Economics SL
Macroeconomics — Unit 3
- 1.
A country's consumer price index (CPI) was 112 last year and rose to 117.6 this year. (a) Calculate the rate of inflation over the year. (b) State one group in the economy likely to be harmed by unexpected inflation, and explain why. (c) State one group likely to benefit from unexpected inflation, and explain why.
[5 marks] - 2.
Marking analysis: A learner attempts the following task: “A country's consumer price index (CPI) was 112 last year and rose to 117.6 this year. (a) Calculate the rate of inflation over the year. (b) State one group in the economy likely to be harmed by unexpected inflation, and explain why. (c) State one group likely to benefit from unexpected inflation, and explain why.” Their response addresses only this point: “Calculates the change in CPI as 117.6 − 112 = 5.6.” Evaluate the response against the complete 5-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[5 marks] - 3.
Following the widespread introduction of self-checkout machines in supermarkets, a number of cashiers lose their jobs, and finding new employment in other sectors requires them to retrain. (a) Identify the type of unemployment described. (b) Explain why the cashiers' existing skills no longer match what employers require. (c) Suggest one government policy that could help reduce this type of unemployment.
[3 marks] · no calculator - 4.
Marking analysis: A learner attempts the following task: “Following the widespread introduction of self-checkout machines in supermarkets, a number of cashiers lose their jobs, and finding new employment in other sectors requires them to retrain. (a) Identify the type of unemployment described. (b) Explain why the cashiers' existing skills no longer match what employers require. (c) Suggest one government policy that could help reduce this type of unemployment.” Their response addresses only this point: “Identifies structural unemployment, caused by a change in the skills demanded by the economy.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] · no calculator - 5.
An economy is experiencing a recession, with rising unemployment and falling output. (a) State one expansionary fiscal policy the government could use. (b) Explain how this policy could increase aggregate demand, referring to the multiplier effect. (c) State one possible drawback of using this policy, such as its effect on the government budget.
[4 marks] · no calculator - 6.
Marking analysis: A learner attempts the following task: “An economy is experiencing a recession, with rising unemployment and falling output. (a) State one expansionary fiscal policy the government could use. (b) Explain how this policy could increase aggregate demand, referring to the multiplier effect. (c) State one possible drawback of using this policy, such as its effect on the government budget.” Their response addresses only this point: “States a valid expansionary fiscal policy, such as increased government spending or a cut in taxation.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] · no calculator - 7.
(a) Identify the four components of aggregate demand (AD) in an open economy. (b) A central bank raises its policy interest rate to combat rising inflation. Explain one channel through which this is likely to reduce one of the components of aggregate demand you identified.
[4 marks] · no calculator - 8.
Marking analysis: A learner attempts the following task: “(a) Identify the four components of aggregate demand (AD) in an open economy. (b) A central bank raises its policy interest rate to combat rising inflation. Explain one channel through which this is likely to reduce one of the components of aggregate demand you identified.” Their response addresses only this point: “Identifies consumption (C), investment (I), government spending (G), and net exports (X − M).” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] · no calculator - 9.
Data for an economy shows: Year 1, real GDP growth +3%; Year 2, real GDP growth +1%; Year 3, real GDP growth −2%, with unemployment rising; Year 4, real GDP growth −0.5%, with unemployment at its highest level. (a) Identify the business cycle phase occurring in Year 3. (b) Identify the business cycle phase occurring in Year 4. (c) State one characteristic typically seen at this Year 4 phase, other than negative or low growth.
[3 marks] · no calculator - 10.
Marking analysis: A learner attempts the following task: “Data for an economy shows: Year 1, real GDP growth +3%; Year 2, real GDP growth +1%; Year 3, real GDP growth −2%, with unemployment rising; Year 4, real GDP growth −0.5%, with unemployment at its highest level. (a) Identify the business cycle phase occurring in Year 3. (b) Identify the business cycle phase occurring in Year 4. (c) State one characteristic typically seen at this Year 4 phase, other than negative or low growth.” Their response addresses only this point: “Identifies Year 3 (falling output, rising unemployment) as a recession/contraction phase.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] · no calculator - 11.
Two scenarios cause a rise in the general price level in an economy: Scenario A, a sharp rise in global oil prices increases production costs for most firms; Scenario B, a surge in consumer confidence leads to a large increase in household spending. (a) Identify which scenario illustrates demand-pull inflation. (b) Identify which scenario illustrates cost-push inflation. (c) State, for the AD/AS model, which curve shifts in Scenario A.
