Oct/Nov 2024

Which of the following is a normative statement?

Economic methodology

Which elasticity would be affected by a shortage of skilled workers?

Price elasticity of supply

D1D1 represents an individual’s starting demand curve for public transport. What would make the demand curve move to D2D1?

Demand and supply curves

Which government action would be recognised as the direct supply of goods and services?

Maximum and minimum prices

A particular tax is levied on a product with zero elasticity of supply. Which statement is correct?

Maximum and minimum prices

A government wants to step in within a free market so that healthcare is allocated at the socially optimal level. Which combination accurately identifies the reason for government intervention in the healthcare market?

Government intervention in markets

The table presents the Consumer Prices Index (CPI) for a country. Which statement about the period 2008 to 2013 is correct?

Balance of payments

Which factor is most likely to make the price level increase?

Economic growth

Which change is most likely to raise a country’s circular flow of income?

Aggregate demand and aggregate supply

If a country’s population stays unchanged and its nominal GDP rises by 5% over a year, in which case are average living standards most likely to have risen during that year?

National income statistics

Which option correctly states the information needed to draw a graph of a normal short-run aggregate supply curve (SRAS) with accurate labels?

Economic growth

A business based in country S transferred its current capital equipment to a bigger factory in country T. It also added further identical equipment and expanded its workforce. On the basis of the evidence given, what must be true?

11.6

A government introduces two alterations to income tax. 1 The individual tax-free income allowance is raised. 2 The marginal rate of income tax is lowered. How will these changes affect aggregate demand and aggregate supply in the economy?

Fiscal policy

Which supply-side policy would be most likely to cut a government’s budget deficit?

Supply-side policy

Which mix of fiscal and monetary policies would definitely be expansionary?

Fiscal policy

A country’s central bank increases interest rates in order to bring down the general price level. At what point is this policy likely to have the greatest effect?

Monetary policy

The table sets out an economy’s trade in goods and services from 2019 to 2021. What was the most likely reason for the change from 2019 to 2021?

6.3

A government provides training subsidies in order to raise the skills of workers in an economy’s industrial sector. What is the most likely effect on the current account of the balance of payments?

6.3

If every resource is used efficiently, country X can make 6 million tonnes of wheat or 2 million tonnes of steel, while country Y can make 4 million tonnes of wheat or 1 million tonnes of steel. From this information, what does the theory of comparative advantage indicate?

International trade and free trade

Countries X and Y trade with each other. A rise in which economic indicator in country Y is most likely to lead to a decrease in the exchange rate of country X?

6.4

Which transaction is not entered in the current account?

6.3

A government chooses to impose a tariff on imported raw materials. Which statement correctly describes the tariff’s effect?

Protectionism

Which statement is incorrect?

Economic methodology

In what situation do a country’s terms of trade improve?

6.3

The diagrams illustrate production possibility curves. Which diagram indicates constant opportunity costs?

Production possibility curves

Farmers who rely on traditional methods do not have access to finance and frequently use family members only on a part-time basis. If working practices in agriculture were improved, how would this most likely appear on the production possibility curve?

Production possibility curves

During one year, 12 000 units of a good are sold at $1 per unit. In a later year, 14 000 units are sold at $1.20 per unit. If consumer tastes have stayed unchanged, what might explain the difference between the two years?

Income elasticity of demand

Which change is most likely to result in an increase in consumer surplus in the market for a normal good?

Cross elasticity of demand

The table presents Lee’s and Yim’s price elasticity of demand for restaurant meals and cinema tickets. The price of restaurant meals increases while the price of cinema tickets decreases. What conclusion can be drawn from these changes in price?

Price elasticity of demand

What is not kept constant when combining the supply curves of individual firms to obtain the short-run market supply curve?

Demand and supply curves

The production possibility curve of a country is displayed.

Production possibility curves

The diagram illustrates a shift in the supply curve in a market from S1 to S2. What effect will this have on consumer surplus and producer surplus?

Cross elasticity of demand

Good X has a substitute, good Y, and a complement, good Z. The price of good Y falls, whereas the price of good Z rises. Why could the equilibrium price of good X stay unchanged?

