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GCE Advanced Subsidiary Level and GCE Advanced Level

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MARK SCHEME for the October/November 2007 question paper

9708/02 Paper 2 (Data Response and Essay (Core)), maximum raw mark 40

This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners’ meeting before marking began. All Examiners are instructed that alternative correct answers and unexpected approaches in candidates’ scripts must be given marks that fairly reflect the relevant knowledge and skills demonstrated. Mark schemes must be read in conjunction with the question papers and the report on the examination.

CIE will not enter into discussions or correspondence in connection with these mark schemes.

CIE is publishing the mark schemes for the October/November 2007 question papers for most IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level syllabuses.

Page 2 1

Mark Scheme GCE A/AS LEVEL – October/November 2007

Syllabus 9708

Paper 02

(a) (i) Summarise the performance of the US current account balance between 1980 and 2002. [2] Mostly in deficit (1), only 3 surplus years (1), cyclical/volatile pattern (1), detail of cycle (1), any 2 points. (ii) Explain how the US might have been able to finance the current account position it faced between 1992 and 2002. [3] A worsening deficit needs extra funds (1), can come from capital, financial inflows (1), borrowing (1), use of reserves (1) – recognition of position (1), explanation of sources (2). (b) Suppose a country has a surplus on its current account. Explain how this may affect its exchange rate. [3] Fall in supply of domestic currency to buy imports (1), rise in demand for domestic currency from sale of exports (1), S and D changes cause exchange rate to appreciate (1). (c) (i) Outline how a depreciation of a country’s exchange rate may affect its current account balance. [3] Cheaper exports raise revenue (1), dearer imports cut expenditure (1), current account improves (1), credit Marshall Lerner (1) and J curve (1), to max 3 marks. (ii) Use Fig 1 and Fig 2 to analyse whether this expected effect of an exchange rate depreciation occurred for the US between 1980 and 2002. [3] Support: broadly weaker $ coincided with improving current account 1987-91 (2), weak values gave surplus 1980/1 and 1991 (2) but possible time lag (1), exceptions e.g. 1985-7, 1992, 2002 (1), to max 3 marks. (c) Discuss whether a government should try to fix its foreign exchange rate. [6]

for: e.g. stability to encourage trade and investment, own priorities e.g. exports from undervaluation, encourages responsible domestic policy. against: e.g. resists market pressures, requires reserves, deflationary policies, inappropriate value set. 1 side to max 4 marks, a well explained argument up to 2 marks.

© UCLES 2007

Page 3 2

Mark Scheme GCE A/AS LEVEL – October/November 2007

Syllabus 9708

Paper 02

(a) Explain how an equilibrium price for a product is established in the market and how it may change. [8] Equilibrium is when D=S and there is no tendency to change. Disequilibrium positions (QD more or less than QS) are corrected by responses of consumer and producer, which alter price. New equilibriums are created when changes in conditions cause shifts in D and S. This may be shown with diagrams. Knowledge of equilibrium Correction of disequilibriums Setting of new equilibriums 2 marks 3 marks 3 marks

(b) Discuss whether or not a firm’s revenue would increase, in response to price and income changes, if the price elasticity and income elasticity of demand for its product became highly elastic. [12] PED and YED measure the responsiveness of demand to...
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