[3 marks] · no calculator - 12.
Marking analysis: A learner attempts the following task: “Two scenarios cause a rise in the general price level in an economy: Scenario A, a sharp rise in global oil prices increases production costs for most firms; Scenario B, a surge in consumer confidence leads to a large increase in household spending. (a) Identify which scenario illustrates demand-pull inflation. (b) Identify which scenario illustrates cost-push inflation. (c) State, for the AD/AS model, which curve shifts in Scenario A.” Their response addresses only this point: “Identifies Scenario B (rising consumer confidence and spending) as demand-pull inflation.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] · no calculator - 13.
A central bank is concerned that inflation is rising above its target and decides to raise its policy interest rate. (a) State whether this is an example of expansionary or contractionary monetary policy. (b) Explain the transmission mechanism through which this interest rate rise is expected to reduce inflationary pressure, referring to borrowing costs and spending. (c) Explain one reason this policy might take a considerable time to have its full effect on the price level.
[4 marks] · no calculator - 14.
Marking analysis: A learner attempts the following task: “A central bank is concerned that inflation is rising above its target and decides to raise its policy interest rate. (a) State whether this is an example of expansionary or contractionary monetary policy. (b) Explain the transmission mechanism through which this interest rate rise is expected to reduce inflationary pressure, referring to borrowing costs and spending. (c) Explain one reason this policy might take a considerable time to have its full effect on the price level.” Their response addresses only this point: “States that this is contractionary monetary policy.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] · no calculator - 15.
Data for a country over several years shows that as unemployment fell from 8% to 4%, the inflation rate rose from 1% to 5%. (a) Identify the economic relationship this data illustrates, and name the diagram economists commonly use to show it. (b) Explain one possible reason for this relationship, referring to labour markets and wages. (c) State why this trade-off may not hold in the same way over the long run.
[3 marks] · no calculator - 16.
Marking analysis: A learner attempts the following task: “Data for a country over several years shows that as unemployment fell from 8% to 4%, the inflation rate rose from 1% to 5%. (a) Identify the economic relationship this data illustrates, and name the diagram economists commonly use to show it. (b) Explain one possible reason for this relationship, referring to labour markets and wages. (c) State why this trade-off may not hold in the same way over the long run.” Their response addresses only this point: “Identifies an inverse (trade-off) relationship between unemployment and inflation, shown by the (short-run) Phillips curve.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] · no calculator - 17.
An economy's potential (full-employment) real GDP is estimated at $500bn, while its actual real GDP this year is only $470bn. (a) Calculate the output gap as a percentage of potential GDP. (b) State whether this represents a deflationary (recessionary) or inflationary output gap. (c) Suggest one demand-side policy the government could use to close this gap.
[4 marks] - 18.
Marking analysis: A learner attempts the following task: “An economy's potential (full-employment) real GDP is estimated at $500bn, while its actual real GDP this year is only $470bn. (a) Calculate the output gap as a percentage of potential GDP. (b) State whether this represents a deflationary (recessionary) or inflationary output gap. (c) Suggest one demand-side policy the government could use to close this gap.” Their response addresses only this point: “Calculates the output gap as (470 − 500)/500 = −6%.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] - 19.
Country X has a high real GDP per capita but a low score on the Human Development Index (HDI) due to poor average education and health outcomes. (a) Distinguish between economic growth and economic development. (b) Explain why Country X could have strong economic growth without correspondingly strong economic development.
[4 marks] · no calculator - 20.
Marking analysis: A learner attempts the following task: “Country X has a high real GDP per capita but a low score on the Human Development Index (HDI) due to poor average education and health outcomes. (a) Distinguish between economic growth and economic development. (b) Explain why Country X could have strong economic growth without correspondingly strong economic development.” Their response addresses only this point: “States that economic growth is a quantitative increase in real GDP or real GDP per capita.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] · no calculator - 21.
A country's Lorenz curve shows that the poorest 40% of households earn only 12% of total national income, while the richest 10% earn 35% of total national income. (a) State what a Lorenz curve represents, and what perfectly equal income distribution would look like on this diagram. (b) State whether this economy's income distribution appears relatively equal or unequal, referring to the given figures. (c) Explain how a more progressive income tax system could reduce measured income inequality (e.g., the Gini coefficient) in this economy.
[5 marks] · no calculator - 22.
