Mock IB Data Response Question

IB Economics
Mock IB Data Response Question
China's consumer prices fell by 1.5% in the year to April, figures show, the third consecutive
month of declines. The drop came after food and energy prices eased from last year's high
levels, and followed annual falls of 1.2% in March and 1.6% in February. Food prices were
down 1.3% in April from a year ago.
A key factor was the drop in the price of pork, which was down 28.6% from a year earlier. In
2008, shortages had sent pork prices sharply higher.
Costs for fuel and raw materials were 9.6% lower than the same period a year ago.
The fall in prices had been expected.
"The sharp rise in food prices in early 2008 and subsequent declines explain much of the yearon-year fall in CPI inflation," said Jing Ulrich, chairman of China equities at JP Morgan.
"Deflationary concerns appear to be subsiding as the economy shows signs of recovery."
This recent data follows the news last week that China and Taiwan have signed an agreement
to allow investment across the Taiwan Strait. In the past, while there has been a great deal of
mainland investment from Taiwanese firms, Chinese companies have needed permission
from the Taiwanese government to undertake foreign direct investment in Taiwan.
Taiwan's economy went into recession late last year and both sides said they hoped their
agreements would help both sides to weather the economic storm.
Answer all questions
a) Define the following terms indicated in bold in the text:
Inflation [2]
Recession [2]
b)Using a diagram explain what is meant by ‘bad’ deflation [4]
c) Using a supply and demand diagram explain why pork prices rose so
significantly in 2008 [4]
d) Using information provided and your own knowledge of economics,
evaluate the effectiveness of foreign direct investment as a means of achieving
economic growth [8]