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All IB schools who are part of the the May examination session are now in the last week of class, before the study sessions and final examination period begins. Exam strategy is now perhaps even more important than actual study and can lift your marks. These comments refer to SL – Paper 2 and HL Paper 3 commonly known as the Data Response papers. These hints are obviously of my own opinion and reflections and not those of the IB Organization.

Here is my top 10 hints…

Before the exam…

1. Revision. As for all of the other papers, make sure you have been through the syllabus and have throughly checked and know that you understand each part of the curriculum. I encourage my students to create bit size revision notes on the essentials of each subtopic throughtout the duration of the course.
2. Definitions. Consider what key words are required to explain the definition. Try rote learn the 10 most important definitions for each big topic, and ask you teacher to for a list of what concepts might be covered in each section of the course. Make sure you consult a good textbook for clarification on definitions.
3. Practise reading articles: Ask your teacher for some practice data response questions. Practise reading the questions and then searching the article for some supporting data to help explain your answer. The articles have been chosen because they highlight certain events. You need to find the piece of data or a quote that could pick.

During the exam…

1. Manage your time: In the data response examination you have to complete three questions, each worth 20 marks. Therefore you have 60 marks in total over 120 minutes. Therefore try not spend more than 2 mins per mark. So for the evaluation question d, try to allow about 16 minutes, but not too much more. Remember this exam requires lots of reading time, so factor this in to your time management.
2. Pick the questions early: You need to obviously choose 3 of the 5 options to answer. I encourage my students to read the part d question of each paper first, and then gauge if you can answer the question. If you are less confident in the question d questions available then perhaps choose a different question. These questions are worth 8/20 and therefore carry a slightly higher importance.
3. Read each question carefully: Within the question there are always trigger words. If the question is about currency then you probably need to analyse the foreign exchange market. If the question mentions recession then consider drawing a NeoClassical diagram with a recessionary gap. The command word will usually be explain which means examine and describe the component parts of the concept.
   
4. Labeling Graphs: Graphs are a crucical part of questions b and c. You need clearly label graphs to ensure that they relate specifically to the material in the extract. Remember each graph has a particular set of labels. Try revise the difference between, exchange rate graphs, AD/AS graphs, Labour Market diagrams or a Lorenz Curve.
5. Explaining Graphs: Question B and C are always worth four marks and follow an standard format. Two of these four marks will be attributed to the graph and two to the explanation. Therefore check that you have explained the graph by identifying the related causes that have lead to the change. For instance… the demand for exports has fallen, leading to a fall of the demand of the currency, leading to a shift of the Demand for Euro to the left, which ceteris paribus, will lead to an appreciation of the Euro against the Yen as illustrated on the graph. The explanation does not need to be long but precise and use appropriate terminology.
6. Evaluation: Question D will always ask you to evaluate a statement or policy that is mentioned in the extract. The question will be graded according to criteria levels. To attain Level 1 you need to have recognized the concepts in the question and perhaps attempted a definition, or discussed the idea. To attain Level 2 you need to explained these concepts in some depth and have tried to apply the concept to material presented in the extract. Evaluate means that you have to go further than purely explaining the concept this is required for a Level 3 response. For instance if the question is about “evaluating the introduction of tariffs into Malaysia” you will need to explain the effects of the decision on stakeholders such as consumers and domestic producers, perhaps consider the long run and short run impacts and consider the advantages or disadvantages. Finally to attain the highest grade to need to make some judgement on what the main point of arguement is. All of these aspects are considered effective evaluation. Given the time constraints of the exam you will be rewarded for using one or more of these approaches, but I think the final judgement and using material from the extract is most important. Without references to the data you wont attain higher than Level 2.
7. Proofread: If time permits try go back and double check your graphs for any obvious glaring errors and fix labels and arrows. Try to fix any common mistakes such as suggesting that the curve shifts to the right instead of the left.

If you have any further comments, questions or other hints please add them below

Criteria for Question D – Data Response 

A nation’s balance of payments measures all the transactions between the residents of that nation and the residents of foreign nations, including the flow of money for the purchase of goods and services (measured in the current account) and the flow of financial or real assets (measured in the financial or capital account). The sale of exports counts as a positive in the current account, while the purchase of imports counts as a negative. In this way, a nation can have either a positive balance on its current account (a trade surplus) or a negative balance (a trade deficit).

The US has for decades run persistent deficits in its current account. As the world’s largest importer, Americans’ appetite for foreign goods has been unrivaled in the global economy. Of course, this is not to say that the US has not been a large exporter as well. In fact, the US is also one of the largest exporting nations, along with China, Germany and Japan, in the world. However, the total expenditures by Americans on imports has exceeded the country’s income from the sale of exports year after year, resulting in a net deficit in its current account.

So the news that rising incomes in China have fueled a boom in US export sales should come as a relief to US politicians and more importantly, firms in the American export industry:

Last year, American exports to China soared 32 percent to a record $91.9 billion.