Income elasticity of demand

In the diagram, S1 and S2 represent the supply curves for an agricultural product in years 1 and 2, respectively. D is the demand curve for years 1 and 2. During year 1, the government bought the quantity needed to keep the price at OP. The price remains fixed at OP in year 2. How much extra must the government purchase in year 2 compared with year 1?

Maximum and minimum prices

Inequality within an economy may be classified as income inequality or wealth inequality. What is most likely to lead to wealth inequality being greater than income inequality?

Taxes and subsidies

A product whose supply is infinitely elastic sells 1000 units each week at a price of $1 per unit. Over the relevant range, price elasticity of demand is 1.5. The government introduces a tax of 10%. What is the government’s weekly tax revenue from this product?

Maximum and minimum prices

The table gives the figures for Consumer Prices Index (CPI) and one worker’s earnings in 2022 and 2023. CPI 2022 100; CPI 2023 110; worker’s earnings 2022 $20 000; worker’s earnings 2023 $25 000. What is the real value of the worker’s earnings in 2023 compared with 2022?

National income statistics

In an economy, unemployment increases because incomes drop as a result of a virus pandemic. How would this unemployment be classified?

Price stability and inflation

What is likely to cause an economy’s aggregate demand curve to shift rightward?

Economic growth

What items must be added to and deducted from Gross Domestic Product at market prices in order to find the value of Gross Domestic Product at basic prices?

National income statistics

In an economy where the interest rate is 4% per annum, inflation decreases from 5% to 3% per annum. What benefit will this fall bring?

Balance of payments

In a clothing business, once specialisation had been introduced, real output per worker rose during the first six months, but after that output per worker started to decline. What would be the most likely reason for the drop in productivity?

7.7

What is one example of a macroeconomic policy?

Fiscal policy

Which supply-side policy is most likely to cut real output before it starts to rise?

Supply-side policy

The economy is initially in equilibrium at point E on the diagram. The government cuts its spending on defence. Which point on the diagram indicates the revised equilibrium?

Economic growth

In a country, the number of people in employment and the unemployment level both fall. What might account for this?

Price stability and inflation

Under which circumstances would a firm be most likely to benefit from a depreciation of the exchange rate?

6.4

A country uses a floating exchange rate. Its current account in the balance of payments changes from surplus to deficit. Which rate is most likely to rise in the short run as a result of this deterioration in its current account?

6.4

Which policy is most likely to cut a balance of payments deficit without generating inflation?

Labour market

The table gives the average prices of exports and imports. Which pair of changes in export prices and import prices could cause a country’s terms of trade to rise from 100 to 110?

6.3

Which of the following is not an example of protectionism?

Protectionism

Turkey brought in $220 million worth of goods and services. In the same period, Turkey sold abroad goods and services valued at $12 million. Its net income stood at –$15 million. What is Turkey’s current account balance?

6.3

A wine producer and bottler planned to increase its output substantially. To fund this expansion, it offered investors discounts on restaurant meals if they purchased 2000 shares in the company. Which factors of production are most likely to be needed for this expansion?

Factors of production

The table presents the exchange rate for national currencies per US dollar. Which currency shows the lowest percentage appreciation against the US dollar from 2019 to 2020?

6.4

Which of these statements is positive?

Economic methodology

The diagram illustrates the movement of a country’s production possibility curve from PQ to PR. What rises as a result of the movement from PQ to PR?

Production possibility curves

The graph illustrates the demand and supply curves for an industry. What would lead to a movement of the supply curve from S1 to S2?

Demand and supply curves

A firm makes a product by means of a highly labour-intensive production process. The price of the product rises. In which conditions will the supply of the firm’s product be most price elastic?

Price elasticity of supply

Which change is most likely to make the demand curve for an inferior good move to the right?

Price elasticity of demand

The diagram illustrates four supply curves. Which curve has a price elasticity of supply of 1 at every level of quantity supplied?

Price elasticity of supply

The diagram illustrates a country's production possibility curve. What conclusion can be drawn from the diagram?

