The central bank of Madagascar intervenes in the country's foreign exchange market. However, Madagascar has a largely market economic system. Nearly 70% of Madagascar's population live in poverty. Most of the country's industries are labour-intensive. In 2020, Madagascar had an economic growth rate of 6% and a deficit on the current account of its balance of payments of $0.6bn.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2024). The mark or mark type is shown in brackets.

1. [1] An arrangement / place;
2. [1] where different countries' currencies are bought/demanded and sold/supplied one currency is exchanged for another currency.
3. [1] Labour may be low in price / wages may be low; [1] which might make labour cheaper than capital / there may be a high supply of labour.
4. [1] Labour may be very productive / efficient; [1] which can make employment profitable / result in low costs of production.
5. [1] The government may subsidise the employment of workers; [1] to reduce unemployment.
6. [1] The firm may provide personal services; [1] with individual attention.
7. [1] Labour may be more creative / adaptable / provide feedback; [1] produce high quality products / improve methods of production.
8. [1] Labour may be unskilled / low level of education; [1] unable to use high-tech capital equipment.
9. [1] Economic growth may increase employment; [1] increase wages / incomes / purchasing power; [1] this may increase imports.
10. [1] Higher consumer spending; [1] may encourage firms to switch products to the domestic market; [1] reduce exports; [1] increase / cause a current account deficit.
11. [1] To produce more goods and services, firms may import more raw materials; [1] capital goods.
12. [1] Economic growth may result in inflation; [1] which would make domestic products less price competitive.
13. [1] Economic growth may deplete resources; [1] increase need for imports.
14. [1] Economic growth may be export-led; [1] may be achieved by restricting imports; [1] result in a current account surplus.
15. [1] Migrant workers may send more money home.
16. [1] Export-led growth may increase the exchange rate; [1] which may increase imports / reduce exports.
17. [1] May be unemployment.
18. [1] Lack of welfare benefits.
19. [1] Likely to be income inequality.
20. [1] Merit goods including healthcare and education may be under-consumed and so underproduced.
21. [1] Monopolies may develop resulting in higher prices.
22. [1] Competition / profit motive may result in low prices.
23. [1] Efficiency is encouraged which can result in high wages and high employment.
24. [1] Greater response to changes in consumer demand, may increase economic growth.
25. [1] Countries with efficient private sector firms may have relative poverty but low absolute poverty.