A study by a trade group called the U.S.- China Business Council says China is now the world’s fastest-growing destination for American exports.

While United States exports to the rest of the world have grown 55 percent over the past decade, American exports to China have jumped 468 percent.

Most of those exports have come from California, Washington and Texas, which have shipped huge quantities of microchips, computer components and aircraft. But states that produce grain, chemicals and transportation equipment have also benefited.

China, which last year surpassed Japan to become the world’s second largest economy (measured by total output), is soon expected to become the world’s second largest importer as well:

And while much of what China imports is used to make goods that are then re-exported, like the Apple iPhone, Mr. Brasher says a growing share of what China imports from the United States, including cotton and grain as well as aircraft and automobiles, is staying in China.

“You know all those BMW X5 S.U.V.’s that are in China? They’re being imported from the U.S.,” Mr. Brasher said in a telephone interview Thursday. “They’re being made by a BMW factory in South Carolina.”

All this must be good news for the US, right? Growing exports to China must mean a smaller current account deficit, greater net exports and thus stronger aggregate demand, more employment and greater output in the United States. However, this may not be the case. While exports to China grow, the US economy’s recovery has led to a boost in the demand for imports from China as well. So, ironically, even as exports have grown 468 percent in the last decade, the US has still managed to maintain a stunningly large trade deficit with China: 

Last year, China’s trade surplus with the United States was between $180 billion or $250 billion, according to various calculations.

Still, the combination of a weakening American dollar and China’s growing economic clout is likely to bode well for American exports. With China short of water and arable land, exports of crops to China jumped to $13.8 billion last year.

Study the graph below and answer the questions that follow.

Discussion Questions:

1. What is the primary determinant of demand for exports that has lead to the growth over the last decade seen in the graph above?
2. What types of goods has China primarily imported from the US in the past? As incomes in China rise, how will the composition of its imports from the US likely change?
3. How is it possible that the US current account deficit remains as large as it does (as much as $250 billion) despite the growth in exports to China?
4. The value of China’s currency, the RMB, is closely managed by the Chinese Central Bank to maintain a low exchange rate against the US dollar. How does maintaining a low value of its currency exacerbate the imbalance of trade between China and the US? How would allowing greater flexibility in the RMB’s value help reduce the large imbalance of trade between the two countries?
5. If the US spent $250 billion more on Chinese goods than China did on US goods in 2010, where did that $250 billion end up? What does China do with the money the US spends on its goods that it does not spend on US goods? Define the financial account and explain the relationship between a nation’s current account balance and its financial account balance.

1. Why does Hayek’s “classical” aggregate supply curve always lead to an equilibrium level of national output equal to the full-employment level of
   

   real GDP?

2. The vertical AS curve above is sometimes referred to as the “flexible-wage and flexible-price” model of the macroeconomy. Why must wages and prices be perfectly flexible for this model to be an accurate representation of a nation’s economy.
3. Hayek was an advocate for free markets, he felt that government intervention in a nation’s economy would only interfere and disrupt the efficient allocation of resources. How does the model above reflect his belief that governments cannot improve a nation’s level of output beyond what the free market is able to achieve?
4. Do you believe that the classical model of aggregate supply is representative of the real world? Why or why not? What evidence is there from recent history that the model is or is not accurate?

Figure 2: The Keynesian AD/AS model

1. Based on the model above, which level of aggregate demand corresponds with the macroeconomic goals of “full-employment and stable
   

   prices”?

2. Changes in which factors could cause aggregate demand to shift from AD2 to AD3? If AD falls to AD3, what happens to the price level in the economy? What happens to the level of output of goods and services? What happens to employment and unemployment?
3. Sometimes the Keynesian AS model is known as the “sticky-wage and sticky-price model”. How does the model reflect the idea that wages are downwardly inflexible, in other words, will not fall even if demand for goods and services fall? For what reasons might wages in an economy be downwardly inflexible (in other words, not fall even as total demand in the economy falls)?
4. How realistic is the Keynsian model of aggregate supply in the real world?
   1. Can you point to any evidence from the last few years that it might be correct (in other words, that a fall in AD will lead to decrease in national output?) Find data on the GDP’s of two Western European countries from 2008 and 2009 to support your findings.
   2. Can you point to any evidence from the last few years that the model might be flawed (in other words, that a fall in AD actually does lead to a fall in the price level)? Find data on inflation in the same two Western European countries to examine whether or not wages and prices are completely inflexible downwards as the model suggests.

