Oct/Nov 2025

Give one example of a normative statement.

Economic methodology

Give one example of direct provision by a government.

Government intervention in markets

The graph illustrates the total economic welfare gained by citizens from a government’s spending on health and education services. If the government has $60$ billion from its budget to divide between health and education services, which distribution will produce the greatest level of welfare for its citizens?

Scarcity, choice and opportunity cost

A government offers a subsidy to a producer of a product. What is likely to happen as a result of this?

Taxes and subsidies

What would a measure of wealth include?

Income inequality

What reasons might lead a government to set a minimum price for a product?

Maximum and minimum prices

An indirect tax is placed on a product. What change occurs in consumer surplus?

Consumer and producer surplus

The table presents a selection of statistics for a country. Gross domestic product at market prices: $\$600$bn. Indirect taxes: $\$100$bn. Subsidies: $\$50$bn. What is the value of gross domestic product at basic prices?

National income statistics

In year 1, a country’s GDP at current market prices was $\$1000$bn. By year 2, this had increased to $\$1100$bn. Over that same period, the general price level increased by $5\%$. What change has occurred in real GDP?

National income statistics

A government uses money to provide education for students. Which kind of spending is capital expenditure?

Factors of production

Give one example of fiscal policy designed to raise aggregate demand in an economy.

Fiscal policy

When a country shifts from a market economy to a mixed economy, at what stage is this change most likely to bring about the biggest improvement in resource allocation?

Resource allocation in different economic systems

The aggregate demand (AD) curve in an economy moves leftward. What is the most likely reason for this shift?

Aggregate demand and aggregate supply

The diagram illustrates the AD and AS curves for a low income country. Oil and gas account for 90% of its exports. The initial equilibrium level of national income is $Y_1$. What is the most likely new equilibrium point if the worldwide prices of oil and gas rise dramatically?

Aggregate demand and aggregate supply

Which of the following is not one of a government’s macroeconomic policy objectives?

Government macroeconomic policy objectives

A central bank raises interest rates in order to bring inflation down. In which situation is this policy most likely to be successful?

Monetary policy

If a government cuts spending on workplace training, raises indirect taxes and lowers the interest rate paid on government debt, how should these macroeconomic policies be classified?

Macroeconomic policies revisited

A country’s government lowers its budget deficit by reducing public expenditure. Meanwhile, the central bank increases interest rates. In what situation might this policy mix be adopted?

Government macroeconomic policy objectives

A country's currency falls in value relative to other currencies. What would be one result of this depreciation?

International trade and free trade

A developing country's terms of trade declined from 90 in 2010 to 80 in 2015. If the index of its import prices stayed at 110 throughout this period, what change occurred in the index of its export prices?

International trade and free trade

Which of the following is not a disadvantage of the theory of comparative advantage?

International trade and free trade

Which item would not be entered in the current account of the balance of payments?

Balance of payments

The diagram shows a production possibility curve for an economy that produces capital goods and consumer goods. Why is the production possibility curve shaped concave towards the origin?

Production possibility curves

A country is running a current account deficit in its balance of payments. It also has a government budget deficit. Which measure to reduce the current account deficit will increase the budget deficit?

Balance of payments

Give one example of a public good.

Public goods

Which merit good is most likely to be under-consumed?

Information failure

Which statement gives the definition of market equilibrium?

Market equilibrium and disequilibrium

The diagram shows a curve that represents how the price and quantity of a product are related. No label has been added to it. Which description of the curve is correct?

Demand and supply curves

Which statement is correct for a good whose income elasticity of demand is $-0.2$?

Income elasticity of demand

The table gives the price of a good together with the total expenditure on that good for certain periods while the market is in equilibrium. Period 1: price $12$, total expenditure $96\,000$. Period 2: price $5$, total expenditure $40\,000$. Period 3: price $8$, total expenditure $64\,000$. Period 4: price $10$, total expenditure $80\,000$. Period 5: price $4$, total expenditure $32\,000$. What conclusion can be drawn from these figures?

Price elasticity of demand

Give one example of a normative statement.

Economic methodology

Which category of good is best suited to a successful buffer stock scheme?

