The Mexican economy has recently been performing well. Its monetary policy has lowered inflation which has helped money in the country perform its functions more efficiently. The level of efficiency of a country's industries is influenced by a range of factors. These include the use of division of labour and the level of the country's trade protection.

Mark scheme

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

1. [2] (a) Decisions on interest rates (1) the money supply (1) the exchange rate (1)
2. [4] (b) • medium of exchange (1) money can be used to trade products/generally acceptable in buying and selling (1) • store of value (1) money can be saved/used in the future (1) • unit of account/measure of value (1) money can be used to compare the value of different products (1) • standard for deferred payments (1) money can allow people to borrow and lend (1)
3. [6] (c) : • division of labour involves workers specialising in particular tasks (1) • workers may become bored (1) they may make mistakes (1) products may have to be rejected (1) productivity may fall (1) • there may be a high turnover of workers (1) this will increase the cost of hiring workers (1) • workers may not be employed on tasks they are best at (1) this will mean productivity will be below potential (1) • if key workers are sick or leave (1) it may be difficult to cover for their absence (1) this can disrupt the production process (1) • more specialised workers may demand higher wages (1) increasing labour costs (1)
4. [8] (d) Up to 5 marks for why it might: [8] • may increase competition (1) this may put pressure on domestic firms to keep prices low (1) reduce inflation (1) • price of imported raw materials may fall (1) this may lower costs of production (1) reduce cost-push inflation (1) • finished imports may be cheaper (1) more imports can increase choice for consumers (1) • other countries may reciprocate (1) lower trade protection measures (1) enable the country to export more (1) raise output (1) increase employment (1) Up to 5 marks for why it might not: • may drive infant industries out of business (1) reduce output and employment in the long run (1) may harm the current account position (1) • may cause declining industries to go out of business more quickly (1) causing unemployment (1) • may increase dumping (1) foreign firms may be selling below cost price (1) unfair competition that may drive domestic firms out of business (1) • may lower government tax revenue (1) reduce expenditure on, e.g. health care, education (1) • may become dependent on other countries (1) risk of a supply-side shock (1)