A Level H1 Economics Practice Paper 3

TuitionGoWhere Practice Paper – Economics H1 A-Level

Answer Key and Marking Scheme

Paper: Practice Paper 1 – Case Study Questions
Version: 3 of 5
Total Marks: 100

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Case Study 1: The Market for Electric Vehicles in Singapore (50 marks)

Question 1 (2 marks)

Answer:
EV annual sales increased significantly from 1,200 units in 2019 to 9,800 units in 2023 [1], while ICE vehicle annual sales decreased from 85,000 units in 2019 to 52,000 units in 2023 [1].

Marking Notes:

• 1 mark for identifying the direction of EV sales trend (increase)
• 1 mark for identifying the direction of ICE vehicle sales trend (decrease)
• Must reference both trends for full marks
• Accept: "EV sales rose while ICE sales fell" or equivalent comparative language

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Question 2 (2 marks)

Answer:
Percentage change = [(140,000 – 180,000) / 180,000] × 100 [1]
= (–40,000 / 180,000) × 100
= –22.2% (decrease of 22.2%) [1]

Marking Notes:

• 1 mark for correct formula and substitution
• 1 mark for correct answer (–22.2% or decrease of 22.2%)
• Accept 22.2% decrease or –22.2%
• Award 1 mark if working is correct but final answer has minor rounding error

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Question 3 (2 marks)

Answer:
The two most important factors are:

1. Purchase price compared to ICE vehicles (78%) [1]
2. Availability of charging stations (72%) [1]

Marking Notes:

• 1 mark for each correct factor identified
• Must reference the percentages from Extract 3
• Must be the top two factors (78% and 72%)

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Question 4 (4 marks)

Answer:
The EV Early Adoption Incentive (EEAI) provides a rebate of up to $20,000, which effectively reduces the purchase price of EVs for consumers [1]. This increases the affordability of EVs, leading to an increase in demand (rightward shift of the demand curve from D1 to D2) [1]. As a result, the equilibrium quantity of EVs increases from Q1 to Q2, and the equilibrium price may increase from P1 to P2 depending on the price elasticity of supply [1].

Diagram:

• Correctly labelled axes: Price on vertical axis, Quantity on horizontal axis [0.5]
• Downward-sloping demand curve and upward-sloping supply curve [0.5]
• Rightward shift of demand curve (D1 to D2) clearly shown [0.5]
• New equilibrium point with higher quantity (and potentially higher price) indicated [0.5]

Marking Notes:

• 2 marks for explanation (1 mark for identifying subsidy effect, 1 mark for explaining demand shift and equilibrium change)
• 2 marks for diagram (as allocated above)
• Accept: Explanation that subsidy reduces effective price to consumers, increasing quantity demanded at each price level

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Question 5 (4 marks)

Answer:
Two constraints limiting PES for EV charging infrastructure:

1. Limited land availability [1]: Singapore has scarce land resources, making it difficult and time-consuming to find suitable locations for new charging stations. This limits the ability to increase supply quickly in response to rising demand, resulting in low PES [1].

2. High installation costs and grid upgrade requirements [1]: Installing charging stations requires significant capital investment and electrical grid upgrades, especially in older housing estates. These high fixed costs and long installation timelines mean supply cannot be increased rapidly, contributing to low PES [1].

Marking Notes:

• 2 marks for each constraint (1 mark for identification, 1 mark for explanation linking to PES)
• Must reference Extract 2
• Accept other valid constraints with explanation (e.g., regulatory approvals, technical standards)
• Award maximum 2 marks if constraints are stated without explanation

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Question 6 (6 marks)

Answer:
The data in Table 1 suggests that the PED for EVs in Singapore is likely price elastic (|PED| > 1) [1].

Evidence from Table 1:
As the average EV price fell from $180,000 in 2019 to$140,000 in 2023 (a 22.2% decrease), EV annual sales increased from 1,200 to 9,800 units (a 716.7% increase) [1]. The large proportionate increase in quantity demanded relative to the price decrease indicates elastic demand [1].

