Evaluate export-led growth as a strategy for an emerging economy.
4.3 · 4.1.2
China supports it- Average growth near 10% a year for three decades after 1978.
- SEZs drew in FDI, technology and management skills.
- Exports moved up the value chain into EVs and electronics.
China warns against it- Dependence on foreign demand; 2025 US tariffs hit exports to the US by 20%.
- Record surpluses provoke protectionism.
- Kept household consumption low; hard to rebalance later.
ChainExports ↑ → AD ↑ via (X−M) → firms expand, migrant workers move from farms to factories → productivity and LRAS ↑ → real incomes ↑.
JudgmentIt works best at an early stage when world markets are open and the country is small relative to them. China is now too big for the world to absorb its surpluses, so the strategy hits limits.
Discuss whether economic growth always improves living standards.
2.1.1 · 4.3.1
Yes- ~800 m out of extreme poverty.
- Life expectancy now about 79, similar to the US.
- Urbanisation from under 20% (1978) to 68% (2025).
Not always- Air pollution and emissions.
- High inequality; hukou excludes migrants from services.
- Low consumption share: much output went into investment, not spending.
ChainReal GDP ↑ → employment and wages ↑ → higher incomes → more spending on food, housing, health → living standards ↑, but only if gains reach households.
JudgmentDepends on how growth is distributed and what is produced. In China a lot of GDP was investment, so living standards rose more slowly than GDP.
Evaluate the likely consequences of deflation for an economy.
2.1.2
Harmful- Real debt burden rises for heavily indebted firms and local governments.
- Firms cut prices, margins and wages; price wars.
- Consumers may delay purchases.
Less harmful than it looks- Partly "good" deflation from cheaper batteries and solar (supply-side).
- Raises international competitiveness.
- Real incomes rise for those in work.
ChainWeak demand + overcapacity → prices fall → real value of debt ↑ → firms cut investment and hiring → AD ↓ → further price falls.
JudgmentCause matters. China's is mostly demand-side (weak consumption, property slump) and debt is high, so it is closer to harmful deflation, as in Japan in the 1990s.
Assess the impact of tariffs imposed by a large economy on its trading partner.
4.1.6
Big impact- Exports to the US fell 20% in 2025.
- Firms moved assembly to Vietnam and Mexico.
- Retaliation: Chinese export controls on rare earths.
Smaller than expected- Total exports still rose 5.5% in 2025.
- Trade diverted to ASEAN (+13%), Africa (+26%), EU (+8%).
- The surplus reached a record.
ChainTariff ↑ → price of Chinese goods in the US ↑ → US demand for them ↓ → China's exporters seek other markets → trade diversion.
JudgmentImpact depends on how many alternative markets exist and the price elasticity of demand for the goods. Goods with few substitutes (batteries, rare earths) are least affected.
Evaluate policies a government could use to increase household consumption.
2.2 · 2.6
Could work- Stronger pensions and healthcare to cut precautionary saving.
- Hukou reform so migrants get urban services.
- Trade-in subsidies for cars and appliances.
Limits- Falling house prices hurt confidence; wealth effect.
- Subsidies only bring spending forward.
- Welfare costs strain already high local debt.
ChainBetter safety net → less need for precautionary saving → APC ↑ → C ↑ → AD ↑ via multiplier → less reliance on exports and investment.
JudgmentStructural reforms work slowly and cost money; quick subsidies work fast but fade. The answer depends on time frame and confidence.
Discuss the economic effects of an ageing population.
2.3 · 4.5
Negative- Working-age population falls; LRAS growth slows.
- Pension and health spending rise.
- Higher dependency ratio; tax burden on fewer workers.
Can be offset- Raising retirement age (began 2025).
- Automation: China installs more industrial robots than any other country.
- Better education raises productivity per worker.
ChainFewer workers → labour supply ↓ → LRAS shifts left / grows slower → lower potential growth → tax base shrinks as pension costs rise.
JudgmentChina is "getting old before getting rich": ageing at Japan-like speed with half the income per head. Productivity growth is the deciding factor.
To what extent does rapid growth increase income inequality?
4.2.2
It did in China- Gini rose from about 0.30 in the early 1980s to 0.49 in 2008.
- Coastal export regions pulled ahead of inland provinces.
- Returns to capital and property rose faster than wages.
Not permanently- Gini has eased to ~0.46.
- Urban–rural income ratio fell from 3.3 to 2.3.
- Lewis turning point: surplus rural labour ran out and wages rose.
ChainIndustrial growth in coastal cities → higher wages there → gap with rural areas widens → once surplus labour is absorbed, wages rise everywhere → gap narrows (Kuznets).
JudgmentDepends on the stage of development and on policy, such as hukou and transfers. Wealth inequality may still be rising even as income gaps narrow.
Evaluate the role of the state in promoting economic development.
1.1.6 · 4.3.3
State helped- Infrastructure: high-speed rail, ports, power.
- Industrial policy built world leaders in EVs and solar.
- Fast mobilisation of saving into investment.
State failure- Over-investment, "ghost cities" and debt.
- SOEs less productive than private firms.
- Policy shocks (tech crackdown) hurt confidence.
ChainState directs credit to infrastructure → lower transport and energy costs → firms more productive and competitive → LRAS ↑.
JudgmentThe state was effective at catching up, when the targets were clear. It is less effective at the frontier, where markets must find new ideas. Government failure grows with time.
Assess the impact of globalisation on a developed economy such as the UK.
4.1.1
Gains- Cheaper goods kept UK inflation low in the 2000s.
- Lower-cost EVs and solar help net-zero goals.
- Export market for UK services and luxury goods.
Costs- "China shock": manufacturing job losses in some regions.
- Competition for UK and EU car makers.
- Supply-chain dependence on critical minerals.
ChainCheaper Chinese imports → lower prices for UK consumers → real incomes ↑, but UK producers lose market share → structural unemployment in exposed regions.
JudgmentGains are spread thinly across all consumers; losses are concentrated in particular places. The net effect is positive, but the regional costs are lasting.
Evaluate the benefits of a managed exchange rate system.
4.1.8
Benefits- Stability for exporters and investors.
- Can hold the currency down to support exports (accused in the 2000s).
- Capital controls protect against sudden outflows.
Costs- Needs large reserves (China holds around $3 trn).
- Trading partners object and retaliate.
- Limits the yuan's use as a global currency.
ChainCentral bank buys dollars and sells yuan → yuan kept weaker → exports cheaper abroad → (X−M) ↑ → AD ↑, but reserves build up and tensions rise.
JudgmentSuits a fast-growing exporter with capital controls. As an economy matures and wants a global currency, more flexibility makes sense.