Mexico has a history of trade deficits. The government is moving the economy closer to free trade, to try to improve its macroeconomic performance. It was predicted in 2017 that Mexico's economy would experience a small rise in its unemployment rate. In 2017 the economy's inflation rate was 6.6%, the highest rate since 2001. A number of policy measures may be used to reduce inflation, including increasing the rate of income tax.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2020). The mark or mark type is shown in brackets.

1. [2] Value of exports of goods / revenue earned from exports minus value of imports of goods / expenditure on imports of goods
2. [1] Exports minus imports of goods / visible items
3. [1] Availability of larger/global market
4. [1] may increase revenue/profit
5. [1] Ability to produce on a larger scale / higher output
6. [1] take advantage of economies of scale
7. [1] specialise
8. [1] Access to cheaper / better quality raw materials / raw materials without tariffs imposed on them
9. [1] lowering costs of production/raising quality of products produced/lowering price
10. [1] Access to advanced technology/ideas from abroad
11. [1] improved methods of production/new products
12. [1] Increased competitive pressure
13. [1] which may raise efficiency
14. [1] Axes correctly labelled
15. [1] Curve drawn as a curve or downward sloping line to the axes
16. [1] Two production points shown – one on or to left of PPC and the other further to the left of the PPC
17. [1] Movement of the production point inwards indicated by arrow or lettering
18. [1] Unemployment means resources are not used
19. [1] inefficiency
20. [1] reduces output/GDP / causes a recession
21. [1] reduce disposable income/purchasing power
22. [1] consumer expenditure likely to fall
23. [1] investment may fall
24. [1] total (aggregate) demand may fall
25. [1] demand-pull inflation may decrease
26. [1] higher government revenue may increase government spending on supply-side policy measures
27. [1] workers may seek higher wages
28. [1] higher wages may increase costs of production
29. [1] cost-push inflation/wage-price spiral may occur
30. [1] higher tax revenue may increase government spending
31. [1] higher government spending may offset lower consumer expenditure leaving total (aggregate) demand unchanged
32. [1] people may be very confident about the future so they cut back on savings rather than spending