Determinants of PED supporting this conclusion:

1. Availability of substitutes [1]: EVs have close substitutes in the form of ICE vehicles. As EV prices fall relative to ICE vehicles (Table 1 shows ICE prices rising while EV prices fall), consumers switch from ICE vehicles to EVs, contributing to elastic demand [1].

2. Proportion of income [1]: Cars represent a significant proportion of household expenditure in Singapore. When a good takes up a large share of income, demand tends to be more price elastic as consumers are more sensitive to price changes [1].

Marking Notes:

• 1 mark for stating PED is likely elastic
• 1 mark for using data evidence from Table 1
• 1 mark for explaining the relationship between price and quantity changes
• Up to 3 marks for explaining determinants (1 mark per determinant with explanation, maximum 2 determinants)
• Accept: Discussion of luxury vs. necessity, time period, brand loyalty as alternative determinants

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Question 7 (8 marks)

Answer:
Definition of market failure: Market failure occurs when the free market fails to allocate resources efficiently, resulting in a net social welfare loss [1].

Explanation of negative externality from ICE vehicles:
ICE vehicles produce negative externalities in the form of air pollution and carbon emissions [1]. These external costs include healthcare costs from respiratory illnesses ($1.2 billion annually) and environmental damage from climate change [1]. These costs are borne by third parties (society) rather than by the vehicle owners themselves [1].

Divergence between private and social costs:
The private cost to ICE vehicle owners includes the purchase price, fuel, and maintenance. However, the social cost includes both the private cost AND the external costs (pollution, healthcare, environmental damage) [1]. Therefore, Marginal Social Cost (MSC) is greater than Marginal Private Cost (MPC) [1].

Resulting market failure:
Because consumers only consider their private costs when deciding to purchase and use ICE vehicles, the market equilibrium occurs at Qm where MPC = MSB, rather than at the socially optimal quantity Qs where MSC = MSB [1]. This leads to overconsumption of ICE vehicles and a deadweight loss to society [1].

Diagram:

• Correctly labelled axes: Price/Costs on vertical axis, Quantity on horizontal axis
• Downward-sloping MSB curve
• MPC curve below MSC curve
• MSC curve above MPC curve, with vertical distance representing external cost
• Qm (market quantity) shown where MPC = MSB
• Qs (socially optimal quantity) shown where MSC = MSB
• Deadweight loss triangle shaded between Qs and Qm

Marking Notes:

• Up to 5 marks for written explanation (as allocated above)
• Up to 3 marks for diagram (1 mark for correct axes and curves, 1 mark for showing MSC > MPC, 1 mark for identifying Qm, Qs, and deadweight loss)
• Must reference Extract 5 for full marks
• Accept: Discussion of both negative production and negative consumption externalities

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Question 8 (10 marks)

Answer:
This question requires evaluation of subsidies as a policy tool to address market failure from ICE vehicles.

Explanation of how subsidies address market failure (Analysis):

Subsidies for EVs (such as the EEAI) reduce the effective price of EVs to consumers, increasing demand for EVs and reducing demand for ICE vehicles (substitution effect) [1]. This helps to internalise the positive externality of EV adoption (zero tailpipe emissions) and reduce the negative externality from ICE vehicles [1]. By shifting consumption from ICE vehicles to EVs, the market moves closer to the socially optimal outcome [1].

Arguments for subsidies being effective (Evaluation):

1. Directly addresses the price barrier: Extract 3 shows that 78% of consumers cite purchase price as "very important." Subsidies directly reduce this barrier, making EVs more affordable and accelerating adoption [1].

2. Evidence of effectiveness: Table 1 shows EV sales increasing from 1,200 to 9,800 units as prices fell and subsidies were available, suggesting subsidies have contributed to adoption [1].

3. Complements other policies: Subsidies can work alongside charging infrastructure investment (Extract 2) and regulations (2040 phase-out target) to create a comprehensive policy package [1].