Buffer stocks

Demand for electric vehicle batteries is derived from demand for electric vehicles. In an effort to address climate change, a government gives subsidies to electric vehicle producers. What are the probable effects of this subsidy on the price and sales of electric vehicle batteries?

Taxes and subsidies

The diagram illustrates the market for a demerit good. The starting equilibrium is located at point X. What would the new equilibrium be if the government levies a unit tax on this demerit good and succeeds in making consumers aware of its harmful effects?

Taxes and subsidies

To encourage better public health, a government imposes a tax on drinks that contain sugar. What effects is this tax likely to have on the prices of drinks that contain sugar and on the price of sugar?

Taxes and subsidies

A country’s income Gini coefficient rises from $0.29$ to $0.33$ over a period of time. What could account for this change?

Income inequality

What is one example of an injection into the circular flow of income in an open economy?

National income statistics

The diagram illustrates the AD and AS curves for a country. The equilibrium level of national income is $Y_1$ and the overall price level is $P_1$. What is the most probable impact on employment and the overall price level of a small fall in government expenditure?

Fiscal policy

The diagram illustrates the aggregate demand and aggregate supply curves for an economy. What would bring about a change in aggregate demand from AD to AD$_1$?

Aggregate demand and aggregate supply

A government cuts the payments it gives to unemployed workers in order to make working more attractive. Which kinds of macroeconomic policies are being applied?

Supply-side policy

The government asks a central bank to assist in maintaining price stability. If inflation increases sharply, which policy would not be under the central bank's direct control?

Monetary policy

For a public good, consumption must be non-rivalrous and the good must also be non-excludable. Which situation satisfies both of these conditions?

Public goods

Which of the following is not a probable reason why a government would set economic growth as an objective?

Government macroeconomic policy objectives

State one example of expansionary monetary policy.

Monetary policy

What happens to the interest rate and the aggregate demand (AD) curve when the money supply rises?

Monetary policy

A country has an inflation target of 2.5% and has recently seen the actual inflation rate increase to 6%, while unemployment has dropped to very low levels. Which policy option is most likely to be used?

Government macroeconomic policy objectives

What is the most likely motive for a government to adopt a progressive tax?

Taxes and subsidies

Which outcome is the least likely to result from rapid economic growth?

Economic growth

A country operating under a floating exchange rate has a substantial deficit on the current account of the balance of payments. What is most likely to fall as a result of this deficit?

Balance of payments

What is certain to cause an improvement in the terms of trade?

International trade and free trade

From June until the end of July 2016, the UK pound sterling fell in value by 11% against a basket of currencies used by the UK’s main trading partners. The diagram illustrates the initial aggregate demand curve $AD_1$ and the initial aggregate supply curve $AS_1$ for the UK economy before June 2016. The equilibrium is at X. What would the new equilibrium have been for the UK economy as a result of the depreciation of the pound sterling?

Aggregate demand and aggregate supply

How does a reduction in a country’s income tax rates affect its exports and imports?

Fiscal policy

Which of the following is not a characteristic of a planned economy?

Resource allocation in different economic systems

The diagram illustrates what happens when a government abolishes the tariff on rice imports into its country. What effect would this tariff removal have on consumer surplus and government revenue?

Protectionism

A student decides to pursue a degree in engineering at university instead of accepting a position as an apprentice engineer. The apprenticeship takes five years and includes training while working. What would reduce the opportunity cost of making this decision?

Scarcity, choice and opportunity cost

The diagram illustrates a production possibility curve (PPC) for a country that makes two goods, X and Y. The starting PPC is shown by ST. What effect does an increase in the productivity of workers who produce good X have on the PPC?

Production possibility curves

What does consumer surplus mean?

Consumer and producer surplus

The diagram illustrates a market supply curve (S). What quantity is shown on the X-axis and what is shown on the Y-axis?

Demand and supply curves

The diagram illustrates the demand curve for a product. At what price is the price elasticity of demand unit elastic?

Price elasticity of demand

Public transport in an economy has an income elasticity of demand of $-0.36$. What is the implication for public transport?

