IB · ECON SL

Economics SL

Macroeconomics — Unit 3

Name: ____________________Date: October 14, 2026

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]
Marking points
- Calculates the change in CPI as 117.6 − 112 = 5.6.
- Divides by the base year value: 5.6/112.
- Obtains an inflation rate of 5%.
- States a harmed group, such as savers, lenders or fixed-income earners, and explains that the real value of their money or fixed payments falls.
- States a group that benefits, such as borrowers, and explains that the real value of their debt repayments falls.
Examiner tip: Always divide the change in the index by the earlier year's value, not the later year's value, when calculating a percentage change.
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]
Marking points
- Recognises credit for the stated point: Calculates the change in CPI as 117.6 − 112 = 5.6.
- Identifies the missing requirement: Divides by the base year value: 5.6/112.
- Identifies the missing requirement: Obtains an inflation rate of 5%.
- Identifies the missing requirement: States a harmed group, such as savers, lenders or fixed-income earners, and explains that the real value of their money or fixed payments falls.
- Identifies the missing requirement: States a group that benefits, such as borrowers, and explains that the real value of their debt repayments falls.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
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
Marking points
- Identifies structural unemployment, caused by a change in the skills demanded by the economy.
- Explains that the cashiers' existing skills no longer match the skills required by employers.
- Suggests a valid policy, such as government-funded retraining or reskilling programmes.
Examiner tip: Structural unemployment is linked to a skills mismatch from changing technology or industry decline, unlike cyclical unemployment which follows the business cycle.
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
Marking points
- Recognises credit for the stated point: Identifies structural unemployment, caused by a change in the skills demanded by the economy.
- Identifies the missing requirement: Explains that the cashiers' existing skills no longer match the skills required by employers.
- Identifies the missing requirement: Suggests a valid policy, such as government-funded retraining or reskilling programmes.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
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
Marking points
- States a valid expansionary fiscal policy, such as increased government spending or a cut in taxation.
- Explains that increased government spending directly adds to aggregate demand, or that a tax cut raises households' disposable income and consumption.
- Explains the multiplier effect: the initial injection generates further rounds of spending, increasing aggregate demand by more than the initial amount.
- States a valid drawback, such as an increased budget deficit or national debt, or a time lag before the policy takes effect.
Examiner tip: Link the policy directly to a component of aggregate demand before discussing wider effects such as the multiplier.
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
Marking points
- Recognises credit for the stated point: States a valid expansionary fiscal policy, such as increased government spending or a cut in taxation.
- Identifies the missing requirement: Explains that increased government spending directly adds to aggregate demand, or that a tax cut raises households' disposable income and consumption.
- Identifies the missing requirement: Explains the multiplier effect: the initial injection generates further rounds of spending, increasing aggregate demand by more than the initial amount.
- Identifies the missing requirement: States a valid drawback, such as an increased budget deficit or national debt, or a time lag before the policy takes effect.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
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
Marking points
- Identifies consumption (C), investment (I), government spending (G), and net exports (X − M).
- Explains that higher interest rates raise the cost of borrowing, discouraging firms from taking out loans to fund new investment projects.
- Alternatively (or additionally) explains that higher interest rates raise the cost of consumer credit and mortgage repayments, and increase the incentive to save rather than spend, reducing consumption.
- Concludes that the fall in the chosen AD component reduces aggregate demand overall, helping to lower inflationary pressure.
Examiner tip: AD = C + I + G + (X − M) — always be ready to identify which specific component a policy or event affects before explaining the wider impact.
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
Marking points
- Recognises credit for the stated point: Identifies consumption (C), investment (I), government spending (G), and net exports (X − M).
- Identifies the missing requirement: Explains that higher interest rates raise the cost of borrowing, discouraging firms from taking out loans to fund new investment projects.
- Identifies the missing requirement: Alternatively (or additionally) explains that higher interest rates raise the cost of consumer credit and mortgage repayments, and increase the incentive to save rather than spend, reducing consumption.
