Australia's foreign exchange rate fluctuates. The value of Australia's exports is regularly greater than the value of its imports. Australia is Papua New Guinea's main trading partner. In 2019, the government of Papua New Guinea increased income tax to reduce its inflation rate. It used other policy measures to increase its economic growth rate.

Mark scheme

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

1. [1] The price / value of a currency (1)
2. [1] in terms of another currency / currencies (1).
3. [1] Price of exports may be lower than price of other countries' products (1)
4. [1] due to e.g., devaluation / depreciation / weaker currency / higher productivity / lower inflation (1).
5. [1] Quality of exports may be higher than the quality of other countries' products (1)
6. [1] due to e.g., more investment / better education / specialisation (1).
7. [1] Incomes abroad may have increased (1)
8. [1] enabling foreigners to buy more of the country's products (1).
9. [1] Protective measures (1)
10. [1] restrict imports / subsidise domestic firms or exports (1).
11. [1] May have high value exports e.g., oil (1)
12. [1] with high (global) demand (1).
13. [1] Recession / low demand at home (1)
14. [1] results in fewer imports / encourages firms to export (1).
15. [1] An increase in income tax will reduce disposable income / purchasing power (1)
16. [1] this may reduce consumer spending (1)
17. [1] lower total demand (1)
18. [1] this may encourage firms to reduce prices / reduce price rises (1)
19. [1] lower demand-pull inflation (1).
20. [1] Increase in income tax may encourage workers to press for wage rises (1)
21. [1] increase costs of production (1)
22. [1] cause cost-push inflation (1).
23. [1] Income tax revenue can be used to provide e.g., subsidies to certain goods and services (1)
24. [1] reducing prices (1).
25. [1] economic growth can raise incomes
26. [1] higher incomes can raise living standards
27. [1] economic growth can reduce unemployment
28. [1] economic growth can increase tax revenue allowing the government to spend more on e.g., education.
29. [1] may deplete non-renewable resources which can reduce future growth
30. [1] may result in pollution
31. [1] may put other demands on workers who may have to work long hours
32. [1] may lead to a deficit on current account of the balance of payment
33. [1] may result in greater inequality
34. [1] risk of inflation