Arguments against subsidies being the most effective (Evaluation):

1. Opportunity cost and fiscal burden: Extract 6 notes that subsidies use taxpayer money. The $30 million for charging infrastructure and EEAI rebates represent significant government expenditure that could be allocated to healthcare, education, or other priorities [1].

2. Market forces already driving adoption: Extract 6 argues that falling battery costs and technological improvements are already making EVs more competitive. Subsidies may simply reward consumers who would have purchased EVs anyway (deadweight loss of subsidy) [1].

3. Alternative policies may be more efficient: A carbon tax or congestion pricing directly targets the negative externality from ICE vehicles by making polluters pay the social cost. This follows the "polluter pays" principle and generates government revenue rather than requiring expenditure [1].

4. Infrastructure constraints: Extract 2 highlights charging infrastructure limitations. Without sufficient charging stations, subsidies alone cannot drive adoption (72% of consumers cite charging availability as very important in Extract 3) [1].

Judgment/Conclusion:
While subsidies have been effective in accelerating EV adoption in Singapore, they are unlikely to be the single most effective policy [1]. A combination of policies is needed: subsidies to address affordability, investment in charging infrastructure to address convenience concerns, and regulations (phase-out targets) to provide certainty. A carbon tax on ICE vehicles would more directly address the negative externality by internalising the external cost, while generating revenue that could fund EV infrastructure [1].

Marking Notes:

• Level 3 (8–10 marks): Comprehensive analysis with clear evaluation, balanced arguments, and justified conclusion. References to extracts and economic concepts throughout.
• Level 2 (5–7 marks): Good analysis with some evaluation. May lack balance or depth in conclusion.
• Level 1 (1–4 marks): Basic explanation of subsidies with limited evaluation. May be descriptive rather than analytical.
• Must reference extracts for higher marks
• Award marks for use of economic terminology (deadweight loss, internalising externalities, opportunity cost)

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Question 9 (6 marks)

Answer:
Definition of opportunity cost: Opportunity cost is the value of the next best alternative foregone when a choice is made [1].

Application to EV subsidies:
When the Singapore government provides EV subsidies (such as the EEAI rebates of up to $20,000 per vehicle), it uses government revenue that could have been spent on alternative uses [1].

Specific opportunity costs:

1. Reduced spending on other government priorities [1]: The funds used for EV subsidies could have been allocated to healthcare (e.g., building new hospitals), education (e.g., enhancing SkillsFuture programmes), or social support (e.g., increasing GST vouchers for lower-income households) [1].

2. Higher taxes or reduced fiscal space [1]: To fund subsidies without cutting other spending, the government may need to raise taxes (e.g., GST, corporate tax) or reduce its fiscal reserves. This imposes costs on taxpayers and may reduce private consumption and investment [1].

Marking Notes:

• 1 mark for defining opportunity cost
• 1 mark for applying concept to EV subsidies
• Up to 4 marks for explaining specific opportunity costs (2 marks per well-explained cost)
• Must reference Extract 6 for full marks
• Accept: Discussion of opportunity cost in terms of charging infrastructure vs. subsidies

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Question 10 (6 marks)

Answer:
Definition of PES: Price elasticity of supply measures the responsiveness of quantity supplied to a change in price [1].

Explanation of increasing PES over the next decade:

1. Technological improvements in battery production [1]: As battery technology improves, production costs fall and manufacturing processes become more efficient. This enables manufacturers to increase output more rapidly in response to price increases, increasing PES [1].

2. More manufacturers entering the market [1]: As more firms enter the EV market, total industry production capacity increases. With more producers and greater competition, the industry can respond more flexibly to price changes, increasing PES [1].

3. Longer time horizon [1]: Over a decade, firms can build new factories, expand production lines, and invest in research and development. In the long run, all factors of production are variable, making supply more price elastic than in the short run [1].

Conclusion: The PES for EVs is likely to increase significantly over the next decade as the industry matures, moving from relatively inelastic supply in the short run to more elastic supply in the long run.