- Identifies the missing requirement: Concludes that the fall in the chosen AD component reduces aggregate demand overall, helping to lower inflationary pressure.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
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
Marking points
- Identifies Year 3 (falling output, rising unemployment) as a recession/contraction phase.
- Identifies Year 4 (growth still negative but slowing its decline, unemployment at its highest) as the trough of the business cycle.
- States a valid characteristic of a trough, such as low consumer and business confidence, low investment, or the point at which the economy is closest to beginning a recovery.
Examiner tip: The trough is identified by unemployment being at its highest and output growth bottoming out, not necessarily by growth turning positive again — that marks the start of recovery.
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
Marking points
- Recognises credit for the stated point: Identifies Year 3 (falling output, rising unemployment) as a recession/contraction phase.
- Identifies the missing requirement: Identifies Year 4 (growth still negative but slowing its decline, unemployment at its highest) as the trough of the business cycle.
- Identifies the missing requirement: States a valid characteristic of a trough, such as low consumer and business confidence, low investment, or the point at which the economy is closest to beginning a recovery.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
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
Marking points
- Identifies Scenario B (rising consumer confidence and spending) as demand-pull inflation.
- Identifies Scenario A (rising oil prices raising production costs) as cost-push inflation.
- States that in Scenario A, the short-run aggregate supply (SRAS) curve shifts left/upward, reflecting higher costs of production at every price level.
Examiner tip: Demand-pull inflation is caused by a rightward shift of AD; cost-push inflation is caused by a leftward shift of SRAS — always identify which curve moves before naming the type.
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
Marking points
- Recognises credit for the stated point: Identifies Scenario B (rising consumer confidence and spending) as demand-pull inflation.
- Identifies the missing requirement: Identifies Scenario A (rising oil prices raising production costs) as cost-push inflation.
- Identifies the missing requirement: States that in Scenario A, the short-run aggregate supply (SRAS) curve shifts left/upward, reflecting higher costs of production at every price level.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
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
Marking points
- States that this is contractionary monetary policy.
- Explains that a higher interest rate raises the cost of borrowing for households and firms, and increases the return to saving.
- Explains that this reduces consumption and investment spending, lowering aggregate demand and easing upward pressure on prices.
- Explains a valid reason for a time lag, such as existing loans being at fixed rates, or households and firms taking time to adjust spending plans in response to the change.
Examiner tip: Monetary policy transmission always runs through the cost/return of borrowing and saving before it reaches spending and then prices — trace each link explicitly.
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
Marking points
- Recognises credit for the stated point: States that this is contractionary monetary policy.
- Identifies the missing requirement: Explains that a higher interest rate raises the cost of borrowing for households and firms, and increases the return to saving.
- Identifies the missing requirement: Explains that this reduces consumption and investment spending, lowering aggregate demand and easing upward pressure on prices.
- Identifies the missing requirement: Explains a valid reason for a time lag, such as existing loans being at fixed rates, or households and firms taking time to adjust spending plans in response to the change.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
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
Marking points
- Identifies an inverse (trade-off) relationship between unemployment and inflation, shown by the (short-run) Phillips curve.
- Explains that as unemployment falls, labour markets tighten and workers gain more bargaining power, pushing up wages, which firms pass on as higher prices.
- States that in the long run, workers and firms adjust their inflation expectations, so the trade-off tends to disappear and unemployment returns towards its natural rate regardless of the inflation rate.
Examiner tip: The short-run Phillips curve trade-off is widely accepted, but most economists argue the long-run Phillips curve is vertical at the natural rate of unemployment.
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
Marking points
- Recognises credit for the stated point: Identifies an inverse (trade-off) relationship between unemployment and inflation, shown by the (short-run) Phillips curve.
- Identifies the missing requirement: Explains that as unemployment falls, labour markets tighten and workers gain more bargaining power, pushing up wages, which firms pass on as higher prices.
- Identifies the missing requirement: States that in the long run, workers and firms adjust their inflation expectations, so the trade-off tends to disappear and unemployment returns towards its natural rate regardless of the inflation rate.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
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]
Marking points
- Calculates the output gap as (470 − 500)/500 = −6%.
