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Question 21N.2.HL.TZ0.4d

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Date November 2021 Marks available [Maximum mark: 8] Reference code 21N.2.HL.TZ0.4d
Level HL Paper 2 Time zone TZ0
Command term Evaluate Question number d Adapted from N/A
d.
[Maximum mark: 8]
21N.2.HL.TZ0.4d

New policies for Brazil

  1. From 2010 to 2014, Brazil experienced an economic boom with annual gross domestic product (GDP) growth of 8 %. During this time, the government spent heavily on social programmes (including cash transfers and pensions) that helped millions to get out of the poverty cycle. The poverty rate decreased from 22 % to 9 % and the Gini coefficient dropped from 0.581 to 0.515. However, the spending on social programmes resulted in fiscal deficits and a large public debt, which is currently 80 % of GDP.

  2. In 2015, Brazil entered a recession that lasted until 2017. During the recession GDP declined by an average of 3 % per year. By 2017, the number of Brazilians living in absolute poverty climbed by 13 %, inequality worsened, and unemployment was 12 %. From late 2017 to 2019, Brazil struggled to recover, with only approximately 1 % annual economic growth.

  3. Some economists blamed the slow recovery on the lack of investment in education and technology during the economic boom. According to those economists, investment in human and physical capital was necessary to improve productivity and decrease the reliance on the production of primary commodities. Historically, spending on education has not been effective in reaching the very poor.

  4. In 2018, a newly elected government, aiming to stimulate economic growth, introduced market-oriented policies. Since Brazil has a large economy, the new government believed that Brazil should take advantage of world trade and foreign investment to boost economic growth and achieve economic development.

  5. The new government aimed to increase the number of multinational corporations (MNCs) investing in Brazil through deregulation and trade liberalization. Furthermore, in 2020 several state-owned enterprises were privatized.

  6. Additionally, new labour market and tax reforms were introduced to create jobs, increase labour force participation and make it easier for firms to hire and fire workers. The reforms included increasing the retirement age and reducing transfer payments. However, trade unions claim that the reforms are unfair and will lead to the exploitation of workers.

  7. There is concern that deregulation, privatization and market liberalization will put pressure on Brazil’s environment, threaten sustainable development, and benefit only urban areas. In 2017, the government introduced “green GDP” as an official measure and committed to environmental protection goals. This is necessary because, for example, over 40 % of the population live in areas without access to a sewage system and manufacturing companies are dumping untreated wastewater in rivers, contributing to water pollution.
(d)

Using information from the text/data and your knowledge of economics, evaluate the impact of market-oriented policies on economic development in Brazil.

[8]

Markscheme

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Do not award beyond Level 2 if the answer does not contain reference to the information provided.

Command term
“Evaluate” requires candidates to make an appraisal by weighing up the strengths and limitations. Opinions and conclusions should be presented clearly and supported with appropriate evidence and sound argument.

Answers may include:

  • Definitions of:
    • Economic development.
    • Market-orientated policies.

Economic analysis, focusing on economic development, may include:

  • AD/AS analysis.
  • Poverty cycle.
  • Lorenz curve.
  • Externalities.

Positive outcomes on economic development may include:

  • Labour reforms (raising retirement age), may increase the size of the labour force, which may increase LRAS as quantity of labour has increased. This may increase LRAS, leading to increased real GDP/potential output, which may increase job opportunities and increase income, for low income earners and encourage economic development (paragraph [6]).
  • Lowering business costs through labour reforms, making the hiring and firing of employees easier, may increase AS, leading to increased real GDP and a possibility of more employment opportunities for low income earners.
  • Privatization may decrease public debt and government can redirect spending into economic development (paragraph [5]).
  • More multinationals/foreign investment – may lead to more jobs (paragraph [4]).
  • Trade liberalization may lead to lower prices for consumers, more choice (paragraph [5]).
  • May promote diversification and move away from commodities (paragraph [1]).
  • Encouraging more competition from MNCs may promote more efficiency (paragraph [5]).

Negative outcomes on economic development may include:

  • Spending on education in the past has been ineffective (paragraph [3]).
  • Labour reforms decreasing standard of living through lower job security (paragraph [4]).
  • Privatization may increase prices of goods and services / cause unemployment as private firms aim for efficiency and profit maximization (paragraph [5]).
  • Multinationals repatriate profits and may not employ local people (paragraph [5]).
  • Some industries may suffer from increased competition due to trade liberalization (paragraph [3]).
  • Concern of environment destruction and externalities (paragraph [7]).
  • Increasing the retirement age may decrease standards of living (paragraph [6]).
  • Inequalities may occur through market-orientated policies.
  • Dual economy can develop as a result of market-orientated policies.

Any reasonable evaluation.

Examiners report

This in general was not well answered. Too many students did not fully understand the link between market-oriented policies and economic development. Most relied on listing market-oriented policies with very little reference to economic development. Some focused on economic growth which in isolation would attract few marks.

Too often there was limited analysis with some candidates relying on statements / unjustified assertions instead of reasoned arguments. Answers tended to be primarily descriptive and overly reliant on quotes / paraphrases of the extract with no or very little added value. At the other extreme some students made virtually no reference to the extract. In some cases, potentially relevant diagrams were drawn (e.g. poverty cycle diagram) but not used or explained in the context of the question.

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