The Indian government subsidises the country's exports of cotton textiles. The USA, the largest buyer of Indian cotton textiles, benefited from this. India planned to stop the subsidy by 2019. This was welcomed by other cotton textile exporters. The USA may not be much affected, in part, because income usually rises in the country. The value of the Indian rupee against the US dollar was relatively stable in this period but rose slightly in mid-2017.

Mark scheme

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

1. [1] (a) An export is sold to other countries / outflow of goods and services in exchange for money / credit item in the balance of payments
2. [1] (a) an import is purchased from other countries / inflow of goods and services in exchange for money / debit item in the balance of payments
3. [1] (b) A rise in income abroad will increase the countries' ability to purchase products
4. [1] (b) demand for this country's exports may rise
5. [1] (b) particularly luxury products / products without domestic substitutes
6. [1] (b) exports are a credit item in the trade in goods balance
7. [1] (b) the trade in goods balance may improve
8. [1] (b) may move from a deficit to a surplus / any deficit may be reduced / any surplus may be increased
9. [1] (b) The rise in income may be the result of the countries selling more goods to this country
10. [1] (b) this may increase the country's imports
11. [1] (b) imports are a debit term
12. [1] (b) the trade in goods balance may move from a surplus to deficit / any deficit may become larger / any surplus may get smaller
13. [1] (c) A rise in the exchange rate will make exports more expensive
14. [1] (c) imports cheaper
15. [1] (c) demand for exports may fall / export revenue may decrease
16. [1] (c) demand for imports may rise / import expenditure may rise
17. [1] (c) net exports may fall
18. [1] (c) total (aggregate) demand may fall
19. [1] (c) output may decline
20. [1] (c) demand for labour may fall
21. [1] (c) unemployment may rise
22. [1] (c) cyclical unemployment
23. [1] (d) A subsidy would lower costs of production
24. [1] (d) lower the price of exports
25. [1] (d) this may make them more internationally competitive
26. [1] (d) Some industries producing exports may be infant industries
27. [1] (d) may need support before advantage can be taken of economies of scale
28. [1] (d) Exports may rise
29. [1] (d) this may improve the current account / trade in goods and services balance
30. [1] (d) raise GDP / increase economic growth
31. [1] (d) increase employment / lower unemployment
32. [1] (d) Some domestic firms may already be price competitive
33. [1] (d) and so do not need a subsidy
34. [1] (d) The subsidy may encourage some domestic firms to become inefficient
35. [1] (d) not cutting their costs
36. [1] (d) and improving the quality of their output
37. [1] (d) It may be regarded to be a form of trade protection
38. [1] (d) other countries may retaliate
39. [1] (d) so exports may not increase
40. [1] (d) There will be an opportunity cost involved
41. [1] (d) example