International A Level (IAL)
Edexcel Economics
Unit 4: Developments in the global economy
Essay Samples
Light purple - Definitions
Red - Applications
Dark yellow - Diagrams
,Table of contents
Table of contents........................................................................................................................................... 1
1. Evaluate the extent to which an increase in the national debt is a cause for concern.
Refer to a developed country of your choice in your answer. (October 2020).........................2
2. Evaluate the macroeconomic effects of a fall in a country’s terms of trade on a
government’s macroeconomic objectives. Refer to a country of your choice in your answer.
(Jan 2021).........................................................................................................................................4
3. Evaluate measures that a developed country might take to increase its international
competitiveness. Refer to a developed country of your choice in your answer. (June 2021). 5
4. Evaluate the case for promoting economic development through debt relief. Refer to a
developing country of your choice in your answer. (June 2021)................................................6
5. Evaluate the likely impact of rapid economic growth in emerging economies on world
trade patterns. Refer to countries of your choice in your answer. (Oct 2021).......................... 7
6. Evaluate possible reasons why developed countries might restrict free trade. (Jan 2022) 8
7. Evaluate economic factors that constrain the growth and development of a developing
country. (Jan 2022)........................................................................................................................ 10
8. Evaluate the likely macroeconomic effects of an increase in the top rate of income tax on
a country of your choice. (June 2022).........................................................................................12
9. Evaluate the disadvantages of agricultural subsidies paid to farmers in developed
countries on developing countries. (Oct 2022).......................................................................... 14
10. Evaluate possible causes of a current account surplus. Refer to a developed country of
your choice in your answer. (Jan 2023)...................................................................................... 15
11. Evaluate the likely economic effects of an appreciation of a country’s currency on its
economy. Refer to a developed country of your choice in your answer. (June 2023)............16
12. Evaluate possible causes of an increase in income inequality within a country of your
choice. (June 2023)....................................................................................................................... 17
13. To what extent is a structural fiscal deficit more serious than a cyclical fiscal deficit?
Refer to a developing country of your choice in your answer. (Oct 2023).............................. 19
14. Evaluate the costs to a country of becoming a member of an economic and monetary
union. Refer to a country of your choice in your answer. (June 2024).................................... 20
1
, 1.Evaluate the extent to which an increase in the national debt is a cause for
concern. Refer to a developed country of your choice in your answer.
(October 2020)
National debt is the total accumulated borrowing of the government (from all previous deficits).
The deficit in one year adds to the national debt from previous years. For example, in January
2024, the UK public sector net debt was £2,685.6 billion or 97.7% of GDP.
Such a high national debt means that the government has to pay a large amount of debt servicing,
including interest payments. The future generations will have to pay higher taxes to repay today’s
borrowing, worsening their living standards. The government would spend less on welfare
payments and capital investment, resulting in lower economic growth. Therefore, unemployment
may rise as well. For instance, Greece’s government-debt crisis resulted in high unemployment,
an increase in taxes and low spending.
In addition, higher government borrowing increases the demand for borrowed funds, and thus,
interest rates - the cost of borrowing - also rise. This may cause crowding out of the private sector
since they would lower their investment to avoid paying high interest rates. There might be limited
credit available for the private sector. Hence, AD and LRAS would decrease, which may take away
the country’s international competitiveness, reducing exports and further lowering AD. This can be
seen clearly in the UK’s economy: it has been losing its competitiveness over the years due to
limited investment, and its economic growth rate has been very low.
(Insert an AD/LRAS diagram here, showing a fall in AD and LRAS through shifts. Show two
leftward shifts of the AD curve: first one for the decrease in investment, the second one for the
reduction in exports from less competitiveness.)
Furthermore, a high national debt may cause the country’s currency to depreciate. This may
happen due to several reasons. One reason is that the significant debt servicing payments
increase the money supply, which reduces the exchange rate. Another reason is that speculators
expect the country to be in poor economic conditions due to the high debt, resulting in them
moving their money to a different country. This causes the supply of the currency to increase in the
foreign exchange market, depreciating the currency. Currency depreciation means more of the
currency would be needed for debt servicing payments.
However, whether the national debt is a cause for concern depends on the type of fiscal deficits
that are increasing the national debt. A cyclical fiscal deficit would not require much concern, as
when the economy returns to boom and generates fiscal surpluses, the national debt would
automatically fall. If the fiscal deficit is structural, as is the case with the UK, then it may be a
problem.
Also, future generations may not have worse living standards as the funds from the debt may be
used to finance investment projects on infrastructure, technology, education and so on. Future
generations would benefit from such investments. If these investments cause incomes and
economic growth to increase in the future, tax collections might become significant enough to
repay the debts.
Moreover, crowding out may not occur as the government spending would lead to an increase in
the LRAS and AD, which is likely to increase business confidence, resulting in crowding in instead.
Lastly, the size of the national debt is crucial. For Portugal, Italy and the UK, the national debts are
very large. Hence, this may be a cause for concern.
