Economics · 2014 · November · Paper 2 · SL · Question paper

8814-5113 9 pages N14/3/ECONO/SP2/ENG/TZ0/XX Wednesday 5 November 2014 (morning) ECONOMICS STANDARD LEVEL PAPER 2 INSTRUCTIONS TO CANDIDATES  Do not open this examination paper until instructed to do so.  You are not permitted access to any calculator for this paper.  Section A: answer one question.  Section B: answer one question.  Use fully labelled diagrams and references to the text/data where appropriate.  The maximum mark for this examination paper is [40 marks]. © International Baccalaureate Organization 2014 1 hour 30 minutes 88145113 8814-5113 – 2 – N14/3/ECONO/SP2/ENG/TZ0/XX SECTION A Answer one question from this section. 1. Study the extract below and answer the questions that follow. The Australian dollar  The Australian dollar is very strong against the United States (US) dollar and has reached its highest value against the British pound and the euro since 1992.  The world demand for coal, iron ore, and natural gas is rapidly increasing. Australia has these resources in abundance. This has led to an extraordinary boom in the construction of new mining facilities in Australia that is likely to run for at least 10 years. It has had a huge effect on domestic economic growth and has also threatened inflation.  With its stable economic outlook and high interest rates, Australia has proved to be a magnet for foreign investors since 2002, and this has had a significant impact on the exchange rate. The global surge in foreign direct investment and portfolio investment is a sign of international confidence in the economy but it has come at a cost, and with risks. The rise of the exchange rate has created hardships for domestic exporters of goods and services other than resources, and the tourist industry.  In the context of the resources boom, the high exchange rate helps to make the boom less inflationary. It also lowers the prices of imports for those consumers and businesses that buy them.  Structural change is occurring in the Australian economy as domestic firms adjust to a high Australian dollar. It creates pressure for resources – capital and labour – to shift from manufacturing and service export industries to the