Suggested Answers of BT2 Revision Package - ASKnLearn

full employment, a country also strives to lower its natural rate of unemployment so as to increase its potential output which will lead to rising SOL. §Low and stable inflation rate o Inflation rate = annual % change in the GPL, measured by the CPI or GDP deflator. o Low inflation or an acceptable rate of general price rise promotes efficiency and certainty. Price signals transmit revenue/cost information accurately and resources are efficiently allocated by the price mechanism. Rates of return on potential projects can be accurately estimated, thereby encouraging investment. Low inflation and the consequent low COP enhances a country’s export competitiveness, boost exports & FDI, thereby strengthening its BOP. The increased I, X & FDI stimulate AD, resulting in both actual & potential growth, higher employment & rising SOL. §Healthy Balance of Payments (BOP) o BOP is an annual account of a country’s transactions in trade & investment with the rest of the world. Over the LR, a country strives to achieve BOP equilibrium. o A persistent BOP deficit will lead to drain of foreign reserves and debt which dampens a country’s economic growth and/or a depreciation of the ER which may lead to loss of confidence in the economy and imported inflation. o A persistent BOP surplus may result in the dutch disease caused by appreciation of the ER, a lower SOL then was possible, and possible retaliation from trading partners. Mark Scheme: Knowledge, Application, Understanding, AnalysisL1 -­‐ Merely state the goals without explaining the goals nor thereasons for the goals-­‐ Weak in conceptsL2 -­‐ Clearly explain the meaning and the reasons for at least 2 of the4 macro goals Or explain the meaning and reasons for all 4macro goals but lacks depth.L3 -­‐ Explain the meaning and reasons for all 4 macro goals, showingstrong theoretical framework-­‐ Or explain meaning & reasons for 3 macro goals in great depthand somewhat superficial on the 4 th macro goal1 – 34 - 67 - 8(b)Introduction:§ “Productivity-driven growth” is achieved by improvment in the quality of resources,specifically improvements in productivity of resources.§ Define productivity: Productivity is measured by the output per worker per period oftime or output per man-hour.