O Level Economics: International trade and globalisation — Practice Questions (Cambridge 2281)

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs — Cambridge International holds copyright in its own papers. Use these alongside the official past papers available from your board.

Each question practises a skill tested in the June 2024 Paper 22. After each answer there is an examiner insight, a mark-scheme insight or a tip, and the real question to try next.

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Questions

1. In one year a country had a deficit of $5.2 billion on trade in goods and services, a surplus of $0.9 billion on primary income and a surplus of $1.5 billion on secondary income. Calculate the balance on its current account and state whether it is a surplus or a deficit. [2]

2. Many nurses from Country R work in hospitals abroad and send part of their pay home to their families each month. Identify the part of Country R’s current account in which this money is recorded, and state its effect on the current account balance. [2]

3. The exchange rate of a country’s currency, the kora, rises from 1 kora = $0.40 to 1 kora = $0.50.

(a) A locally made chair sells for 200 kora. Calculate its price in US dollars before and after the change. (2 marks)

(b) An imported laptop costs $300. Explain what happens to its price in kora. (2 marks) [4]

4. Explain why a rise in the value of a country’s currency could reduce total (aggregate) demand in that country. [3]

5. Explain two ways a rise in the value of a country’s currency could benefit its economy. [4]

6. A multinational company (MNC) opens a large electronics assembly plant in a developing country. Explain one advantage and one disadvantage to the host country. [4]

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Answers

1. Current account balance = trade in goods and services + primary income + secondary income = −5.2 + 0.9 + 1.5 = −$2.8 billion [1]. This is a deficit [1].

Examiner insight (Cambridge 2281 June 2024 examiner report, Paper 22, Question 1(a)): Some candidates left the current account calculation out, a few saying they had no calculator. A calculator may be used in this paper, so bring one and attempt every calculation.

Source for the examiner insights on this page: Cambridge O Level Economics 2281 June 2024 Principal Examiner Report for Teachers, Paper 2281/22 section, paraphrased.

Try the real question next: Cambridge O Level Economics 2281, June 2024, Paper 22, Question 1(a).

2. It is recorded as secondary income (current transfers) [1]. It is an inflow of foreign currency, so it increases a surplus or reduces a deficit on the current account [1].

Mark-scheme insight (Cambridge 2281 June 2024 mark scheme, Paper 22, Question 4(c)): Money sent home by people working abroad was credited as secondary income that improves the current account position and brings in foreign currency.

Source for the mark-scheme insights on this page: Cambridge O Level Economics 2281 June 2024 mark scheme for Paper 22 (2281/22), paraphrased. Cambridge’s 2281 past papers page publishes the Paper 21 mark scheme from this series, not the Paper 22 one.

Try the real question next: Cambridge O Level Economics 2281, June 2024, Paper 22, Question 4(c).

3. (a) Before: 200 × $0.40 = $80 [1]. After: 200 × $0.50 = $100 [1]. The export becomes more expensive for foreign buyers.

(b) Before: $300 ÷ $0.40 = 750 kora; after: $300 ÷ $0.50 = 600 kora [1]. The laptop’s price in kora falls by 150 kora, so imports become cheaper for domestic buyers [1].

Examiner insight (Cambridge 2281 June 2024 examiner report, Paper 22, Question 1(h)): A small number of candidates confused how a rise in the currency’s value affects export and import prices. Remember: when a currency appreciates, its exports become dearer abroad and its imports become cheaper at home.

Try the real question next: Cambridge O Level Economics 2281, June 2024, Paper 22, Question 1(h).

4. A rise in the currency’s value makes exports more expensive abroad, so demand for exports may fall [1]. It makes imports cheaper, so households and firms may switch spending from domestic products to imports [1]. Net exports (exports minus imports) fall, and because net exports are part of total demand, total demand in the country falls [1].

Examiner insight (Cambridge 2281 June 2024 examiner report, Paper 22, Question 1(h)): A number of candidates wrongly thought that more spending on imports would raise total demand in the country. Spending on imports leaves the economy, so it reduces total demand for domestic output.

Try the real question next: Cambridge O Level Economics 2281, June 2024, Paper 22, Question 1(h).

5. Two ways, each with identification [1] and explanation [1], for example: imported raw materials and capital goods become cheaper [1], lowering firms’ costs of production [1]; cheaper imports reduce the inflation rate [1], raising households’ purchasing power [1]; lower total demand may reduce demand-pull inflation [1] where the economy is overheating [1]; if demand for exports is price inelastic [1], export revenue may rise despite the higher price [1]; a strong currency may raise confidence [1] and attract investment [1].

Mark-scheme insight (Cambridge 2281 June 2024 mark scheme, Paper 22, Question 1(h)): The benefits the mark scheme credits include cheaper imported raw materials and capital goods, lower inflation, more choice, more competitive pressure on domestic firms, and higher export revenue if demand for exports is price inelastic.

Try the real question next: Cambridge O Level Economics 2281, June 2024, Paper 22, Question 1(h).

6. Advantage — identification [1], explanation [1], for example: it creates jobs [1], reducing unemployment and raising incomes and tax revenue [1]; or it brings new technology and training [1], raising workers’ skills and productivity [1]; or its exports improve the current account [1] by bringing in foreign currency [1].

Disadvantage — identification [1], explanation [1], for example: profits may be sent back to the MNC’s home country [1], so less income stays in the host economy (an outflow of primary income) [1]; or it may force smaller local firms out of business [1] because they cannot match its low costs [1]; or it may cause pollution [1], an external cost on local people [1]; or it may leave if costs rise [1], causing sudden unemployment [1].

Tip: Name the advantage or disadvantage, then say who gains or loses and why. A one-word point such as “jobs” or “pollution” earns the identification mark only.

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Where marks are usually lost

• Leaving calculations blank: a calculator is allowed, and the working is quick.
• Getting the direction wrong after an appreciation: exports become dearer abroad, imports cheaper at home.
• Claiming that extra spending on imports raises total demand in the home economy.
• Putting remittances in the wrong part of the current account — they are secondary income, not trade in goods and services.
• Listing points without explaining them — each needs identification [1] and explanation [1].