Economics 9708/21 — May/June 2016
Cambridge AS Level · AS Level Data Response and Essays · worked solutions for every part, with the mark scheme
Topics Balance of Payments · Demand and Supply · Elasticities of Demand · Aggregate Demand and Aggregate Supply · Supply-Side Policy · Exchange Rates · +6 more
The Fiji economy: a positive outlook
Fiji is a small island country in the Pacific with a population of 860 000. In 2014 its economy was reported to be continuing to grow steadily. It remained on course for a fifth consecutive year of expansion, boosted by high tourist arrivals and visible export earnings, particularly from sugar. The factors that were expected to restrict growth in 2015 included ongoing dry weather conditions causing lower output of agricultural goods, with the exception of sugar.
Table 1: Selected economic indicators for Fiji
| 2014 estimate | 2015 forecast | |
|---|---|---|
| Economic growth rate % | 3.3 | 3.0 |
| Inflation rate % | 3.0 | 3.5 |
| Current account balance as % share of GDP | -6.0 | -7.0 |
Source: Asian Development Bank, 2014
Consumption remained strong in the first five months of 2014, and imports of consumer goods, mainly vehicles, rose by 15.6%. Personal remittances increased, boosting consumption expenditure.
The tourism sector – Fiji’s main source of foreign exchange – continued to perform strongly. Visitor arrivals increased by 4.0% year-on-year, with 4.6% more visitors from Australia and 11.6% more from New Zealand, but there was a significant fall in visitor arrivals from Japan.
Sugar production increased, aided by government investments in new technology that improved efficiency of production and reduced price.
Despite higher growth, inflationary pressures were eased by declining international commodity prices. However, annual average inflation in 2014 was not expected to fall below 3.0%, as economic activity was expected to revive. In addition, continuing dry weather was affecting the food supply.
Despite the positive growth outlook, increased investment is needed to improve productivity and address supply-side capacity constraints.
Source: Asian Development Outlook 2014 Update
How and where would revenue from tourist arrivals in Fiji be recorded in Fiji’s balance of payments?
Use a supply and demand diagram to show how the government investment referred to in the article affected the price of sugar produced in Fiji.
Explain what the changes in sugar’s contribution to visible export earnings and in the price of sugar might suggest about the price elasticity of demand for sugar.
Using aggregate demand and aggregate supply analysis, explain why inflationary pressures remained subdued in Fiji despite higher growth.
Explain how increased investment could address supply-side capacity constraints in the Fiji economy.
Discuss any economic factors that might help to explain the changes in visitor arrivals to Fiji from Australia and Japan.
The rest of this paper
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