macroeconomic past paper questions and mark schemes 2009 - 2011sorted

7/24/2019 Macroeconomic Past Paper Questions and Mark Schemes 2009 - 2011SORTED

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Macroeconomic Questions, 2009 - 2011

Syllabus Level Year ,Paper

Question Mark Scheme

AggregateDemand

SL May 2010,P1

2 (a) Aggregate demand consists ofconsumption, investment,

government spending and netexports (exports minus imports)

!xp"ain t!o factors t#at mayinf"uence investment and t!ofactors t#at may inf"uence netexports [10 marks]

Ans$ers shoul" inc"ude%& a definition of investment& a definition of net exports

& an exp"anation of any t!o factors $#ic# may inf"uence investment suc#ast#e interest rate, 'usiness expectations, increased consumer demand,cost, economic sta'i"ity and efficiency of capita" euipment& an exp"anation of any t!o factors $#ic# may inf"uence net exports suc#asincreases in foreign incomes increases a countrys exports, increases in acountrys nationa" income "eads to an increase in imports, decreases inforeign incomes resu"ts in "ess exports from a country, decreases in acountrys nationa" income resu"ts in a decrease in imports, a fa"" in re"ativeprices (if a countrys goods and services fa"" in price re"ative to t#ose ofot#er countries) $i"" resu"t in a country se""ing more exports and 'uying"essimports and improvements in t#e re"ative ua"ity of a countrys goods in

comparison to ot#er countries $i"" resu"t in it se""ing more exports and'uying "ess imports

Aggregate

Demand

SL May 2010,

P1

2 (') !va"uate t#e effectiveness of

an increase in investmentexpenditure on t#e performance ofan economy [15 marks]

#b$ %valuate the e&&ectiveness o& an increase in investmente'pen"iture on theper&ormance o& an economy [15 marks]Ans$ers may inc"ude%& a definition of investment& an exp"anation of t#e *performance of an economy+ in terms of gro$t#,emp"oyment, price sta'i"ity and t#e 'a"ance of payments& consideration of an increase in investment "eading to an increase inrea" DP (economic gro$t#)& diagrams s#o$ing a movement from a point $it#in to a point on t#e PP-ora s#ift of t#e AD to t#e rig#t

& t#e supp"y.side effects of increasing investment on price and rea" output"eve"s& diagram to s#o$ s#ift in L/AS& t#e possi'i"ity of demand.pu"" inf"ation, depending on $#ere t#e economyisoperating& an exp"anation t#at it cou"d adverse"y affect t#e current account of t#e'a"ance of payments if investment expenditure is on imports& impact of different types of investment in terms of sustaina'"edeve"opment& a comparison $it# potentia" gro$t#& t#e supp"y.side effects of increasing investment on price and rea" output"eve"s& s#ort.run versus "ong.run effects& an overa"" assessment of t#e impact

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!xaminers s#ou"d 'e a$are t#at candidates may tae a different approac#$#ic# if appropriate, s#ou"d 'e re$arded!ffective eva"uation may 'e to%& consider s#ort.term versus "ong.term conseuences& examine t#e impact on different stae#o"ders& discuss advantages and disadvantages& prioritie t#e arguments

Aggregatedemand

SL May 200,P2

3a(ii) aggregate demand (paragrap#)

An exp"anation t#at it is t#e tota" demand for a"" goods and servicesproduced in an economy 4/ 5#is comprises 67877(9:M) is a"sosufficient

Aggregatedemand ;

aggregatesupp"y

SL May 2010,P2

1(c) 7 7 9?M) and an increase in spending on 8 and a decrease inspending on M $i"" increase AD (Diagram 7 1 component @ [3 marks])

Aggregatedemand ;

aggregatesupp"y .8nf"ation

May 200,P1

2 (') !va"uate t#e possi'"e impact oneconomic performance t#at may

resu"t from a government decision to'ring inf"ation under contro" [15marks]