Marking Notes:

• 1 mark for defining PES
• Up to 5 marks for explanation (approximately 1.5–2 marks per well-explained factor)
• Must link factors to PES concept (responsiveness of quantity supplied to price)
• Accept: Discussion of economies of scale, learning curve effects, government support for manufacturing

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Case Study 2: Singapore's Labour Market and Macroeconomic Challenges (50 marks)

Question 11 (2 marks)

Answer:
Singapore's unemployment rate increased from 2.3% in 2019 to 3.0% in 2020 [1], before declining steadily to 1.9% in 2023 [1].

Marking Notes:

• 1 mark for identifying the initial increase (2019 to 2020)
• 1 mark for identifying the subsequent decline (2020 to 2023)
• Must reference specific years and values from Table 2
• Accept: "Unemployment rose in 2020 then fell to a low of 1.9% by 2023"

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Question 12 (2 marks)

Answer:
Median monthly income increased from $4,534 in 2020 to$5,197 in 2023, a rise of $663 or 14.6% [1]. The CPI inflation rate increased from –0.2% in 2020 to 4.8% in 2023 [1]. While both increased, the rise in median income (14.6%) exceeded the cumulative inflation over the period, suggesting an increase in real income.

Marking Notes:

• 1 mark for identifying the change in median income (direction and approximate magnitude)
• 1 mark for identifying the change in CPI inflation rate
• Must reference Table 2
• Accept: Calculation of real income change as additional credit but not required for 2 marks

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Question 13 (4 marks)

Answer:
A very low unemployment rate of 1.9% may create the following challenges:

1. Wage pressures and inflation [1]: When unemployment is very low, firms compete for a limited pool of workers, bidding up wages. Extract 9 notes that "wage pressures are building." Rising wages can lead to cost-push inflation if firms pass on higher labour costs to consumers [1].

2. Labour shortages and capacity constraints [1]: Extract 9 states that "employers across multiple sectors report difficulty filling vacancies." With limited available workers, firms cannot expand output to meet demand, constraining economic growth. The resident labour force participation rate of 68.3% suggests limited scope for increasing the domestic workforce [1].

Marking Notes:

• 2 marks for each challenge (1 mark for identification, 1 mark for explanation)
• Must reference Extract 9
• Accept: Discussion of structural rigidities, reduced labour market flexibility, or impact on Singapore's competitiveness

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Question 14 (4 marks)

Answer:
The Monetary Authority of Singapore (MAS) uses the exchange rate as its primary monetary policy tool, managing the Singapore dollar against a basket of currencies (S$NEER) [1].

How appreciation reduces inflation:

1. Lower import prices [1]: When MAS allows the S$NEER to appreciate, imports become cheaper in Singapore dollar terms. Since Singapore imports most of its goods and raw materials, lower import prices directly reduce the cost of consumer goods and production inputs, reducing imported inflation [1].

2. Reduced aggregate demand pressure [1]: A stronger Singapore dollar makes exports more expensive and imports cheaper, reducing net exports (X–M). This reduces aggregate demand, easing demand-pull inflationary pressures [1].

Marking Notes:

• 1 mark for explaining MAS exchange rate policy mechanism
• Up to 3 marks for explaining how appreciation reduces inflation (1.5 marks per channel)
• Must reference Extract 10
• Accept: Discussion of pass-through effects, impact on inflation expectations

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Question 15 (6 marks)

Answer:
Consequence 1: Higher labour costs for businesses [1]
Tightening foreign worker policies reduces the supply of foreign workers, forcing firms to compete for a smaller pool of available labour. This drives up wages as firms offer higher pay to attract workers [1]. Higher labour costs increase firms' production costs, which may reduce their international competitiveness and profitability, particularly in labour-intensive sectors such as construction, retail, and food services [1].

Consequence 2: Incentive for productivity improvements [1]
With reduced access to low-cost foreign labour, firms face pressure to invest in automation, technology, and worker training to improve productivity [1]. In the long run, this can raise Singapore's productive capacity and shift the Long-Run Aggregate Supply (LRAS) curve rightward, supporting sustainable economic growth without fuelling inflation. The government's intention, as stated in Extract 8, is to "encourage productivity improvements" [1].

