Photo AI
Indonesia Figure 4: World coal prices, 2006–2016, US dollars per tonne Figure 5: Indonesia’s real GDP, annual percentage change Using the data in Figure 4 and other information provided, explain the likely change to Indonesia’s items since 2013 - Edexcel - A-Level Economics A - Question 2 - 2018 - Paper 3
Question 2
Indonesia Figure 4: World coal prices, 2006–2016, US dollars per tonne Figure 5: Indonesia’s real GDP, annual percentage change Using the data in Figure 4 and oth... show full transcript
Worked Solution & Example Answer:Indonesia Figure 4: World coal prices, 2006–2016, US dollars per tonne Figure 5: Indonesia’s real GDP, annual percentage change Using the data in Figure 4 and other information provided, explain the likely change to Indonesia’s items since 2013 - Edexcel - A-Level Economics A - Question 2 - 2018 - Paper 3
Step 1
Using the data in Figure 4 and other information provided, explain the likely change to Indonesia’s items since 2013.
Answer
Since 2013, Indonesia has experienced significant changes in its economic landscape, especially regarding coal prices. According to Figure 4, world coal prices peaked around 2011 and have since declined sharply. This decline can significantly affect Indonesia's export revenues, as coal is a substantial part of its export economy, impacting overall national income. Additionally, the value of the rupiah has depreciated, further complicating trade dynamics. Consequently, the economy has had to adjust to lower revenue streams and may shift focus onto other sectors.
Step 2
Examine the likely effects on the profitability of Indonesian rice farmers of the government’s increased investment in these areas (Extract E, lines 43–48). Use a cost and revenue diagram to support your answer.
Answer
The government's increased investment in infrastructure can lead to improved farming conditions, enhancing productivity for rice farmers. This investment could lower costs associated with transportation and logistics, allowing farmers to bring their goods to market more efficiently. A cost and revenue diagram would illustrate this by showing a potential decrease in average costs (AC) due to improved efficiency while potentially increasing revenue due to higher yields and market access. In the long run, the increased investment should lead to higher profitability for rice farmers.
Step 3
Discuss the benefits of aid to Indonesia.
Answer
Aid can provide multiple benefits to Indonesia, especially in terms of economic development and stabilization. Financial support from international organizations can help fund infrastructure projects, similar to those mentioned in Extract E, leading to job creation and enhanced domestic production capabilities. Moreover, aid can be crucial in times of economic downturns, offering a lifeline that helps reduce the impact of commodity price fluctuations. Furthermore, it can facilitate technology transfer and capacity building, empowering local industries. Overall, aid can serve as a catalyst for sustainable economic growth.
Step 4
With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic effects on Indonesia of the volatility of prices of commodities such as coal.
Answer
The volatility of commodity prices has significant microeconomic effects on individual businesses and producers. For Indonesian coal exporters, fluctuating prices can lead to uncertainty in revenue forecasts, which complicates investment and operational decisions. On a macroeconomic level, fluctuations in commodity prices can affect national GDP, trade balances, and currency stability. For instance, a drop in coal prices could reduce export revenues, negatively impacting overall economic growth. Conversely, high commodity prices can boost economic activity but may create inflationary pressures. Thus, while volatility might offer opportunities for some, it presents challenges for sustained economic stability.