Ans$ers may inc"ude% exp"anation of *economic performance+ differenttypes of inf"ation according to t#e rate, eg #yperinf"ation importance of

t#e distinction 'et$een demand.pu"" and cost.pus# inf"ation imp"ications oft#e use of demand.side po"icies imp"ications of t#e use of supp"y.sidepo"icies impact on emp"oyment use of P#i""ips curve impact on 'a"ance ofpayments impact on gro$t# use of AD=AS diagrams!ffective eva"uation may 'e to% consider s#ort.term versus "ong.termconseuences examine t#e impact on different stae#o"ders prioritie t#earguments

Aggregatedemand ;aggregatesupp"y .unemp"oyment

SL May 2010,P2

3(')


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deficient unemp"oyment discussion of pro'"ems of supp"y.side measures,eg it may "ead to t#e exp"oitation of $orers, t#e cost and effectivenessof government managed training, t#e time "ags associated $it# t#eapp"ication of supp"y.side po"icies!xaminers s#ou"d 'e a$are t#at candidates may tae a different approac#$#ic# if appropriate, s#ou"d 'e re$arded!ffective eva"uation may 'e to% consider s#ort.term versus "ong.term

conseuences examine t#e impact on different stae#o"ders discussadvantages and disadvantages prioritie t#e arguments

Business 6yc"e SL May 2011,P2

2 (')


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& reduced indirect and direct taxation may successfu""y increase consumerexpenditure and stimu"ate t#e economy& #o$ever, if not carefu""y targeted, increased government spending may"eafrom t#e circu"ar f"o$ of income t#roug# increased savings and=or importspending& t#e "arge 'udget deficit in 8re"and may prevent furt#er government

'orro$ing and reduce t#e scope for aggregate demand stimu"ation(paragraph )& reduced interest rates may a""o$ 'usinesses to invest more and emp"oymore peop"e& reduced interest rates may not stimu"ate increased investment 'y'usinesses 'ecause of pessimistic expectations during a crisis!va"uation of supp"y.side po"icies%& a definition of supp"y.side po"icies& an AD=AS diagram s#o$ing a rig#t$ard s#ift of t#e L/AS function& $age restraint t#roug# reduction of union po$er may add f"exi'i"ity tot#e"a'our maret (paragraph)& $age restraint may 'e conducive to socia" insta'i"ity (industria" action)t#at

may furt#er $orsen t#e economic s"o$do$n& reducing unemp"oyment 'enefits& socia" conseuences of reducing 'enefits (poverty, ineua"ity)& decrease in income tax may provide incentives for $orers to $or more& decrease in income tax #as a "imited effect on #ig#"y.paid $orers ast#eyopt for an increase in "eisure& "a'our maret f"exi'i"ity $i"" a""o$ maret forces to set $ages and "o$ercosts for 'usinesses& deregu"ation may #ave severe safety or environmenta" conseuences& interventionist po"icies, suc# as increased training=education,encouraging/7D, t#e provision of infrastructure, and improved information f"o$s may'e #ig# cost and invo"ve serious opportunity costs4vera"" eva"uation%& demand.side po"ices #ave a macroeconomic focus& demand.side po"icies may 'e more effective in times of cyc"ica"do$nturns& demand.side po"icies are f"exi'"e in t iming and focus& demand.side po"icies are difficu"t to imp"ement $it# "imited fisca"resources& supp"y.side po"icies #ave a microeconomic focus& time "ags may reduce t#e impact of any supp"y.side po"icy in t#e s#ortterm& in t#e "ong run, supp"y.side po"icies may improve efficiency and assistinternationa" competitiveness!xaminers s#ou"d 'e a$are t#at candidates may tae a different approac#$#ic# if appropriate, s#ou"d 'e re$arded8f t#ere is no direct reference to t#e text=data, t#en candidates may not 'e

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re$arded 'eyond "eve" 2

!ffective eva"uation may 'e to%& consider s#ort.term versus "ong.term conseuences& examine t#e impact on different stae#o"ders& discuss advantages and disadvantages& prioritie t#e arguments

-isca" po"icy L May 2010,P3

2(d)