Production possibility curves

The separate regions on the diagram each stand for a different aspect of a market. Which row correctly identifies the three variables shown?

Cross elasticity of demand

Which pairing of a good’s classification and a market change would cause the demand curve for the good to shift to the right?

1.6

Which policy is most likely to overcome the free rider problem created by public goods?

Maximum and minimum prices

Extremely low interest rates in an economy stimulate economic growth and lead to a substantial rise in house prices. Which group of people is most likely to see income decrease and wealth increase because of these changes?

Monetary policy

A large-scale farming enterprise uses labour and capital equipment as substitute inputs. If the government introduces a policy to subsidise capital equipment, what effect would this have on the factor inputs?

Factors of production

A country recorded an annual deflation rate of 2% over four consecutive years. Which statement is correct for this four-year period?

Balance of payments

In the circular flow of income model of an economy, Y, C, I, G, X, S, T and M stand for total income, consumption, investment, government expenditure, exports, saving, taxation and imports, respectively. Which statement is correct?

Aggregate demand and aggregate supply

What causes frictional unemployment to increase?

Price stability and inflation

The figures are drawn from a country’s national income accounts. $ million: gross domestic product at market prices 200000; gross value added at basic prices 180000; subsidies 5000; capital consumption 30000. What conclusion can be drawn from the income accounts?

National income statistics

A government is planning to construct a large hospital. The effect on the country’s price level will depend partly on how many costly raw materials are brought into the country for the hospital and on the level of unemployment in the country. Which combination of imports of materials for the hospital and the level of unemployment is most likely to produce the biggest increase in the price level?

Economic growth

Which kind of good uses no scarce resources?

1.6

If interest rates are lowered, which thing is most likely to fall?

Monetary policy

Supply-side policy often leads to fiscal consequences. Which statement is incorrect?

Supply-side policy

Changes in fiscal policy can influence how income and wealth are distributed. Which combination of fiscal policy would be most likely to be regressive?

Short-run costs

What is meant by a budget surplus in government accounts?

Fiscal policy

A country gives subsidies for the home production of manufactured goods. Which outcome is most likely?

Maximum and minimum prices

Which of the following is not a valid reason for a government to permit a deficit on the balance of payments current account to continue?

6.3

A country that is currently operating at point X on its production possibility curve chooses to specialise in the manufacture of cars and import trucks. It discovers that one truck can be imported for four cars. What happens in the domestic market if all the surplus cars are exported?

Production possibility curves

What is the most likely reason for a current account deficit?

6.3

Two statements about types of protectionism that a government may use are given. 1 Imports are completely prohibited. 2 Every imported good must meet a specified standard. Which combination correctly identifies these two statements?

Protectionism

At what point does a country’s terms of trade improve?

International trade and free trade

The factors of production receive different rewards. Which economic term correctly names these rewards?

Factors of production

What effect is likely if the international value of a country’s currency increases?

6.4

Which of the following is most likely to count as an advantage of division of labour?

Factors of production

A government wants to increase the consumption of a merit good and cut the consumption of a demerit good. What policy ought it to use for each good?

Maximum and minimum prices

Leather is commonly used by shoe manufacturers in producing their highest-priced shoes. Because leather is in short supply worldwide, its price has increased. What will be the effect of this price change?

Income elasticity of demand

The Chinese government eased restrictions on private house ownership. As a result, private house ownership increased quickly, taking the place of demand for apartments rented from the state. What was most likely to happen to private house prices and the rents of apartments?

Income elasticity of demand

A product’s supply, S, is given by S = 10 + 10P, where P represents the product price. What is the price elasticity of supply when the price rises from $1 to $2?

Price elasticity of supply

A product has these elasticity figures: cross elasticity of demand +1.4; income elasticity of demand –0.8. Which statement is correct?

Price elasticity of demand

Using the data in Fig. 1.1, describe the pattern in the annual inflation rate in Argentina from February 2021 to January 2022.

Balance of payments

Explain the determinants of supply for an agricultural product, such as rice, and judge which of these determinants is likely to be the most significant at the present time.