- States that a negative output gap (actual GDP below potential GDP) represents a deflationary (recessionary) output gap.
- Suggests a valid demand-side policy, such as expansionary fiscal policy (increased government spending or tax cuts) or expansionary monetary policy (lower interest rates).
- Briefly links the suggested policy to increasing aggregate demand, closing the gap between actual and potential output.
Examiner tip: A negative output gap means the economy is producing below its potential and typically has spare capacity/higher unemployment; a positive output gap risks overheating and inflation.
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]
Marking points
- Recognises credit for the stated point: Calculates the output gap as (470 − 500)/500 = −6%.
- Identifies the missing requirement: States that a negative output gap (actual GDP below potential GDP) represents a deflationary (recessionary) output gap.
- Identifies the missing requirement: Suggests a valid demand-side policy, such as expansionary fiscal policy (increased government spending or tax cuts) or expansionary monetary policy (lower interest rates).
- Identifies the missing requirement: Briefly links the suggested policy to increasing aggregate demand, closing the gap between actual and potential output.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
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
Marking points
- States that economic growth is a quantitative increase in real GDP or real GDP per capita.
- States that economic development is a broader, qualitative concept covering improvements in living standards, such as education, health, and income distribution, often measured using composite indicators such as the HDI.
- Explains that GDP growth can occur alongside unequal income distribution or underinvestment in public services, meaning the average citizen's health and education outcomes do not improve proportionally.
- Concludes that GDP growth is therefore necessary but not sufficient on its own to guarantee broader economic development.
Examiner tip: Growth is about the size of the economy; development is about the wellbeing of the people in it — a country can have one without much of the other.
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
Marking points
- Recognises credit for the stated point: States that economic growth is a quantitative increase in real GDP or real GDP per capita.
- Identifies the missing requirement: States that economic development is a broader, qualitative concept covering improvements in living standards, such as education, health, and income distribution, often measured using composite indicators such as the HDI.
- Identifies the missing requirement: Explains that GDP growth can occur alongside unequal income distribution or underinvestment in public services, meaning the average citizen's health and education outcomes do not improve proportionally.
- Identifies the missing requirement: Concludes that GDP growth is therefore necessary but not sufficient on its own to guarantee broader economic development.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
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
Marking points
- States that a Lorenz curve plots the cumulative percentage of national income against the cumulative percentage of the population, ordered from poorest to richest.
- States that perfectly equal income distribution would appear as a 45-degree straight diagonal line.
- States that this economy shows relatively unequal income distribution, since the poorest 40% earn a disproportionately small share (12%) while the richest 10% earn a disproportionately large share (35%).
- Explains that a progressive tax system charges higher-income earners a higher average tax rate, taking proportionally more from the richest households.
- Explains that if this tax revenue is used to fund transfers or public services benefiting lower-income households, disposable income becomes more evenly distributed, pulling the Lorenz curve closer to the line of equality and lowering the Gini coefficient.
Examiner tip: The further the Lorenz curve bows away from the 45-degree line of equality, the higher the Gini coefficient and the more unequal the income distribution.
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
Marking points
- Recognises credit for the stated 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.
- Identifies the missing requirement: States that perfectly equal income distribution would appear as a 45-degree straight diagonal line.
- Identifies the missing requirement: States that this economy shows relatively unequal income distribution, since the poorest 40% earn a disproportionately small share (12%) while the richest 10% earn a disproportionately large share (35%).
- Identifies the missing requirement: Explains that a progressive tax system charges higher-income earners a higher average tax rate, taking proportionally more from the richest households.
- Identifies the missing requirement: Explains that if this tax revenue is used to fund transfers or public services benefiting lower-income households, disposable income becomes more evenly distributed, pulling the Lorenz curve closer to the line of equality and lowering the Gini coefficient.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
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
Marking points
- Identifies Tax A as progressive.
- Identifies Tax B as regressive.
