People in Ecuador buy products using a variety of forms of money. The Ecuadorian government pays public sector workers' wages directly into their bank accounts. In 2019, some Ecuadorian firms' profits were affected by advances in technology. That year, the Ecuadorian government cut public sector workers' hours and, in 2020, it reduced its spending. Economists were uncertain what effect the decrease in government spending would have on unemployment.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2023). The mark or mark type is shown in brackets.

1. [2] 4(a) Two from: generally acceptable; portable; recognisable; divisible; durable; limited in supply / scarce; uniformity. If more than two characteristics of money are given, consider the first three. Accept an explanation of a characteristic e.g. money is easy to carry rather than using the word portable.
2. [4] 4(b) Logical explanation which might include: Wages may still be higher in the public sector (1) enabling workers to buy more goods and services (1). Fringe benefits may be better in the public sector (1) e.g. more generous state pensions (1). Reduction in working hours results in more leisure time (1) improving work life balance (1). Job security may be better in the public sector (1) less worry about losing jobs / few job opportunities in the private sector (1). Skills are not transferable to the private sector (1) e.g. occupational immobility (1). Working conditions may be better in the public sector (1) e.g. better health and safety standards (1). Reduction in working hours may not result in less pay (1) making working in the public sector more attractive / may benefit from more leisure time / reduction in stress at work (1). Also accept approach from the point of view of why workers would not want to work in the private sector. One mark each for each of two reasons identified and one mark each for each of two explanations. If more than two reasons are given, consider the first three.
3. [6] 4(c) Coherent analysis which might include: Advances in technology: will improve the quality of capital goods (1) this could raise productivity / efficiency (1) higher output / lower costs of production (1) increase profits (1). could raise the quality of products (1) create new products (1) increase demand / revenue (1). could lead to new products / innovation (1) which may lead to lower demand for related products leading to loss of profits (1) example e.g. development of electric cars has led to fall in demand for diesel cars (1). can enable online training of new skills (1) improving productivity / speeding up training / increases number that can be trained (1). can improve internet and social media links (1) able to contact more potential customers in other countries (1) thereby increasing revenue / profit (1). due to the initial high cost of buying / developing advanced technological equipment (1) can reduce profits in the short run (1). could lead to small firms being forced out of business (1) due to the cost of new technology / and its maintenance (1) reducing profits / making a loss (1). Note: Only reward lower cost of production once.
4. [8] 4(d) Why it might: a cut in government spending could on education / training could reduce skills / qualifications and labour productivity; reduction in skills /qualifications could increase structural unemployment; cut in government spending on public sector workers' wages could reduce, their motivation, may resign; lower government spending on providing information about job vacancies could increase frictional unemployment; lower government spending could reduce total demand which could cause cyclical unemployment. Why it might not: may reduce inflation, making products more internationally competitive, raising net exports; cut in government spending on unemployment benefits may reduce frictional unemployment; may enable taxes to be cut which could increase consumer spending and investment, leaving total demand and unemployment unchanged; amount of government spending may fall but it may be spent more effectively e.g. training may be more directed at skills required to fill vacancies. Note: Level 1 would be knowledge and understanding of unemployment and government spending or just identification of points.