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aggregate supp"y in an economy [10marks]

use of an AD=AS diagram s#o$ing s#ift of AD to t#e rig#tan exp"anation of t#e possi'"e "inage 'et$een an increase in governmentspending affecting t#e supp"y.side of t#e economy, e.g. education andtraining, government spending on infrastructureuse of an AD=AS diagram s#o$ing s#ift of L/AS to t#e rig#t

-isca" Po"icy SL May 2011,P1

2(') *5#e "o$er t#e "eve" ofgovernment spending, t#e 'etter+

!va"uate t#is vie$ [15 marks]

Ans$ers may inc"ude%

Arguments in favour of "o$er government spending%"o$er government spending and greater use of maret forces to a""ocateresources "eading to greater economic efficiency"o$er government spending "eading to "o$er taxation"o$er government spending reduces government 'orro$ingt#e importance of reduced government spending as a means of reducingAD, to reduce inf"ation and a current account deficit

Arguments against "o$er government spending%t#e importance of government spending for t#e supp"y.side of t#eeconomyt#e importance of government spending on merit goods, pu'"ic goods andinfrastructuret#e importance of government spending as a means of inf"uencing t#e

distri'ution of income t#roug# pu'"ic services and state 'enefitst#e importance of government spending as a means of regu"ating AD, e.g.use of #ig#er government spending to increase AD to encourage gro$t#and to reduce unemp"oyment

!ffective eva"uation may 'e to%consider s#ort.term versus "ong.term conseuencesexamine t#e impact on different stae#o"dersdiscuss advantages and disadvantagesprioritie t#e arguments

-isca" Po"icy SL May 2011,P2

2(d)


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the government response has been hesitant* slow and not large enough to outweighthe impact of the global economic crisis (figures for the first stimulus pac+age of ,2billion euros are proportionally small! (paragraphs and)many of the measures will not have an impact until 20,0 (paragraph )increased saving by consumers may reduce the impact of increased governmentspendingincreased demand for goods may be satisfied by using existing stoc+s of producedgoodsthe export sector may not be assisted by the spendingthe planned deficit budgets will require increased government borrowing which willincrease public debtthe increased government spending may cause a sharp increase in inflation whenrecovery begins in 20,0 (paragraph ).

-ffective evaluation may be to#consider shortterm versus longterm consequencesexamine the impact on different sta+eholdersdiscuss advantages and disadvantagesprioriti/e the arguments.

-isca" po"icy .mu"tip"ier

L Eovem'er2010, P2

( A government decides to increaseits spending on ne$ roads,

recogniing t#at t#ere $i"" 'e amu"tip"ier effect on nationa" income


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AD moving to t#e rig#t causes inf"ation on t#e vertica" part of t#e AS curvet#e inappropriateness of "o$er interest rates=#ig#er government spending="o$er taxation in dea"ing $it# rea".$age or natura" unemp"oymentdemand.side measures effective against demand.deficient unemp"oymentsupp"y.side measures to dea" $it# unemp"oymentt#e pro'"ems associated $it# increased government spending (running a'udget deficit)

t#e pro'"em of ine"astic response of consumption and investment to "o$erinterest ratest#e pro'"em of time "ags

!xaminers s#ou"d 'e a$are t#at candidates may tae a different approac#$#ic# if appropriate, s#ou"d 'e re$arded!ffective eva"uation may 'e to%consider s#ort.term versus "ong.term conseuencesexamine t#e impact on different stae#o"dersdiscuss advantages and disadvantagesprioritie t#e arguments

-isca" po"icyand Supp"y.

side po"icy

SL Eovem'er2010, P1

2 (a)


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of tax revenue from progressivedirect taxes to regressive indirect

taxes

direct taxes exp"anation of regressive indirect taxes examp"es of direct andindirect taxes impact of a reduction in direct taxes on t#e distri'ution ofincome impact of a rise in indirect taxes on t#e distri'ution of income interms of eua"ity and euity use of t#e Loren curve

8ncome8neua"ity

L May 2011,P1

2 (a) !xp"ain t!o po"icies agovernment mig#t use to

redistri'ute income [10 marks]

$nswers should include#a definition of income distribution* as one of the goals of macroeconomic policy.

lus any two of the following#progressive* regressive and proportional taxation (a diagram may be used!switching the burden of taxation between direct and indirect (more regressive! taxestransfer payments* minimum wageuse of property or wealth taxes for redistributive purposes.