2
,Overall, it is likely that an increase in the national debt is a cause for concern. Even if the size is
small, it should be checked whether the funds are being spent wisely for good returns in the future
to prevent any negative consequences for the economy.
3
, 2.Evaluate the macroeconomic effects of a fall in a country’s terms of trade
on a government’s macroeconomic objectives. Refer to a country of your
choice in your answer. (Jan 2021)
Terms of trade refer to the ratio of a country's average price of exports to the country's average
price of imports. For instance, Cambodia’s terms of trade fell by 31.3% from 2000 to 2018.
A fall in a country’s terms of trade means that either the price of exports has decreased or the
price of imports has increased. Lower export prices would increase export quantities, and higher
import prices would reduce import quantities. Either way, this improves the trade balance in the
balance of payments. Therefore, the macroeconomic objective of balance of payments equilibrium
on the current account would be met. One example of this is Bangladesh, which has been
experiencing declining terms of trade, resulting in a narrower trade deficit in its current account.
However, the effect on the balance of trade and the current account depends on the price elasticity
of demand (PED) of the country’s exports and imports. If the PED for exports is price inelastic,
then a fall in export prices will lower export value/revenue, deteriorating the trade balance and,
hence, the current account on the balance of payments instead.
Furthermore, the improvement of the trade balance is likely to increase aggregate demand in the
country, since (X-M) is a component of AD, and lower unemployment, especially in the export
industries. More workers are needed to produce export products to meet the increased demand.
Thus, the macroeconomic objective of low unemployment is also achieved.
Similarly, an increase in AD from a fall in the terms of trade suggests that the economic growth
rate also increased, meeting the objective of strong and, perhaps, sustainable economic growth.
In evaluation, economic growth may not increase, and unemployment may not fall if expensive
and price-inelastic imports reduce AD instead. This means that the positive effects of terms of
trade would be offset.
Additionally, as AD increases, inflation in the economy also increases. Both demand-pull and
cost-push inflationary pressures rise. Demand-pull inflation occurs due to the increase in AD, and
cost-push inflation occurs as imported raw materials are more expensive. Hence, this takes the
country away from the objective of low and stable inflation. For example, Bangladesh’s inflation
rate had increased to 12% in 2024 from higher costs of production.
Although inflation may not rise significantly if the economy has spare capacity and the multiplier
effect is low. And so inflation may still be low and stable.
In conclusion, a fall in the terms of trade can help to achieve some of the macroeconomic
objectives while moving away from the others.
(Insert one or two diagrams showing changes in AD mentioned in the essay.)
4
Edexcel Economics
Unit 4: Developments in the global economy
Essay Samples
Light purple - Definitions
Red - Applications
Dark yellow - Diagrams
,Table of contents
Table of contents........................................................................................................................................... 1
1. Evaluate the extent to which an increase in the national debt is a cause for concern.
Refer to a developed country of your choice in your answer. (October 2020).........................2
2. Evaluate the macroeconomic effects of a fall in a country’s terms of trade on a
government’s macroeconomic objectives. Refer to a country of your choice in your answer.
(Jan 2021).........................................................................................................................................4
3. Evaluate measures that a developed country might take to increase its international
competitiveness. Refer to a developed country of your choice in your answer. (June 2021). 5
4. Evaluate the case for promoting economic development through debt relief. Refer to a
developing country of your choice in your answer. (June 2021)................................................6
5. Evaluate the likely impact of rapid economic growth in emerging economies on world
trade patterns. Refer to countries of your choice in your answer. (Oct 2021).......................... 7
6. Evaluate possible reasons why developed countries might restrict free trade. (Jan 2022) 8
7. Evaluate economic factors that constrain the growth and development of a developing
country. (Jan 2022)........................................................................................................................ 10
8. Evaluate the likely macroeconomic effects of an increase in the top rate of income tax on
a country of your choice. (June 2022).........................................................................................12
9. Evaluate the disadvantages of agricultural subsidies paid to farmers in developed
countries on developing countries. (Oct 2022).......................................................................... 14
10. Evaluate possible causes of a current account surplus. Refer to a developed country of
your choice in your answer. (Jan 2023)...................................................................................... 15
11. Evaluate the likely economic effects of an appreciation of a country’s currency on its
economy. Refer to a developed country of your choice in your answer. (June 2023)............16
12. Evaluate possible causes of an increase in income inequality within a country of your
choice. (June 2023)....................................................................................................................... 17
13. To what extent is a structural fiscal deficit more serious than a cyclical fiscal deficit?
Refer to a developing country of your choice in your answer. (Oct 2023).............................. 19
14. Evaluate the costs to a country of becoming a member of an economic and monetary
union. Refer to a country of your choice in your answer. (June 2024).................................... 20
1
, 1.Evaluate the extent to which an increase in the national debt is a cause for
concern. Refer to a developed country of your choice in your answer.
(October 2020)
National debt is the total accumulated borrowing of the government (from all previous deficits).
The deficit in one year adds to the national debt from previous years. For example, in January
2024, the UK public sector net debt was £2,685.6 billion or 97.7% of GDP.