Income elasticity of demand

The following was published in a newspaper article. 'The economies of the poorest nations have large international debts; the richest nations should cancel the debts of these nations and reduce poverty.' What is the nature of each statement?

Economic development

There are four firms that make furniture. The table gives the price elasticity of supply (PES) for each firm. If the price of furniture increases by $5\%$ , which firm would see quantity supplied rise by $2.5\%$?

Price elasticity of supply

The diagram illustrates supply and demand for a good. The starting equilibrium is X. What will the new equilibrium be if firms are granted subsidies for new machinery?

Taxes and subsidies

The market for good X is in equilibrium at a price of $\$10$. The government then chooses to impose a maximum price on good X. Which maximum price would lead to the greatest change in consumer surplus?

Maximum and minimum prices

If demand is price elastic, what will increase by the largest amount when an indirect tax is taken away?

Taxes and subsidies

Which category of government expenditure is a transfer payment?

Government macroeconomic policy objectives

A government gives a subsidy for a product whose demand is perfectly price inelastic. Why are producers unable to gain from this subsidy?

Taxes and subsidies

A government steps in within the market for good X. It sets a minimum price above the market equilibrium. Which circumstance would account for the government doing this?

Maximum and minimum prices

The table below presents some national income statistics. GDP at basic prices = $\$300\text{ billion}$ Indirect taxes = $\$20\text{ billion}$ Subsidies = $\$4\text{ billion}$ What is GDP at market prices?

National income statistics

In what conditions will real Gross Domestic Product (GDP) rise most quickly?

Economic growth

A government plans to raise its spending on defence. Half of this spending will be used for items such as planes and weapons, which it must import because these goods are not produced domestically. What is the immediate effect on injections and leakages from the circular flow of income?

Balance of payments

What does the term division of labour mean?

Factors of production

What could be one result of a decrease in the domestic price level?

Price stability and inflation

A steel manufacturer switches to electrically powered furnaces in order to cut greenhouse gas emissions. As a result, some jobs are lost. Which kind of unemployment does this create?

Unemployment

The diagram illustrates how a country’s price level changed across several years. In which period of time did disinflation alone take place?

Price stability and inflation

A government raises the basic income tax rate in order to finance extra spending on apprenticeships and training. Which kinds of macroeconomic policy are being used?

Fiscal policy

The diagram illustrates an economy in equilibrium with real output at Y and the price level at P. The government wants to increase real output from Y to full employment ($Y_{FE}$) while preventing any rise in the price level in the long run. Which change in fiscal policy is most likely to achieve this objective?

Fiscal policy

A government lowered the tax on company profits from 28% to 20%. Which statement most accurately describes this policy?

Taxes and subsidies

Which policy would most likely result in national income falling?

Fiscal policy

What is one example of primary income shown in the current account of the balance of payments of Pakistan?

Balance of payments

What does comparative advantage mean?

International trade and free trade

An economy concentrates on producing one product. It then exports that product in order to acquire another product. Which kind of diagram can illustrate the possible combinations of these products?

Production possibility curves

What is one opportunity cost associated with growth in an economy?

Scarcity, choice and opportunity cost

Country X’s main export is oil. Global demand for oil is price inelastic. The major oil producing countries, including country X, cut the world supply of oil. Imports into country X remain unchanged. What effects will this action by the major oil producing countries have on the terms of trade and on the current account of the balance of payments in country X?

Balance of payments

Which alteration in how resources are allocated within an economy is consistent with a shift from a planned economy to a market economy?

Resource allocation in different economic systems

The diagram illustrates a production possibility curve (PPC) for an economy producing two goods, X and Y. Labour is needed to make both goods. The PPC initially is at PPC₀. How will the PPC change after a large number of workers emigrate?

Production possibility curves

A good is supplied by the government. If one person consumes it, this does not reduce the quantity left for other people. What type of good must this be?

Public goods

Market demand curves usually slope downwards. They can also move from D₁ to either D₂ or D₃. What would produce movement along D₁ for good X rather than a shift to either D₂ or D₃?