$nswers may include#a method of describing or measuring income equality or inequality such as the )oren/curve and&or Gini coefficientthe redistributive effects of merit goods in an economy which provides themextensivelyreference to the redistributive effects of government subsidies.

$nswers should include#a definition of income distribution* as one of the goals of macroeconomic policy.

8ncome8neua"ity

L May 2011,P1

2(') *Measures to promote greaterincome eua"ity s#ou"d 'e a ey

feature of government economicpo"icy+ !va"uate t#is proposition [15marks]

$nswers may include#a definition of income equalityreference to the difficulty and disagreement over 1fair distributionconsideration of benefits of greater income equality such as reduction of poverty*increase in consumption of the poor* greater incentives for low income groups*attainment of economic developmentdefinitions of the four ob5ectives of government economic policy* with an explanationthat income equality is a fifth and not always considered as importantconsideration of the )affer curveconsideration of the presumed disincentive effects of taxationreference to the positive externalities of merit goods such as education and healthcare for lower income groupsconsideration of the normative nature of the statement in the questionthe positive multiplier effects resulting from transferring income from sectors with high6' to sectors with high 6

a reference to where the economy is in the business cycle* as an influence onwhether greater income equality would be a +ey feature of government economicpolicy.

N.B. 'ome candidates may mention the balancedbudget multiplier in connection withthe last bullet point.n attempting evaluation candidates might point to the fact that arguments for greateror less equality coexist within economics and that notions of income equality andfairness are not the same.-ffective evaluation may be to#consider shortterm versus longterm consequencesexamine the impact on different sta+eholdersdiscuss advantages and disadvantagesprioriti/e the arguments.

8ncome L May 2010, ( Iit# t#e aid of a diagram, exp"ain 6andidates may inc"ude%

a definition of transfer payments

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ineua"ity P2 #o$ an increase in transferpayments to t#e poorest #ouse#o"ds

in a nation is "ie"y to affect t#eLoren curve and t#e ini coefficientof t#at nation

a definition of t#e Loren curvea definition of t#e ini coefficienta diagram i""ustrating a Loren curve and t#e ini coefficientan exp"anation t#at an increase in transfer payments to t#e poorest#ouse#o"ds can "ead to an improvement in income distri'ution, 'yincreasing t#e incomes of "o$er income groupsan exp"anation t#at an improvement in income distri'ution $i"" cause t#e

Loren curve to move to$ards t#e "ine of a'so"ute eua"ityan exp"anation t#at t#e ini coefficient (index) $i"" 'ecome "o$er indicatinga more euita'"e distri'ution of income

8nf"ation May 200,P1

2 (a) !xp"ain t#e possi'"e causes ofa rise in t#e rate of inf"ation in aneconomy [10 marks]

Ans$ers s#ou"d inc"ude% definition of inf"ation exp"anation of a rise in t#erate of inf"ation exp"anation of t#e rise in terms of an increase in aggregatedemand (AD) exp"anation of t#e rise in terms of an increase in costs (AS)Ans$ers may inc"ude% exp"anation of t#e rise in terms of an increase in t#emoney supp"y (accept reference to MJ @ P5) use of an AD=AS diagram toi""ustrate t#e rise in AD use of an AD=AS diagram to i""ustrate t#e rise incosts factors $#ic# may cause AD to rise, eg "o$er taxation, #ig#ergovernment spending factors $#ic# may cause AS to rise, eg "o$erproductivity, $age increases t#e impact of externa" s#ocs suc# as a rise inoi" prices reference to ot#er re"evant factors suc# as expectations and a

depreciating exc#ange rate8nf"ation L May 2010,

P2) !xp"ain #o$ inf"ation can 'emeasured and exp"ain three

pro'"ems associated $it# t#emeasurement of inf"ation

6andidates may inc"ude%a definition of inf"ationmeasures of inf"ation suc# as a price index, retai" price index, def"ator,price def"ator discussion of 'aset of goods (regimen), $eig#ting, 'aseyear, regiona" issues (country and city)

