile phones in 2024 of 104 000 units.
12. [1] Application: Increasing sales of refurbished smartphones to 14.2m in 2025.
13. [1] Application: Reduction in interest rates linked to financing costs of factory expansion.
14. [1] Application: Reduction in interest rates linked to high gearing and borrowing costs.
15. [1] Analysis: A decrease in income tax will increase disposable income of households. This will increase the demand for smartphones. Therefore, helping IPA to achieve its marketing objective.
16. [1] Analysis: Improved mobile signal coverage will make smartphones more useful in rural areas. Therefore, there may be an increase in demand for refurbished smartphone. This may increase IPA's profitability.
17. [1] Analysis: A reduction in income tax may reduce wage demands of workers. Therefore, this will limit cost increases faced by IPA. This will help increase profits.
18. [1] Analysis: Expansionary fiscal policy will boost aggregate demand and therefore increase demand for smartphone.
19. [1] Analysis: The cut in interest rates will increase the discretionary income of some consumers leading to an increase in demand for IPA's refurbished phone.
20. [1] Analysis: The cut in interest rates will reduce the cost of borrowing therefore decreasing interest payment on any borrowing that IPA needs for the factory extension making the project more profitable.
21. [1] Evaluation: Supported judgement as to overall impact of fiscal/monetary policy changes on IPA.
22. [1] Evaluation: Supported judgement as to which change is most significant to IPA.
23. [1] Evaluation: In the short run infrastructure projects may have limited or no impact on IPA sales as building mobile network infrastructure will take time.
24. [1] Evaluation: Impact of cut in income tax will depend on the income elasticity of demand for refurbished smartphones.
25. [1] Evaluation: Impact of income tax cuts will depend on the confidence of business and households about the future growth of the economy. If households lack confidence, they will choose to save rather than spend any increase in income.