(2023) A Level H2 Econs Paper 1 CSQ Q2

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2023 A Level CSQ2 Suggested Answers Outline

ai.

Old age dependency ratio was 10 (rounded off from 9.5) in 1990.

Old age dependency ratio was 23 (rounded off from 23.4) in 2020.

The old age dependency ratio has more than doubled in 2020 compared to 1990 (or significantly increased)

Note: if you didn’t round off to whole numbers, it’s probably ok. They rounded off to whole numbers for 2020 and 2010 data, so I followed.

aii.

Resident population 65 years & over increased more significantly than residents 20-64 years.

This would be due to increased birth rates from 1925 to 1955, resulting in an increase in population aged 65 years and over from 1990 to 2020.

OR

There is an increase in life expectancy from 1990 to 2020, resulting in a larger number of people living past 65.

b.

Figure 3 shows a population decline of between 1.4% to 18% between 2006 and 2030 for the countries listed.

Impacts on Aggregate demand

1. Decline in population size → decreased number of people consuming goods and services → decrease C → decrease AD

2. Poorer investment sentiments (about the shrinking market) → decrease I → decrease AD 

(show leftward shift of AD curve)

Impacts on Aggregate supply

1. Decline in population size → shrinking labour force → lower ability of economy to produce goods and services → decrease LRAS 

(show leftward shift of LRAS)

c.

1. When interest rates fall, more investments become profitable at a lower interest rate (according to the MEI), this should lead to an increase in Investments

2. However, given the pessimistic outlook on the economy, firms may consider it to be not worthwhile to invest if the population is shrinking (there are less people available to purchase goods and services)

3. Thus, firms may choose to cut investment in the domestic economy substantially, evans interest rates fall (there may choose to redeploy their funds elsewhere)

d.

The costs of having an ageing population

1. With an ageing population, AD may decrease due fall in consumption and investment → fall in AD → multiplied fall in real NY via k → lower economic growth

2. AS may also fall with a shrinking labour force → fall in potential economic growth

3. In addition, the budget position will also likely worsen since
   -The government will have to spend more on infrastructure (provide elderly friendly facilities), increased healthcare costs & pension payments
   -Less taxes might be collected if more workers are retiring instead of working (and paying personal income taxes)

The benefits of having an ageing population

1. As the case study suggest, there is more effort by both firms and the government in spending capital to reskill / upgrade workers to increase productivity → This can increase LRAS

Whether benefits outweigh cost depend on the following

1. Can the economy bring in foreign migrant workers to mitigate the shrink in labour force caused by an ageing population?

2. If the elderly workers retire at a later age, this may also mitigate the potential shrink in labour force, and these workers with disposable income can still continue to spend

e.

How immigration can promote economic growth

Immigration, via importing foreign workers can help to boost economic growth in the following ways

1. Importing foreign migrant workers → increase size of labour force → shift LRAS to the right → higher potential growth

2. Importing of foreign talent → provide skills transfers → increases productivity of the labour force → shifts LRAS to the right → potential growth

3. In addition, the increase number of foreign migrant workers with a working income will increase Consumption spending → increase C → increase AD → increase real NY via k → higher economic growth

Problems associated with immigration

1. Importing of cheap low skilled foreign workers → increase supply of low-skilled workers → reduce wages of low skilled (usually low income workers) → increases income inequality

2. Political issues in policy implementation (such policies are typically unpopular and hard to implement)

3. Put stress on infrastructure / cause inflation (e.g. demand pull inflation due to increase in demand for housing)

Alternatives (Evaluative conclusion)

1. To avoid the problems associated with immigration, governments should consider implementing supply side policies such as
   -Reduced taxes for women re-joining the labour force (increase female labour force participation)

-Subsidies for firms to send workers for retraining / upskilling to increase productivity of workers
-Encourage workers to continue working past retirement age (job re-design, subsidies for firms to hire elderly workers)

1. Evaluate individual policies suggested.

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