Marking analysis: A learner attempts the following task: “A country's Lorenz curve shows that the poorest 40% of households earn only 12% of total national income, while the richest 10% earn 35% of total national income. (a) State what a Lorenz curve represents, and what perfectly equal income distribution would look like on this diagram. (b) State whether this economy's income distribution appears relatively equal or unequal, referring to the given figures. (c) Explain how a more progressive income tax system could reduce measured income inequality (e.g., the Gini coefficient) in this economy.” Their response addresses only this point: “States that a Lorenz curve plots the cumulative percentage of national income against the cumulative percentage of the population, ordered from poorest to richest.” Evaluate the response against the complete 5-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[5 marks] · no calculator - 23.
A government is comparing two taxes: Tax A takes a higher percentage of income from high-income earners than from low-income earners; Tax B is a flat-rate sales tax on food, which takes up a larger percentage of a low-income household's total income than a high-income household's total income. (a) Identify Tax A as progressive, regressive or proportional. (b) Identify Tax B as progressive, regressive or proportional. (c) Explain why a sales tax on food, such as Tax B, is often considered regressive.
[3 marks] · no calculator - 24.
Marking analysis: A learner attempts the following task: “A government is comparing two taxes: Tax A takes a higher percentage of income from high-income earners than from low-income earners; Tax B is a flat-rate sales tax on food, which takes up a larger percentage of a low-income household's total income than a high-income household's total income. (a) Identify Tax A as progressive, regressive or proportional. (b) Identify Tax B as progressive, regressive or proportional. (c) Explain why a sales tax on food, such as Tax B, is often considered regressive.” Their response addresses only this point: “Identifies Tax A as progressive.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] · no calculator - 25.
A worker leaves their job to move to a new city and spends three weeks searching for a suitable new position before finding one. Separately, a large factory closes down as an economic recession reduces overall demand, and its former workers remain unemployed for many months. (a) Identify the type of unemployment experienced by the first worker. (b) Identify the type of unemployment experienced by the factory workers. (c) State one government policy specifically suited to reducing the type of unemployment affecting the factory workers.
[3 marks] · no calculator - 26.
Marking analysis: A learner attempts the following task: “A worker leaves their job to move to a new city and spends three weeks searching for a suitable new position before finding one. Separately, a large factory closes down as an economic recession reduces overall demand, and its former workers remain unemployed for many months. (a) Identify the type of unemployment experienced by the first worker. (b) Identify the type of unemployment experienced by the factory workers. (c) State one government policy specifically suited to reducing the type of unemployment affecting the factory workers.” Their response addresses only this point: “Identifies frictional unemployment for the first worker, who is unemployed only briefly while voluntarily searching for a new job.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] · no calculator - 27.
In the circular flow of income model, injections into the economy include investment (I), government spending (G) and exports (X), while leakages (withdrawals) include savings (S), taxation (T) and imports (M). (a) State the condition, in terms of injections and leakages, under which national income is in equilibrium. (b) Suppose in a given year, planned injections (I + G + X) exceed planned leakages (S + T + M). Explain the likely effect on the equilibrium level of national income.
[3 marks] · no calculator - 28.
Marking analysis: A learner attempts the following task: “In the circular flow of income model, injections into the economy include investment (I), government spending (G) and exports (X), while leakages (withdrawals) include savings (S), taxation (T) and imports (M). (a) State the condition, in terms of injections and leakages, under which national income is in equilibrium. (b) Suppose in a given year, planned injections (I + G + X) exceed planned leakages (S + T + M). Explain the likely effect on the equilibrium level of national income.” Their response addresses only this point: “States that national income is in equilibrium when planned injections equal planned leakages: I + G + X = S + T + M.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] · no calculator - 29.
A government wants to increase its economy's long-run productive capacity, not just boost short-term spending. (a) Distinguish between demand-side policy and supply-side policy, in terms of which curve of the AD/AS model each is primarily intended to shift. (b) Suggest one specific supply-side policy the government could use, and briefly explain how it would increase long-run aggregate supply (LRAS).
[4 marks] · no calculator - 30.
Marking analysis: A learner attempts the following task: “A government wants to increase its economy's long-run productive capacity, not just boost short-term spending. (a) Distinguish between demand-side policy and supply-side policy, in terms of which curve of the AD/AS model each is primarily intended to shift. (b) Suggest one specific supply-side policy the government could use, and briefly explain how it would increase long-run aggregate supply (LRAS).” Their response addresses only this point: “States that demand-side policy (fiscal and monetary policy) is primarily intended to shift the aggregate demand (AD) curve.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] · no calculator