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

8814-5104 9 pages N14/3/ECONO/HP2/ENG/TZ0/XX Wednesday 5 November 2014 (morning) ECONOMICS HIGHER 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 88145104 8814-5104 – 2 – N14/3/ECONO/HP2/ENG/TZ0/XX SECTION A Answer one question from this section. 1. Study the extract below and answer the questions that follow. Indian exchange rates  In 1991, India moved from following an import substitution policy to one of export promotion. There was a significant current account deficit and there were not even enough reserve assets to buy three weeks’ worth of required imported goods and services. Emergency measures were needed along with a strategy to ensure it did not happen again. The strategy was trade liberalization and the economy was to be opened up to increase domestic competition.  This would be achieved through both foreign direct investment (FDI) as well as greater imports of goods and services. It was hoped that these measures would ultimately increase exports so easing the pressure on the balance of payments. The new companies that emerged would attract portfolio investment, further easing the pressures on the balance of payments.  Twenty-one years later, in 2012, it is clear that elements of this strategy have done well. The lowering of tariff and other barriers did increase the availability of imported products and contributed to the growth of the export sector. Trade now accounts for a major share of gross domestic product (GDP). Growth in trade and other services has been self-sustaining and contributed to the high growth rates that Indian officials are proud of.  However, the present crisis in Europe is hurting stock markets across the world and raises the possibility of an outflow of portfolio investment from the Indian stock markets. At the