Marking Notes:

• 3 marks for each consequence (1 mark for identification, 2 marks for explanation)
• Must reference Extract 8
• Accept: Discussion of structural unemployment if workers lack skills for new roles, impact on specific sectors, or effects on income inequality
• Award maximum 3 marks if only one consequence is explained in depth

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Question 16 (6 marks)

Answer:
Definition of Gini coefficient: The Gini coefficient measures income inequality, ranging from 0 (perfect equality) to 1 (perfect inequality). A lower Gini coefficient indicates a more equal income distribution [1].

Explanation of why post-tax Gini is lower:

1. Progressive tax system [1]: Singapore's personal income tax system is progressive, meaning higher-income earners pay a larger proportion of their income in taxes. This reduces the disposable income of higher earners more than lower earners, compressing the income distribution and lowering the Gini coefficient [1].

2. Government transfers to lower-income groups [1]: The Singapore government provides targeted transfers such as GST vouchers, Workfare Income Supplement, and ComCare assistance to lower-income households. These transfers increase the income of lower-income groups, further reducing inequality [1].

3. Combined effect [1]: Table 3 shows Singapore's Gini coefficient falls from 0.45 (before tax) to 0.36 (after tax), a reduction of 0.09 points. This demonstrates that Singapore's tax and transfer system is effective in redistributing income and reducing inequality [1].

Marking Notes:

• 1 mark for defining Gini coefficient
• Up to 5 marks for explanation (approximately 1.5–2 marks per well-explained factor)
• Must reference Table 3
• Accept: Discussion of specific transfer programmes, comparison with other countries in Table 3

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Question 17 (8 marks)

Answer:
Expected inverse relationship: Economic theory (Okun's Law) suggests an inverse relationship between real GDP growth and unemployment. When GDP growth is strong, firms produce more output and hire more workers, reducing unemployment. When GDP growth is weak or negative, firms reduce output and lay off workers, increasing unemployment [1].

Analysis of Table 2 data:

2019–2020: The data reflects the expected inverse relationship [1]. Real GDP growth fell sharply from 1.3% to –4.1% (a contraction), and the unemployment rate rose from 2.3% to 3.0% [1]. This is consistent with the COVID-19 pandemic causing an economic downturn and job losses.

2020–2021: The data reflects the expected inverse relationship [1]. Real GDP growth rebounded strongly to 7.6%, and the unemployment rate fell from 3.0% to 2.7% [1]. The economic recovery led to increased hiring.

2021–2023: The relationship becomes less clear [1]. Real GDP growth slowed from 7.6% in 2021 to 3.6% in 2022 and 1.1% in 2023, yet the unemployment rate continued to fall from 2.7% to 2.1% to 1.9% [1]. This suggests that other factors, such as labour market tightness, structural changes, or lags in the relationship, may be at play [1].

Conclusion: While the data broadly supports the inverse relationship between GDP growth and unemployment, the 2021–2023 period shows that the relationship is not mechanical. Labour market tightness (Extract 9) and structural factors can cause unemployment to remain low even as GDP growth moderates [1].

Marking Notes:

• 1 mark for explaining the expected inverse relationship
• Up to 6 marks for data analysis (2 marks per time period analysed)
• 1 mark for conclusion evaluating whether data consistently reflects the relationship
• Must reference Table 2 data throughout
• Award marks for recognising that the relationship is not perfectly consistent

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Question 18 (8 marks)

Answer:
Material standard of living refers to the quantity and quality of goods and services that individuals can consume, typically measured by real income per capita [1].

Measure 1: Enhanced Workfare Income Supplement ($1.1 billion) [1]
The Workfare Income Supplement (WIS) provides direct cash payments and CPF contributions to lower-wage workers [1]. This increases the disposable income of lower-income households, enabling them to purchase more goods and services, directly improving their material standard of living [1]. By targeting lower-wage workers, the policy addresses income inequality and ensures that the benefits of economic growth are shared more broadly [1].

