Question 23M.2.SL.TZ0.2g
| Date | May 2023 | Marks available | [Maximum mark: 15] | Reference code | 23M.2.SL.TZ0.2g |
| Level | SL | Paper | 2 | Time zone | TZ0 |
| Command term | Discuss | Question number | g | Adapted from | N/A |
Using information from the texts/data and your knowledge of economics, discuss the need for a balance between market-oriented policies and government intervention to promote economic development in Cameroon.
[15]
Responses may include:
- a definition of economic development
- a definition of government intervention/interventionist policies
- a definition of market-oriented policies
- diagrams (e.g. AD/AS, poverty cycle).
Intervention which may lead to development
- Military intervention to bring stability to regions experiencing conflicts (Text D, paragraph 2).
- The high interest rates help maintain the fixed exchange rate which brings stability (Text D, paragraph 6).
- The policies under the Growth and Employment Strategy would help increase human capital and increase productivity, which may help many break the poverty cycle and increase LRAS and export revenues (which could result in higher incomes) (Text E, paragraphs 1, 3 and 4).
- Better infrastructure would bring in FDI/increased investment (Text E, paragraph 1).
- The higher minimum wage helps increase workers’ well-being but comes with the possibility of unemployment and may make it difficult for the authorities to reduce the size of the informal sector (Text E, paragraph 3).
- Subsidies help to keep electricity, food and fuel prices low and accessible (Text D, paragraph 4; Text E, paragraph 4).
Limitations of intervention
- Fiscal deficits and government debt may increase (Text D, paragraphs 2 and 3).
- Some forms of intervention are too short-term such as subsidies (Text D, paragraph 4) or may not be sustainable in the long-term (Text D, paragraph 2).
- There is an opportunity cost to intervention (Text D, paragraph 4).
- Subsidies for fuel can increase external costs (Text D, paragraph 4).
- Intervention through higher interest rates to support the overvalued currency (Text D, paragraph 6) will have a contractionary impact on the economy and this could limit the impact of expansionary fiscal policy (Text D, paragraph 3).
- High interest rates also mean that entrepreneurs have more difficulty in obtaining loans (Table 3).
- The fixed (over-valued) exchange rate raises export prices, which hampers trade (but does contribute to lower prices of fertilizers etc.) (Text D, paragraph 6).
- Military intervention may reduce freedoms and development (Text D, paragraph 2).
Market-oriented policies which may lead to development
- Deregulation/decrease in bureaucracy may lead to an increase in investment (Text D, paragraph 5). This may help promote local entrepreneurship.
- Membership in free trade groups allows for higher export revenue which would lead to economic growth. The EU and UK currently account for almost half of trade with Cameroon (Table 3).
- The removal of tariffs on fertilizers (Text F) would help decrease farmers’ costs and lead to more competitive exports (Text E, paragraph 2). This could also help decrease the need for subsidies in the long-term (Text E, paragraph 3).
- Removal of tariffs on capital goods (Text F) may lead to higher productivity and/or reduce costs for firms.
Limitations of market-oriented policies
- Membership of free trade groups may worsen/not reduce Cameroon’s persistent trade deficit if imports increase more than exports (Text D, paragraph 6).
- Without adequate provision of infrastructure and provision of education, the country will continue to lack diversification of economic activities. Economic growth may not be sustained due to the volatility of commodity prices (Text D, paragraph 2).
- Some policies such as tax incentives and subsidies may not benefit those working in the informal sector. Such policies would thus have limited effectiveness in reducing poverty due to the size of the informal economy (Text D, paragraph 3) and level of poverty (Text D, paragraph 4).
- Relative poverty may continue to increase due to disparities in benefits from export-led growth (Text D, paragraph 4).
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
Most candidates understood the concept of economic development and knew it was different from economic growth. Fewer could differentiate between market-oriented policies and other forms of government intervention, but the majority was able to identify some market-oriented policies and interventionist measures mentioned in the texts. Responses that achieved Level 4 (10–12 marks) and Level 5 (13–15 marks) were those that connected the effects of each policy to specific development outcomes, such as breaking the poverty cycle through increased productivity or reduce trade protection hindering diversification. Such connections need to be explained rather than merely stated (for example, explaining how increased foreign direct investment (FDI) could facilitate or impede development). It was not uncommon to read responses with potentially strong economic arguments, which were unfortunately underdeveloped. In such cases, a low score on the second descriptor often resulted in a lower overall score, as the theory was described rather than explained. The strongest answers made use of information from the texts and/or data to support their judgments on the effectiveness of the discussed policies in achieving economic development. Weaker responses failed to distinguish between different types of government intervention or policies and often solely focused on economic growth without establishing a connection between economic growth and economic development.
