Discuss the possible effects on QH of the changes to the macroeconomic policies as announced by the Finance Minister of Country Z.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.

1. [0] Examiners note: answer should focus on effects on QH. This question is about policies, not indicators in table 2, although information in table 2 may support points
2. [0] Answers could include: Explanation of the operation of the polices and their possible effects
3. [1] Knowledge: Income tax - direct tax on earnings
4. [1] Knowledge: Interest rates – cost of borrowing/reward for savings
5. [1] Knowledge: Subsidies for exporters – government payment to encourage increase in exports. Reduces costs.
6. [1] Knowledge: Sales tax - indirect tax on spending, increases prices
7. [1] Knowledge: Tax on land developed for housing – indirect tax making development more expensive
8. [1] Application: Homes often bought on borrowed money
9. [1] Application: QH considering exporting
10. [1] Application: QH homes cost over $1000
11. [1] Application: Taxing land for house building will raise cost of land for houses
12. [1] Application: Linking policies to indicators in Table 2 (these are actual rather than forecast)
13. [1] Application: Increasing interest rates to reduce inflation which has been increasing
14. [1] Application: Increasing interest rates would lead to appreciation of exchange rate (other things being equal)
15. [1] Application: Increasing interest rates may exacerbate slowdown in economic growth
16. [1] Application: Higher rate of income tax would reverse current trend of proportion of income tax collected from higher earners
17. [1] Analysis: High earners likely to buy QH homes as major spending (or not as QH homes are cheap) so higher income tax might decrease QH sales or have no effect
18. [1] Analysis: Increase in interest rates raises cost of loans so house sales fall
19. [1] Analysis: Increase in interest rates may mean higher costs for QH if borrowing needed for materials
20. [1] Analysis: Export subsidies lower cost of exporting so QH more likely to decide to export
21. [1] Analysis: Higher purchase tax increases cost of homes so QH sales fall
22. [1] Analysis: Tax on house building land increases cost of housing land so QH sales fall
23. [1] Evaluation: Effects may depend on other policies or macroeconomic changes, e.g. changes in exchange rates, competition
24. [1] Evaluation: The forecast data does not take into account the policy changes, which are not known quantitatively
25. [1] Evaluation: The proposed policy changes may not be implemented
26. [1] Evaluation: If the forecasts are accurate then higher unemployment, inflation, interest rates and lower economic growth are likely to reduce QH sales, as might the increase in tax % paid by richest 10%
27. [1] Evaluation: If successful likely that unemployment goes higher, inflation falls, growth falls so QH sales reduced by more
28. [1] Evaluation: Effect on exchange rate difficult to assess, possibly higher interest rates will reduce the rate of decrease
29. [1] Evaluation: Proposed government policy changes are in line with the forecasters view. To what extent will the forecast be accurate?