Read the source material carefully before answering Question 1. Source material: Cyprus Cyprus fact file | | 2015 | 2019 | |---|---|---| | Life expectancy (years) | 79 | 81 | | GDP per head | $23334 | $27900 | | Population | 1100000 | 1200000 | | Birth rate (per 1000) | 11.0 | 10.2 | Cyprus is a small country which had a relatively high HDI ranking in 2019. It exports a range of goods and services including fruit, pharmaceuticals and clothing. Cyprus imports the majority of the food it consumes but produces most of its own grapes and potatoes. In 2019, the global grape harvest was affected by bad weather. Global grape production fell by 35% which caused a shortage. Approximately 14% of Cyprus's labour force is employed in the primary sector. The average age of Cyprus's workers is increasing and more of them are now working past retirement age. This is particularly true of highly qualified workers who tend to be well-paid, healthy and have jobs that do not require physical strength. The rise in life expectancy and the increase in the cost of providing state pensions led some economists to suggest a rise in the retirement age. Such a change would have an impact on the government's budget balance. In 2019, the Cypriot government had a budget surplus. In contrast, Cyprus had a deficit on the current account of its balance of payments. The size of a country's current account balance can be influenced by its inflation rate. [Figure 1.1] shows selected countries' inflation rates (%) and current account balances (% of GDP) in 2019. Fig. 1.1 Inflation rates (%) and current account balances (% of GDP) in selected countries 2019 The interest rate in Cyprus was very low in 2019. It was expected that this would influence the country's investment. Since 2015, some of the country's firms have become more capital-intensive. This change has affected Cyprus's productivity and may have influenced the standard of products produced. In 2019, two concerns for the future of Cyprus's economy were that the quality of some of its agricultural land may decline and that some of its top entrepreneurs may emigrate.

Mark scheme

Marking points from the official mark scheme (May/June 2022). The mark or mark type is shown in brackets.

1. [1] 12 240 (1)
2. [1] GDP per head / per capita (1).
3. [1] HDI (1).
4. [1] Life expectancy / healthy people (1).
5. [1] Proportion of people in primary sector (1).
6. [1] Level of education / qualifications (1).
7. [1] Bad weather / failure of the grape harvest (1)
8. [1] there was a shortage (1)
9. [1] which means demand exceeded supply (1).
10. [1] Well-paid / good work benefits (1)
11. [1] which provides an incentive to work for longer / high job satisfaction / enter workforce late (1).
12. [1] Healthy (1)
13. [1] and so more able to work for longer / remain productive (1).
14. [1] Work in jobs which do not require physical strength / less tiring (1)
15. [1] older workers tend to be less strong / allows them to continue working as long as remain fit (1).
16. [1] A rise in the retirement age / less people retired will reduce the cost of pensions (1)
17. [1] may reduce government spending / government may spend on alternatives e.g., infrastructure, education or health (1).
18. [1] More people in work will increase incomes / businesses expand production (1)
19. [1] raise direct tax revenue (1)
20. [1] spending will increase (1) raise indirect tax revenue (1).
21. [1] Generally, an inverse relationship / the lower the inflation rate, the higher the current account surplus or the higher the inflation rate, the higher the current account deficit (1).
22. [1] Mongolia has the highest inflation rate (1) and the largest current account deficit (1)
23. [1] Mongolia / Kenya / Nepal have the highest inflation rates (1) all have a current account deficit (1).
24. [1] Iceland / Slovenia have a low rate of inflation (1) but have a current balance of payments surplus (1)
25. [1] Cyprus lowest inflation rate (1) but a current account deficit / 3rd highest current account deficit (1).
26. [1] Most of the table shows the expected relationship. (1)
27. [1] Low inflation rates may make products more price competitive / high inflation rates may make prices less price competitive (1)
28. [1] Quantity / quality of resources may have increased (1)
29. [1] retirement age may have increased (1)
30. [1] people living longer (1) so labour force is likely to have increased (1).
31. [1] Investment may have increased (1) due to low interest rates (1)
32. [1] more capital goods would increase productive capacity (1).
33. [1] Quantity and quality of resources may have decreased (1)
34. [1] land quality is decreasing (1) which will reduce the productivity of land (1).
35. [1] Entrepreneurs may emigrate (1) reducing the supply of enterprise / skilled workers (1).
36. [1] Birth rate is falling (1) size of workforce may fall in future (1)
37. [1] Covid-19 may have reduced productivity (1).
38. [1] For recognising that any of these reasons could result in PPC shifting to the left / stay unchanged (1).
39. [1] It may reduce costs of production / more efficient / may result in economies of scale (1)
40. [1] lower costs may reduce prices (1).
41. [1] It may avoid disruption to supply (1) as no industrial action / strikes (1).
42. [1] It may be quicker / faster (1) to respond to changes in consumer demand (1)
43. [1] It may raise quality (1) as absence of human error (1).
44. [1] Products may be standardised / lack variety (1)
45. [1] individual wants may not be met (1).
46. [1] Capital equipment may break down / costly to maintain (1)
47. [1] causing delays in production (1).
48. [1] Initial high cost of capital equipment (1) may push up prices (1).