Such a high national debt means that the government has to pay a large amount of debt servicing,
including interest payments. The future generations will have to pay higher taxes to repay today’s
borrowing, worsening their living standards. The government would spend less on welfare
payments and capital investment, resulting in lower economic growth. Therefore, unemployment
may rise as well. For instance, Greece’s government-debt crisis resulted in high unemployment,
an increase in taxes and low spending.
In addition, higher government borrowing increases the demand for borrowed funds, and thus,
interest rates - the cost of borrowing - also rise. This may cause crowding out of the private sector
since they would lower their investment to avoid paying high interest rates. There might be limited
credit available for the private sector. Hence, AD and LRAS would decrease, which may take away
the country’s international competitiveness, reducing exports and further lowering AD. This can be
seen clearly in the UK’s economy: it has been losing its competitiveness over the years due to
limited investment, and its economic growth rate has been very low.
(Insert an AD/LRAS diagram here, showing a fall in AD and LRAS through shifts. Show two
leftward shifts of the AD curve: first one for the decrease in investment, the second one for the
reduction in exports from less competitiveness.)
Furthermore, a high national debt may cause the country’s currency to depreciate. This may
happen due to several reasons. One reason is that the significant debt servicing payments
increase the money supply, which reduces the exchange rate. Another reason is that speculators
expect the country to be in poor economic conditions due to the high debt, resulting in them
moving their money to a different country. This causes the supply of the currency to increase in the
foreign exchange market, depreciating the currency. Currency depreciation means more of the
currency would be needed for debt servicing payments.
However, whether the national debt is a cause for concern depends on the type of fiscal deficits
that are increasing the national debt. A cyclical fiscal deficit would not require much concern, as
when the economy returns to boom and generates fiscal surpluses, the national debt would
automatically fall. If the fiscal deficit is structural, as is the case with the UK, then it may be a
problem.
Also, future generations may not have worse living standards as the funds from the debt may be
used to finance investment projects on infrastructure, technology, education and so on. Future
generations would benefit from such investments. If these investments cause incomes and
economic growth to increase in the future, tax collections might become significant enough to
repay the debts.
Moreover, crowding out may not occur as the government spending would lead to an increase in
the LRAS and AD, which is likely to increase business confidence, resulting in crowding in instead.
Lastly, the size of the national debt is crucial. For Portugal, Italy and the UK, the national debts are
very large. Hence, this may be a cause for concern.
2
,Overall, it is likely that an increase in the national debt is a cause for concern. Even if the size is
small, it should be checked whether the funds are being spent wisely for good returns in the future
to prevent any negative consequences for the economy.
3
, 2.Evaluate the macroeconomic effects of a fall in a country’s terms of trade
on a government’s macroeconomic objectives. Refer to a country of your
choice in your answer. (Jan 2021)
Terms of trade refer to the ratio of a country's average price of exports to the country's average
price of imports. For instance, Cambodia’s terms of trade fell by 31.3% from 2000 to 2018.
A fall in a country’s terms of trade means that either the price of exports has decreased or the
price of imports has increased. Lower export prices would increase export quantities, and higher
import prices would reduce import quantities. Either way, this improves the trade balance in the
balance of payments. Therefore, the macroeconomic objective of balance of payments equilibrium
on the current account would be met. One example of this is Bangladesh, which has been
experiencing declining terms of trade, resulting in a narrower trade deficit in its current account.
However, the effect on the balance of trade and the current account depends on the price elasticity
of demand (PED) of the country’s exports and imports. If the PED for exports is price inelastic,
then a fall in export prices will lower export value/revenue, deteriorating the trade balance and,
hence, the current account on the balance of payments instead.
Furthermore, the improvement of the trade balance is likely to increase aggregate demand in the
country, since (X-M) is a component of AD, and lower unemployment, especially in the export
industries. More workers are needed to produce export products to meet the increased demand.
Thus, the macroeconomic objective of low unemployment is also achieved.
Similarly, an increase in AD from a fall in the terms of trade suggests that the economic growth
rate also increased, meeting the objective of strong and, perhaps, sustainable economic growth.
In evaluation, economic growth may not increase, and unemployment may not fall if expensive
and price-inelastic imports reduce AD instead. This means that the positive effects of terms of
trade would be offset.
Additionally, as AD increases, inflation in the economy also increases. Both demand-pull and
cost-push inflationary pressures rise. Demand-pull inflation occurs due to the increase in AD, and
cost-push inflation occurs as imported raw materials are more expensive. Hence, this takes the
country away from the objective of low and stable inflation. For example, Bangladesh’s inflation
rate had increased to 12% in 2024 from higher costs of production.
Although inflation may not rise significantly if the economy has spare capacity and the multiplier
effect is low. And so inflation may still be low and stable.
In conclusion, a fall in the terms of trade can help to achieve some of the macroeconomic
objectives while moving away from the others.
(Insert one or two diagrams showing changes in AD mentioned in the essay.)
4
