Economics 9708/23 — May/June 2015
Cambridge AS Level · AS Level Data Response and Essays · worked solutions for every part, with the mark scheme
Topics Price Stability · International Trade and Comparative Advantage · Exchange Rates · Production Possibility Curves · Factors of Production · Scarcity, Choice and Opportunity Cost · +4 more
Kwacha goes down in value by 10%, but inflation drops
A Government official has attributed the fall in the value of the Kwacha, Malawi’s currency, to the end of the tobacco-selling season and the continued imports of farming equipment as a result of the Malawian Government’s farm subsidy programme. A market analyst has commented that there is a need for Malawi to increase exports as a solution to the weak currency.
On a positive note, the National Statistics Institute of Malawi has announced that the inflation rate dropped 2.7 percentage points to 25.2% in July 2013. This is still the highest rate for the whole of the southern African region. Encouragingly, the rate of inflation is forecast to fall further to around 17% in December 2013.
Source: Adapted from the National Statistics Institute of Malawi
National Consumer Price Index of Malawi
Table 1: Selected CPI weights
| Category of spending | Food and non-alcoholic drinks | Alcoholic drinks and tobacco | Recreation and culture | Restaurants and hotels |
|---|---|---|---|---|
| Weights | 50.2 | 2.5 | 2.2 | 1.3 |
Source: Adapted from the National Statistics Institute of Malawi
Table 2: Malawi selected price indices and the annual rate of inflation
| Food and non-alcoholic drinks | Alcoholic drinks and tobacco | Recreation and culture | Restaurants and hotels | Annual CPI inflation rate | ||
|---|---|---|---|---|---|---|
| 2013 | Jan | 122.5 | 114.1 | 123.6 | 186.9 | 35.1 |
| April | 127.9 | 126.0 | 134.6 | 191.0 | 35.8 | |
| July | 107.7 | 130.1 | 140.3 | 193.4 | 25.2 | |
| Sept | 117.1 | 130.5 | 144.7 | 197.9 | 21.7 |
Source: Adapted from the National Statistics Institute of Malawi
Malawi targets tourism for foreign exchange says Government minister
The Government says that tourism is Malawi’s next potential source of significant foreign exchange earnings now that demand for tobacco has fallen, following the success of the anti-smoking campaign. The Minister of Tourism and Culture stated that ‘tourism has the potential to become a multi-billion Kwacha industry that can change the lives of many communities around the country’.
Source: Adapted from the Nyasa Times October 2013
Showing your calculation, determine the category of spending that has shown the biggest rise in price from January to September 2013.
Why do the categories of spending have different weights in Table 1?
Explain how the fact that Malawi has the highest inflation rate in the southern African region might be expected to affect Malawi’s terms of trade.
With the help of a diagram, explain how increasing exports could provide a solution to Malawi’s weak currency.
Draw a diagram to show the choice that Malawi faces when allocating its scarce resources between the production of tobacco and tourism.
Explain one difficulty that Malawi might face in reallocating resources from the production of tobacco to tourism.
Discuss the factors that should be considered by the Malawian Government in deciding if it should develop its tourist industry and allow its tobacco industry to decline.
The rest of this paper
3 more questions- Q2Elasticities of Demand20M
- Q3Classification of Goods and Services · Methods of Government Intervention in Markets20M
- Q4Aggregate Demand and Aggregate Supply · Price Stability20M