- Explains that because all households pay the same rate on food regardless of income, and food spending takes up a larger share of income for lower-income households, the tax burden falls more heavily, as a proportion of income, on the poor than on the rich.
Examiner tip: Classify a tax as progressive, regressive or proportional by comparing the percentage of income paid across income levels, not the dollar amount paid.
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
Marking points
- Recognises credit for the stated point: Identifies Tax A as progressive.
- Identifies the missing requirement: Identifies Tax B as regressive.
- Identifies the missing requirement: Explains that because all households pay the same rate on food regardless of income, and food spending takes up a larger share of income for lower-income households, the tax burden falls more heavily, as a proportion of income, on the poor than on the rich.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
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
Marking points
- Identifies frictional unemployment for the first worker, who is unemployed only briefly while voluntarily searching for a new job.
- Identifies cyclical (demand-deficient) unemployment for the factory workers, caused by an economy-wide fall in demand during a recession.
- States a valid policy for cyclical unemployment, such as expansionary fiscal or monetary policy to boost aggregate demand.
Examiner tip: Frictional unemployment is short-term and voluntary between jobs; cyclical unemployment is tied to the business cycle and responds to demand-side policy, unlike structural unemployment which needs supply-side retraining.
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
Marking points
- Recognises credit for the stated point: Identifies frictional unemployment for the first worker, who is unemployed only briefly while voluntarily searching for a new job.
- Identifies the missing requirement: Identifies cyclical (demand-deficient) unemployment for the factory workers, caused by an economy-wide fall in demand during a recession.
- Identifies the missing requirement: States a valid policy for cyclical unemployment, such as expansionary fiscal or monetary policy to boost aggregate demand.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
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
Marking points
- States that national income is in equilibrium when planned injections equal planned leakages: I + G + X = S + T + M.
- Explains that if injections exceed leakages, there is a net injection of spending into the circular flow.
- Explains that this net injection increases national income, output and employment, as the extra spending circulates through the economy (via the multiplier), until a new, higher equilibrium is reached.
Examiner tip: Injections add spending into the circular flow from outside households' direct consumption; leakages remove spending from it — equilibrium requires the two to balance.
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
Marking points
- Recognises credit for the stated point: States that national income is in equilibrium when planned injections equal planned leakages: I + G + X = S + T + M.
- Identifies the missing requirement: Explains that if injections exceed leakages, there is a net injection of spending into the circular flow.
- Identifies the missing requirement: Explains that this net injection increases national income, output and employment, as the extra spending circulates through the economy (via the multiplier), until a new, higher equilibrium is reached.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.
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
Marking points
- States that demand-side policy (fiscal and monetary policy) is primarily intended to shift the aggregate demand (AD) curve.
- States that supply-side policy is primarily intended to shift the long-run aggregate supply (LRAS) curve, increasing the economy's productive capacity.
- Suggests a valid supply-side policy, such as investment in education and training, infrastructure spending, or deregulation to encourage business investment.
- Explains how the chosen policy increases the quantity or quality of factors of production (e.g., a more skilled workforce, or more efficient infrastructure), shifting LRAS to the right.
Examiner tip: Supply-side policies work more slowly than demand-side policies but address the root cause of low long-run growth, rather than just managing short-term fluctuations in demand.
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
Marking points
- Recognises credit for the stated point: States that demand-side policy (fiscal and monetary policy) is primarily intended to shift the aggregate demand (AD) curve.
- Identifies the missing requirement: States that supply-side policy is primarily intended to shift the long-run aggregate supply (LRAS) curve, increasing the economy's productive capacity.
- Identifies the missing requirement: Suggests a valid supply-side policy, such as investment in education and training, infrastructure spending, or deregulation to encourage business investment.
- Identifies the missing requirement: Explains how the chosen policy increases the quantity or quality of factors of production (e.g., a more skilled workforce, or more efficient infrastructure), shifting LRAS to the right.
Examiner tip: Treat each marking point as a separate requirement. Do not award the same idea twice, and do not infer work the learner did not show.