Economic growth, recession, demand and supply, FDI (HL
and SL)
Recession in Cambodia
Markscheme answers
a. Define the term GDP. [2] [Paragraph 1]
Gross domestic product is the money value of all final goods and services produced by an economy
in a given time period (normally one year).
b. Using the data in table 1 for each year from 2017 to 2021 calculate:
(i) Real GDP. [3] [Table 1]
(ii) Rate of economic growth [2] [Table 1]
Year Nominal GDP GDP deflator Real GDP (PPP Economic
(PPP US$ billions) US$ billions) growth rate %
2017 22.18 95 23.35
2018 24.75 97 25.52 9.29
2019 27.09 99 27.36 7.21
2020 25.29 98 25.81 -5.67
2021 27.21 100 27.21 5.42
c. Using the nominal data from table 1 calculate the net property (factor) income for Cambodia in
2021. [2] [Table 1]
$27.21Bn + net property income = $25.53Bn
$25.53Bn - $27.21Bn = -$1.68Bn
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d. Using a PPC diagram, explain the impact a fall in Cambodia’s foreign direct investment might
have on the country’s potential output. [4] [Paragraph 3]
A fall in FDI in Cambodia is likely to reduce
the rate of increase in the country’s
potential output because the capital
resources used in production will not
increase as much. In the diagram, the PPC
shifts to PPC1 with the reduced FDI rather
than PPC2 which would have been
achieved with the previous level of FDI.
*Could also show the PPC shifting
inwards.
e. Using a demand and supply diagram, explain the impact the foreign travel restrictions imposed
by Cambodia have had on the revenues of the country’s tourism sector. [4] [Paragraph 2]
The foreign travel restrictions would have
caused a fall in demand for Cambodia’s
tourism sector which would have led to a
decrease in the revenues of the firms in
the sector. The diagram shows the
market for hotels following a fall in
demand caused by the travel restrictions
imposed by the Cambodian government.
The demand for hotels falls from D to D1
which leads to a fall in price from P to P1
and quantity from Q to Q1. The fall in
revenue is from P x Q to P1 x Q1.
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f. (i) Using a demand and supply diagram, explain the effect of the floods in Cambodia on the price
of rice in the country. [4] [Paragraph 5]
The floods in Cambodia would lead to a fall
in rice production which would cause the
supply curve for rice in the diagram to shift
from S to S1 leading to a rise in the price of
rice from P to P1 and a fall in quantity from
Q to Q1.
(ii) Explain why the demand for rice in Cambodia might be price inelastic. [4] [Paragraph 5]
Rice is price inelastic because:
• It is a necessity good consumers will continue to buy when the price increases to maintain
their diet.
• There are relatively few close substitutes for rice in Cambodia to maintain the population’s
basic diet.
g. Using your knowledge of economics and information from text, discuss the view that a
recession is always bad for an economy. [15]
Answers might include:
• A recession is two consecutive quarters of negative economic growth.
• A recession is bad for households
in Cambodia because it leads to a
fall in household incomes
because firms may pay lower
wages and there could be a rise
in unemployment. This could be
shown in - ‘table 1 where GNI
per capita falls (GNI/population)
from $1,536 to $1,383’. The
circular flow of income also
illustrates how household income
falls in a recession.
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• Evaluation: The data is based on GNI which is not the same as household incomes and not
all households will be affected in the same way by the fall in GDP/GNI.
• The recession in Cambodia has also adversely affected firms as consumption expenditure
has fallen (this is shown in the circular flow of income diagram) and this has caused business
failure – ‘the textile sector of the Cambodian economy has also seen a significant
contraction with 110 factories stopping production’.
• Evaluation: some businesses can do well in a recession if they are selling necessity/inferior
goods - ‘consumers switching to cheaper garments away from branded items.’ A recession
might also make businesses more efficient as they make the decisions needed to survive.
• Governments can be badly affected by a recession because there is a fall in tax revenue
because households earn lower incomes and firms make less profit There is also less
spending in the economy which reduces indirect tax revenues - ‘because of lower tax
revenues resulting from the recession’.
• Evaluation: The recession ended in 2020 and there is a recovery in 2021 which should
increase the Cambodian government’s tax revenues.
Marking Criteria for the 15 mark final question Mark
There is no answer to the question but some limited: 1-3
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is a vague answer to the question with limited: 4-6
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is an answer to the question with satisfactory: 7-9
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is a clear answer to the question with good: 10-12
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is clear answer to the question with excellent: 13-15
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
Total [40]
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