Measure 2: GST Voucher scheme ($1.2 billion) [1]
The GST Voucher scheme provides cash payments and Medisave top-ups to lower-income households to offset the impact of the GST increase [1]. This helps to maintain the purchasing power of lower-income households in the face of rising prices (CPI inflation of 4.8% in 2023, Extract 10), preventing a decline in their material standard of living [1]. Without such offsets, the GST increase would disproportionately affect lower-income households who spend a larger share of their income on consumption [1].

Marking Notes:

• 1 mark for defining material standard of living
• Up to 7 marks for explaining two measures (approximately 3.5 marks per measure)
• For each measure: 1 mark for identification, 1 mark for mechanism, 1.5 marks for linking to material SOL
• Must reference Extract 11
• Accept: Discussion of Progressive Wage Model or SkillsFuture credits as alternative measures
• Award maximum 4 marks if only one measure is explained

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Question 19 (4 marks)

Answer:
Unemployment rate comparison: Singapore's unemployment rate of 1.9% is significantly lower than the United Kingdom's 4.2% [1]. The difference of 2.3 percentage points indicates that Singapore's labour market is considerably tighter than the UK's [1].

Inflation rate comparison: Singapore's inflation rate of 4.8% is lower than the United Kingdom's 6.7% [1]. Despite Singapore's tighter labour market, its inflation rate is 1.9 percentage points lower, possibly reflecting the effectiveness of MAS's exchange rate policy (Extract 10) in containing imported inflation [1].

Marking Notes:

• 2 marks for unemployment comparison (1 mark for stating values, 1 mark for comparative insight)
• 2 marks for inflation comparison (1 mark for stating values, 1 mark for comparative insight)
• Must reference Table 3
• Accept: Discussion of possible reasons for differences as additional credit

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Question 20 (6 marks)

Answer:
This question requires evaluation of supply-side policies versus demand-management policies for Singapore's labour market challenges.

Supply-side policies (Analysis):

Supply-side policies aim to increase the economy's productive capacity and improve labour market efficiency [1]. Examples from the extracts include:

• SkillsFuture credits (Extract 11): Upgrading workers' skills improves labour productivity and employability, shifting LRAS rightward and enabling sustainable growth without inflation [1].
• Progressive Wage Model expansion (Extract 11): By setting wage floors and skills requirements, this policy encourages productivity improvements and reduces reliance on low-wage foreign labour [1].

Demand-management policies (Analysis):

Demand-management policies aim to influence aggregate demand to achieve macroeconomic goals [1]. Examples include:

• Fiscal measures (Extract 11): Enhanced Workfare and GST vouchers boost disposable income and consumption, supporting AD and employment in the short run [1].
• Monetary policy (Extract 10): MAS exchange rate policy manages inflation by influencing import prices and net exports, affecting AD [1].

Evaluation and Judgment:

Supply-side policies are likely more effective for Singapore's structural labour market challenges [1]. Singapore's unemployment rate is already very low (1.9%), suggesting the economy is near full employment. Further demand stimulus risks fuelling inflation without creating sustainable jobs. Supply-side policies address the root causes of labour market tightness: skills mismatches, low productivity in some sectors, and reliance on foreign labour [1].

However, demand-management policies remain important for short-term stabilisation and protecting living standards during inflationary periods (e.g., GST vouchers offsetting price increases) [1].

Conclusion: Supply-side policies are more effective for addressing Singapore's long-term labour market challenges, but a balanced approach combining both types of policies is needed to manage short-term fluctuations while building long-term productive capacity [1].

Marking Notes:

• Level 3 (5–6 marks): Clear evaluation with balanced discussion of both policy types, justified conclusion referencing Singapore's specific context
• Level 2 (3–4 marks): Good analysis of both policy types with some evaluation, may lack depth in judgment
• Level 1 (1–2 marks): Basic explanation of policies with limited evaluation
• Must reference extracts for higher marks
• Award marks for use of economic terminology (LRAS, full employment, structural vs. cyclical unemployment)

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— End of Answer Key —