1. How does the above model represent a compromise between Keynes’ and Hayek’s view of aggregate supply?
2. Why are there two aggregate supply curves? What is the difference between the two?
3. What happens in the SHORT-RUN when AD falls from AD2 to AD3 to the price level and output? What will happen in the long-run? In macroeconomics, the short-run is known as the “fixed-wage period” and the long-run the “flexible-wage period”. The main factor that can shift the SRAS curve is the level of wages in the economy (in other words, a change in wages will shift the SRAS). How does this help explain the adjustment from the short-run equilibrium and the long-run equilibrium following a fall in AD?
4. What happens in the SHORT-RUN when AD increases from AD2 to AD1? What will happen in the long-run? How does the long-run flexibility of wages explain why output always seems to return to its full employment level of output in the long-run?
5. What does the model above indicate about the possible need for government intervention to help an economy achieve its macroeconomic goals of full-employment and price level stability in the short-run?

There are two conflicting opinions on the effectiveness of aid. Many of the aid agencies and some economists claim that aid that is focused and purposeful can be a strategy to lift people out of poverty. Other economists claim that development aid throughout African has been wasted over the past 50 years, and has only served to fuel corruption and a culture of dependency.

What is aid…

Foreign aid consists of financial flows from the developed world to less developed countries. It can be bilateral (between two countries) or multilateral (between multiple countries, through aid agencies) Some of these flows are soft loans, which receive more favorable interest rates and terms; others are grants which don’t need to be repaid. They can be further classified as tied aid when the money flow needs to be spent purchasing goods from the donor nation.

What are the motives for providing aid?

Nations can offer aid for a variety of reasons. Many developed countries grouped together at the Earth Summit in the 1992 and pledged to donate 0.7% of thier nations total Gross National Income (GNI) as foreign aid. The graph below shows how successful northern Europe has been in reaching these targets and how far the rest of the world still has to go.

• Political and Strategic Motives: Historical links have provided the key motive for bilateral aid between many countries. Some of the colonial links between France and parts of Africa have informed thier aid strategies. In parts of Asia the spread of communism promoted USA to support countries as the USSR supported the pro-communist regimes.
• Economic Motives: Aid is used by many developed countries to support the development of closer economic ties. China’s investment into the Democratic Republic of Congo is a good example of this as explained in this article Africa, Business and Development – Times.
• Humanitarian Aid: In the days after any natural disaster such as the Haiti Earthquake or Japanese Tsunami, countries have pledged grants to support the redevelopment of countries. Developed nations have also supported the drive towards the Millennium Development Goals to alleviation of poverty in parts of Africa by granting vast sums of money in an altruistic fashion.

How is aid helping?

For many countries, aid is the key tool to breaking the poverty cycle. Increased foreign grants can be used for loans, therefore breaking the savings/investment constraint that low income societies face. Small loans allow families to invest in capital, fertilizer or education. In many countries aid makes up a large percentage of social spending, such as in Tanzania up to third of total social spending comes from aid. Local government do not have the tax revenues to replace aid and therefore need it to supply basic services such as education and healthcare. The two videos below help explain how targeted aid can be effective tool in the development of countries.

What are the problems with foreign aid?

There are numerous critics of foreign development aid, who claim that trade is a more sustainable path to prosperity. The following video is perhaps the best intellectual critique of the issue. The main argument against aid are as follows.

• Aid is a breeding ground for corruption: There are numerous cases of governments using funds for personal gain or to fund armies. The government of Haiti was once considered the most corrupt in the world and after the earthquake in 2009 lead many government to be skeptical about the effectiveness of their donations given the politician historical record.
• Aid substitutes for rather than complements domestic government revenues: Many governments need to develop the tax system so that they can collect sufficient revenue to provide essential services. Too often aid is used in the place of tax revenue which is a short term solution and breeds a culture of dependency.
• Aid does not reach those in need: Sometimes aid is tied to projects that do little to support development. Cases of countries developing miles of fiber-optic broadband internet connections when people starve is a prime example. Sometime corruption by local official prevents all of the money reaching those in need.

Questions – borrowed from the original blog post below – post answers as a comment at bottom

Worksheet with Questions

Part 1:

1. What factors does Paul Collier point to that contribute to the “poverty traps” many African nations find themselves in? [3:07]
2. What have the two main goals of foreign aid policy been over the last 50 years, according to Dambisa Moyo? [4:45]
3. What are the “four horsemen of the African apocalypse?” How does Moyo think these four obstacles to development can best be overcome? [5:14]
4. What is Paul Collier’s opinion of the role of free trade in promoting human and economic development in Africa? What does he think about Africa’s traditional dependence on primary products and commodities? [7:45]
5. Before economic growth and development can occur, security must be achieved. Why is security, according to Collier, the number one obstacle to achieving meaningful development in Africa? [8:30]
6. In a dissenting view, Dr. Jeffery Sachs argues for more aid to Africa. What types of aid does Sachs believe is absolutely crucial for Africa to continue to receive? [10:39]

This is an excellent post by Jason Welker, that goes into the evaluation of aid and trade in more depth. The Bottom Billion: Aid and strategies for achieving economic development It also contains the second part of the above video.

The economic concepts and definitions in this post are borrowed from the detailed textbook – Economics for the IB Diploma by Ellie Tragakes