Economics 9708/22 — October/November 2021
Cambridge AS Level · AS Level Data Response and Essays · worked solutions for every part, with the mark scheme
Topics Aggregate Demand and Aggregate Supply · Reasons for Government Intervention in Markets · Elasticities of Demand · Supply-Side Policy · Monetary Policy · Classification of Goods and Services · +5 more
India no longer the world’s fastest-growing economy
Table 1.1: India – components of aggregate demand as % of total demand
| Components of aggregate demand as % of total demand | Quarter 4 2018 | Quarter 1 2019 |
|---|---|---|
| Consumption expenditure | 58.9% | 56.8% |
| Investment expenditure | 34.5% | 31.8% |
| Government expenditure | 9.7% | 9.9% |
| Export expenditure | 21.8% | 20.0% |
Source: Trading Economics
India’s income has grown at its slowest rate in almost five years, according to the latest data released by the government. In the past financial year - April 2018 to March 2019 - income grew by 6.8%. And in the quarter between January and March 2019, it expanded by just 5.8% - falling behind the rate of China’s growth for the first time in nearly two years. This means India is no longer the world’s fastest-growing economy. The new data make it clear that India is facing an economic slowdown.
Unlike China, India’s growth in income has been driven by domestic consumption over the past 15 years. But data released over the past few months suggest that consumer spending is slowing, despite the continuing growth in incomes. Motorbike and scooter sales are down. Demand for bank loans has slowed and India’s leading maker of fast-moving consumer goods, such as packaged food and drink, has reported slower revenue growth in the past quarter. However, sales of smartphones have continued to increase faster than incomes have been growing. All of these are important indicators for measuring the state of consumption spending.
The government has promised that it would cut income tax to ensure greater purchasing power and some economists believe that the government should also consider cutting business taxes in the next budget, which will be announced in July 2019. These measures should act as a stimulus for the economy.
India’s government has promised to spend US$1.44 trillion to build roads and other infrastructure such as bridges and street lighting, but India’s large budget deficit might restrict the government’s options. Many observers say that this money will have to come from the private sector. Experts say that the widening fiscal deficit will hold back medium-term and long-term growth.
Weak exports have also been a problem when it comes to creating jobs. In response the government is expected to prioritise policies that will make Indian businesses more competitive.
Source: Sameer Hashmi, BBC News, 31 May 2019
Calculate import expenditure as a percentage of total demand in India in quarter 1 2019.
The Indian government promised that it would cut income tax to ensure greater purchasing power for consumers.
Explain how economists would measure the impact of a cut in income tax upon the demand for different goods such as scooters and smartphones.
With reference to the data, explain whether the impact of the income tax cut is likely to be the same on the demand for scooters and the demand for smartphones.
Using the information, identify one policy that could be considered a supply-side measure and explain how this policy could make Indian businesses more competitive.
Discuss whether the advantages of cutting interest rates in the Indian economy would outweigh the disadvantages.
Consider whether roads and other items of infrastructure in India would be better provided by the private sector or by the government in India.
The rest of this paper
3 more questions- Q2Production Possibility Curves · International Trade and Comparative Advantage20M
- Q3Consumer and Producer Surplus · Methods of Government Intervention in Markets · Reasons for Government Intervention in Markets20M
- Q4Price Stability · Aggregate Demand and Aggregate Supply20M