Price elasticity of supply

With the aid of a diagram, explain the importance of a position inside a market economy’s production possibility curve (PPC) and judge whether it is likely to be permanent.

Production possibility curves

Explain two possible causes of economic growth and judge whether the effects of economic growth on an economy are always beneficial.

Unemployment

Explain the possible advantages of free trade and consider whether those advantages are always more significant than the possible disadvantages of free trade.

International trade and free trade

Identify two possible reasons why Chile’s current account on the balance of payments was in deficit in the first quarter of 2022 even though there was a surplus on the balance of trade in goods.

Taxes and subsidies

Using diagram(s), briefly explain how the reason for a movement along the demand curve differs from the reason for a shift in the demand curve and assess the effect on the demand for one good of price changes in other goods.

Price elasticity of demand

Using production possibility curve (PPC) diagram(s), explain how constant opportunity costs differ from increasing opportunity costs and consider whether short-run choices about which goods to produce can affect future economic growth.

Production possibility curves

Explain two methods of measuring unemployment and consider how far it may be difficult to obtain an accurate measurement of unemployment.

Price stability and inflation

Using examples, explain how the marginal rate of taxation differs from the average rate of taxation, and consider whether a government should raise the rate of indirect tax in order to collect extra revenue.

Fiscal policy

Use a demand and supply diagram to show why there was a ‘huge’ increase in the price of Arabica coffee beans in 2021.

Demand and supply curves

Using examples, explain the features of public goods and free goods and judge whether free-of-charge vaccinations provided by a government ought to be treated as a free good.

Behavioural economics

Explain two economic reasons for unequal distribution of income and wealth and consider why inequality in the distribution of wealth is not easy to measure.

Taxes and subsidies

During 2021, year-on-year inflation in many economies rose to a level that had not been seen for fifty years. Using a diagram, explain the meaning of cost-push inflation and discuss whether this form of inflation has affected your own economy since 2021.

Balance of payments

Explain two methods of protection in international trade and consider which of these is likely to have the bigger impact on employment and output in the economy which imposes them.

Protectionism

The diagram presents a total utility curve for a consumer. At which point is marginal utility equal to zero?

Utility and rational consumer behaviour

Firms X and Y combine through a horizontal integration. What has to be true about the industry and the stage of production at which X and Y operate?

7.7

Which government policy would not count as regulation?

Maximum and minimum prices

A government withdraws a subsidy for a rural school bus service. What effect does this have on the market for this bus service?

Maximum and minimum prices

The line graph indicates the percentage increase in average earnings for an economy. Which is the most likely explanation for the pattern shown on the graph?

Long-run costs and economies of scale

The table indicates the number of chairs produced in a factory for varying numbers of workers employed. At what point will diminishing marginal returns to labour begin?

Factors of production

Within the diagram, D shows the long-run demand curve for labour for a firm that operates in an imperfect market. If the quantity of capital invested per worker decreases, the marginal revenue productivity of labour (MRP) curve moves from MRP1 to MRP2. How does this change affect the quantity of labour employed in the long run, when wages fall?

Long-run costs and economies of scale

Which statement concerning money is correct?

Oligopoly

In country X, unemployment is going up while the number of job vacancies is also rising. What is the most likely explanation for this?

Price stability and inflation

A rise in which labour-market variable is most likely to lower the natural rate of unemployment?

Long-run costs and economies of scale

A consumer receives an income of $1000 per week. The consumer uses 80% of this income on goods and services. After the consumer’s income rises to $1200 per week, weekly consumption rises to $900. Which statement is correct?

National income statistics

State one characteristic of an indifference curve.

Indifference curves and budget lines

The table gives figures for the population of a country. total population 2 000 000 labour force 1 200 000 number of people employed 900 000 number of people unemployed 300 000 What is the rate of unemployment?

Price stability and inflation

Which of the following is not an aim of macroeconomic policy?

Government macroeconomic policy objectives

The diagram illustrates a rise in aggregate demand (AD) from AD1 to AD2. How can the resulting effects on short-run and long-run macroeconomic equilibrium positions be represented with expectations-augmented Phillips curves?

Economic growth