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ITEM B

Read the passage below and then answer the questions which follow.

The emergence of China as a commercial superpower is the most important economic


phenomenon of our time.
Chinas economic growth rate has averaged 9.2% a year for the last three decades. An
unprecedented surge in Chinas share of global exports has resulted from its membership of
the World Trade Organisation. This membership, combined with an improved
economic infrastructure, vast workforce and low wages, allowed China to become the
workshop of the world. Cheap Chinese goods swept the globethe country was effectively
exporting deflationand this enabled central banks throughout the world to repeatedly
cut interest rates.
However, from 2005, some problems started to appear in the Chinese economy. Chinese
authorities were encouraging the production of more sophisticated goods. This caused an
increased demand for skilled labour which, despite Chinas vast workforce, was in short
supply. This had a significant impact on wages.
Between 2005 and 2007, Chinas currency, the yuan, rose by almost 10% against the dollar
and in 2007 Chinas Consumer Price Index leapt from 4.4% to 5.6%a ten year high.
Chinas industrial revolution is based on construction and manufacturing, both of which are
highly energy intensive. This has caused problems for China and the rest of the world.
Adapted from Sunday Telegraph, 9 September 2007

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Marks
(a)

(b)

Explain the following terms, as used in the passage:


(i) World Trade Organisation;
(ii) economic infrastructure.

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2

(i) Explain the difference between real and money rates of economic
growth.

(ii) Explain how membership of the World Trade Organisation resulted


in an increase in Chinas economic growth.

(i) What is meant by deflation?

(ii) Explain why China exporting deflation allowed central banks


throughout the world to cut interest rates.

Explain the likely effect of a reduction in UK interest rates on:


(i) the exchange rate of sterling;
(ii) the level of UK investment.

(e)

Suggest what happened to wages in China in 2005. Explain your answer.

(f)

Explain how an increase in the value of the yuan against the dollar is likely
to affect the US balance of trade.

(c)

(d)

(g)

Suggest and explain 2 economic problems Chinas industrial revolution has


created for the rest of the world.

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(25)

[Turn over for Section B on Pages six and seven

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