Algeria's exports have been increasing in recent years. The country has experienced low inflation, in part, because of the fiscal and supply-side policy measures the government has introduced. In 2012, the Algerian Government stated its main objective was to reduce unemployment.

Mark scheme

Marking points from the official mark scheme (May/June 2014). The mark or mark type is shown in brackets.

1. [4] 1 mark for each of two reasons identified, e.g.:
2. fall in the exchange rate
3. fall in the inflation rate
4. rise in productivity
5. rise in income abroad
6. higher quality of goods produced
7. improved marketing of exports
8. provision of subsidies to domestic producers
9. growth in tourism
10. removal of trade restrictions by foreign governments
11. 1 mark for each of two descriptions, e.g.:
12. a fall in the exchange rate will reduce the price of exports and so should raise demand
13. a fall in inflation/rise in productivity/rise in the quality of products produced will make domestic products more internationally competitive
14. rise in incomes abroad may result in more exports being demanded
15. removal of trade restrictions will make it easier to sell exports abroad
16. improvement in quality of goods produced will increase demand
17. better marketing of exports will increase awareness of goods and services available
18. subsidies will reduce costs of production/exporting and will therefore increase exports
19. growth of the tourist industry in a country increases invisible exports
20. [6] Up to 2 marks: to ensure high output (1), which should mean higher living standards (1).
21. Up to 2 marks: to avoid poverty (1) and so reduce poor health/nutrition/low labour productivity (1).
22. Up to 2 marks: to avoid a waste of resources (1) as output could potentially be higher (1).
23. Up to 2 marks: to keep government spending on unemployment benefit low (1) as spending on benefits incurs an opportunity cost (1).
24. Up to 2 marks: to ensure high tax revenue (1) as employed people earn and spend more than unemployed people in general (1).
25. Note: accept answers which explain the government aim for low unemployment because of the cost of unemployment.
26. Note: a maximum of 6 marks overall.
27. [10] Up to 8 marks for why it should increase taxes:
28. Up to 7 marks: higher (income) taxes will reduce the amount people have to spend (1), and this is likely to lead to lower spending (1). Higher indirect taxes may also reduce spending (1). Higher taxes on firms' profits may reduce firms' investment (1) and this will lower the demand for capital goods (1). Lower overall spending will reduce total (aggregate) demand (1). With less pressure from demand, prices may rise more slowly/fall (1). This may reduce demand-pull inflation (1).
29. Up to 4 marks: lower inflation may make a country's products more internationally competitive (1) and so may raise employment (1) and economic growth (1) and improve the balance of payments (1).
30. Up to 5 marks: may be adverse side effects of increasing taxes – lower demand may cause unemployment (1), lower demand may reduce economic growth (1), higher taxes may increase firms' costs (1), may encourage workers to ask for pay rises (1) and so may cause cost-push inflation (1).
31. Up to 8 marks for why it should reduce taxes:
32. Up to 5 marks: will increase disposable income/amount of money people have to spend from working (1) and the profit firms can keep (1). This may act as an incentive to effort (1), which may increase output (1) and so reduce cost-push inflation (1).
33. Up to 3 marks: lower taxes on firms will reduce their costs of production (1), this can increase total (aggregate) supply (1) and so reduce cost-push inflation (1).
34. Up to 6 marks: may encourage MNCs to set up in the country (1) as their profits may rise (1) due to higher consumer spending (1) and possibly lower corporate tax (1). MNCs may use more advanced technology (1) and this can reduce cost-push inflation (1).
35. Up to 3 marks: lower income tax may reduce wage claims (1); this will reduce the increase in firms' costs of production (1) and so lower cost-push inflation (1).
36. Up to 2 marks: lower taxes on firms' profits, which increase investment, will in the long run increase productive capacity (1), which should lower cost-push inflation (1).
37. Up to 4 marks: may be adverse side effects of decreasing taxes higher demand (1) may cause demand-pull inflation (1), may increase imports (1) and cause a current account deficit (1).
38. Maximum of 5 marks for a list or list-like response.
39. Note: a maximum of 10 marks overall.