What does the future hold for Sweden? Sweden is a highly developed European country which enjoys one of the highest standards of living in the world. In 2012, its citizens enjoyed an average income of US$49000. The country's labour force of five million is highly skilled. About 70% of schoolchildren go on to university. Over the years, investment has been high in Sweden and as a result there is a high value of capital goods for each worker to use. In 2012, however, its economic growth rate slowed. The Swedish Government was hoping that its decision to raise the retirement age to 67 would increase the country's economic growth rate. Sweden exports half of its output. It exports a range of products including cars and capital goods. Among the country's imports are petrol, cars and iron. Table 1 shows the balance of the current account of its balance of payments over the period 2008–2013. Table 1: Sweden's current account balance, 2008-2013 Year Current account balance US$ billion as a % of Gross Domestic Product (GDP) 2008 +38 6.9 2009 +31 7.0 2010 +31 6.8 2011 +32 6.4 2012 +39 7.1 2013 +40 7.2 A country's trade position is influenced by its inflation rate. Indeed, a fall in a country's inflation rate can increase the international competitiveness of its products. The Swedish Government aims to keep the annual inflation rate at 2% or below. If there is a risk that the inflation rate will exceed the 2% target, the Swedish Central Bank will raise the interest rate. Such a change will be likely to influence consumer expenditure, investment and the exchange rate. In recent years, Sweden's inflation rate has remained low, averaging 1.9% between 2008 and 2013. The low inflation rate provides certainty for Swedish firms. The best known Swedish firm is probably IKEA, which produces furniture and household accessories. In 2012, it reduced its prices which, as on previous occasions, resulted in a rise in its revenue. In 2013, its owners stated that their main goal was to increase the size of the firm by opening new stores throughout the world, including in its expanding markets in China and Russia.

Mark scheme

Marking points from the official mark scheme (May/June 2015). The mark or mark type is shown in brackets.

1. [2] One mark each for two of the following: high standard of living; high average income; skilled labour force; high proportion of children going to university; high level of investment
2. [1] more people will be in the labour force
3. [1] this will increase potential/long run economic growth
4. [1] if the people are employed
5. [1] output will rise
6. [1] more people will be earning an income
7. [1] this will increase demand
8. [1] higher demand will encourage firms to increase their output
9. [1] it will reduce the cost of pensions
10. [1] enabling the government to spend more on e.g. education which can promote growth
11. [1] there will be more older workers
12. [1] who may be more experienced/skilled and so more productive
13. [1] for recognition of surplus e.g. it was in surplus throughout the period / fell at the start and then rose / fluctuated
14. [1] for a description of how the figures changed between 2008 and 2013 e.g. increases from US38 bn to US40 bn / shows an increase of US$2bn
15. [1] it increased
16. [1] although current account balance remained unchanged as a percentage of GDP it fell
17. [2] it changed from 442.86bn (443bn) to 455.89bn (456bn)
18. [1] home produced cars may be in demand abroad because of competitive prices/high quality
19. [1] may import cars to obtain a greater variety / are cheaper
20. [2] may export luxury cars and import basic cars or vice versa
21. [2] certain models may be exported e.g. family cars whilst other models are imported e.g. sports cars
22. [1] a rise in the rate of interest may reduce consumer expenditure
23. [1] may reduce investment
24. [1] because the cost of borrowing will be higher
25. [1] increase saving
26. [1] the return from saving will be greater
27. [1] people/firms who have borrowed in the past will have less to spend
28. [1] lower demand will put downward pressure on the price level
29. [1] reduce demand-pull inflation
30. [1] a rise in the rate of interest may attract hot money flows/financial investment into the country
31. [1] this will raise demand for the currency
32. [1] higher demand for the currency will raise the exchange rate
33. [1] a higher exchange rate will raise export prices and lower import prices
34. [1] changes in the price of exports and imports will put pressure on domestic producers to keep prices low
35. [1] a reduction in the price of imported raw materials will lower costs of production
36. [1] lower costs will reduce cost-push inflation
37. [1] the fall in the inflation rate may mean the price of the country's exports may be lower
38. [1] than the price of its rivals' products
39. [1] this will increase international price competitiveness
40. [1] this may increase demand for its products
41. [1] quality may be lower
42. [1] rival countries' inflation rates may be lower
43. [1] inflation rates may be lower but the initial price level may have been higher
44. [1] a rise in the country's exchange rate may offset the effect of the fall in the inflation rate
45. [1] trade protection measures may offset the effect of the fall in the inflation rate
46. [1] price elastic
47. [1] reduction in price increased revenue
48. [1] growth may increase revenue
49. [1] enabling a firm to expand overseas and become a multinational company
50. [1] example(s) of benefits of being an MNC
51. [1] growth may reduce competition
52. [1] a firm may grow by merging or taking over another firm
53. [1] will increase its market power/power to raise price
54. [1] growth may reduce a firm's costs of production
55. [1] as it may enable advantage to be taken of economies of scale
56. [1] example(s)
57. [1] growth can lead to higher profits in the long run
58. [1] as it may lower costs and raise revenue
59. [1] this can keep shareholders happy
60. [1] growth can increase the reward to directors and managers
61. [1] who are key decision makers in the firm's business strategy
62. [1] usually assumed profit maximisation is the main goal
63. [1] firms may engage in other objectives e.g. profit satisficing
64. [1] at difficult times e.g. during a recession
65. [1] survival may be the main goal
66. [1] different types of business organisation may have different goals
67. [1] e.g. a public corporation may seek to provide a public service
68. [1] may want to avoid diseconomies of scale
69. [1] example(s)
70. [1] there are benefits of staying small
71. [1] example(s)