Demand and supply curves

The diagram illustrates the demand curve and supply curve for broken rice, which is regarded as an inferior good. The market is initially at equilibrium at point X, where the price is P₁ and the quantity is Q₁. Which point shows the new equilibrium if household incomes rise?

Income elasticity of demand

Good X has an income elasticity of demand (YED) value of $-0.8$. Its cross elasticity of demand (XED) in relation to good Y is likewise $-0.8$. What are the features of good X?

Income elasticity of demand

How is a free good defined?

Scarcity, choice and opportunity cost

In the diagram, D and S show the original demand and supply conditions for a good. Which row correctly shows how consumer surplus and producer surplus change if supply moves to $S_1$?

Consumer and producer surplus

Which feature is typical of a public good?

Public goods

A government introduces a specific indirect tax on a product with an inelastic demand curve. In this situation, what is the incidence of tax?

Taxes and subsidies

Can you give one example of the direct public provision of goods and services?

Public goods

At what point is a minimum wage most likely to help lessen the issue of income inequality?

Income inequality

Which statement about subsidies is not true?

Taxes and subsidies

The diagram illustrates three groups of people and four possible movements between them. Which movement shows that people have lost encouragement to look for work?

Unemployment

What is needed to stop the price level from rising as a result of an increase in aggregate demand?

Aggregate demand and aggregate supply

At equilibrium, an open economy that has a government records a national income of $900 million. Households consume $700 million and put aside $50 million. Firms allocate $100 million to investment. The government’s spending is $150 million, and its budget is balanced. What amount is spent on exports and imports?

Aggregate demand and aggregate supply

Which rise is least likely to cause cost-push inflation?

Price stability and inflation

Which option correctly matches each factor of production with its reward?

Factors of production

In the income method of calculating national income, what would be excluded?

National income statistics

What is one example of expansionary fiscal policy?

Fiscal policy

An economy is experiencing both rising prices for imported raw materials and demand-pull inflation. Which set of policies would be most likely to enable its government to meet its macroeconomic objective of price stability?

Government macroeconomic policy objectives

What is one example of a supply-side policy?

Supply-side policy

One worker receives $10000 and pays $1000 in income tax. A second worker receives $30000 and pays $4500 in income tax. A third worker receives $150000 and pays $50000 in income tax. Which kind of tax is this?

Fiscal policy

An increase in interest rates is an example of what type of policy?

Monetary policy

Which government measure would be likely to benefit its economy through both of the outcomes shown?

Government intervention in markets

The table sets out an economy’s terms of trade as an index number across the period 2019 to 2021. Table: - 2019: terms of trade index (2018 = 100) = 101 - 2020: terms of trade index (2018 = 100) = 104 - 2021: terms of trade index (2018 = 100) = 109 What conclusion can be drawn from the table?

International trade and free trade

Which reason given for a country deciding to take part in international trade is not valid?

International trade and free trade

In what economic context is the term ‘protectionism’ usually used?

Protectionism

A government is seeking to shift its economy from central planning to a market economy. Which policy would align with this objective?

Resource allocation in different economic systems

The US and the EU both use floating exchange rate markets. The exchange rate varied sharply over the period shown. Table data: - 2000: 0.84 dollars per euro - 2008: 1.59 dollars per euro - 2022: 1.00 dollar per euro What could account for the changes in the US dollar-euro rate of exchange?

International trade and free trade

An economy is now operating at output Z on the production possibility curve XY. Its annual rate of economic growth is predicted to fall over the next ten years to 5% per year. If this prediction is accurate, which point would most probably show its economic output in 10 years?

Production possibility curves

Which of the following statements about factors of production is correct?

Factors of production

Which factor influences the price elasticity of supply for a product?

Price elasticity of supply

A business sells 10 000 units of a product whose estimated income elasticity of demand is $-0.4$. If incomes have decreased by 10%, what is the new quantity demanded?

Income elasticity of demand

The diagram illustrates the market for fresh fruit in an economy. Fruit has a positive income elasticity of demand and is largely imported. The initial equilibrium is at X. What is the most probable reason for the equilibrium shifting from X to Y?

Balance of payments

What is one key role of the price mechanism?

Demand and supply curves