Pro'"ems associated $it# t#e measurement of inf"ation%price index 'ased on purc#asing preferences of *typica"+ #ouse#o"derrors in t#e co""ection of datac#anges in consumption #a'its over timeua"ity and types of goods and services c#ange over timec#anges in producer prices are exc"udedone.off events suc# as seasona" variations, oi" price s#ocsinternationa" comparisons

8nf"ation SL May 200 3(d)


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productivity gro$t# (paragrap# ) increased government c#arges for t#eenvironment and "and (paragrap# )6andidates $#o incorrect"y "a'e" diagrams cannot 'e re$arded $it# fu""mars!xaminers must 'e a$are t#at candidates may tae a different approac#$#ic# if appropriate, s#ou"d 'e re$arded8f t#ere is no direct reference to t#e data, t#en candidates may not 'e

re$arded 'eyond "eve" 2!ffective eva"uation may 'e to% consider s#ort.term versus "ong.termconseuences examine t#e impact on different stae#o"ders discussadvantages and disadvantages prioritie t#e arguments

8nf"ation : costpus#

SL Eovem'er2010, P2


12/16



Po"and or t#ey cou"d compare t#e t$o economies and mae a Gudgment asto $#ic# economy #as performed 'etter, Gustifying t#eir Gudgment

MonetaryPo"icy

L Eovem'er2010, P3

3 (d)


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economics 2010, P2 neo.c"assica" aggregatedemand=aggregate supp"y mode",

exp"ain t#e s#ort.term and "ong.termeffects of a rise in aggregate demand$#en a country is at fu""emp"oyment

a definition of aggregate demanda definition of fu"" emp"oymentan exp"anation of neo.c"assica" aggregate demand=aggregate supp"y mode"a diagram s#o$ing a neo.c"assica" L/AS $it# AD and S/AS intersecting att#e L/AS and a su'seuent s#ift of AD to t#e rig#tan exp"anation t#at in t#e s#ort.term t#ere $i"" 'e an increase in outputand t#e price "eve", producing an inf"ationary gap

an identification of t#e inf"ationary gap on t#ex.axisan exp"anation t#at t#e #ig#er price "eve" means t#at costs of productionrise as $orers negotiate #ig#er $ages to compensate for inf"ationan exp"anation t#at in t#e "ong.term t#e S/AS curve $i"" s#ift to t#e "efta conc"usion t#at t#e "ong.term effect is an increase in t#e price "eve" $it#no c#ange in rea" output

Eeo.c"assica"economics

SL Eovem'er2010, P2

3(')


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Supp"y.sidePo"icies

L Eovem'er2010, P1

2(') !va"uate t#e use of supp"y.sidepo"icies to reduce unemp"oyment

[15 marks]

Ans$ers may inc"ude%a definition of unemp"oymenta definition of supp"y.side po"iciesexamp"es of supp"y.side po"iciest#e concept of a natura" rate of unemp"oymentt#e importance of t#e different types of unemp"oyment, e.g. demanddeficient, frictiona" and structura"

an exp"anation of #o$ supp"y.side po"icies may $or to reduceunemp"oyment in t#e "onger termuse of AD=AS ana"ysis, s#o$ing L/AS s#ifting to t#e rig#tan assessment of t#e effectiveness of suc# measuresunemp"oyment 'eyond t#e contro" of nationa" governments, e.g. arisingfrom demand.side s#ocs or internationa" recessionconsideration of t#e use and effectiveness of a"ternative s#ort.termdemand.side measures to reduce unemp"oyment, i.e. fisca" and monetarypo"iciesan eva"uation of t#e effectiveness of particu"ar supp"y.side po"icies, e.g.%

: tax cuts: cuts in $e"fare 'enefits: education and training=retraining

: privatiation=deregu"ation: trade union po"icies!ffective eva"uation may 'e to%consider s#ort.term versus "ong.term conseuencesexamine t#e impact on different stae#o"dersdiscuss advantages and disadvantagesprioritie t#e arguments

Supp"y.side

po"icies

SL Eovem'er

2010, P1

2 (') !va"uate t#e use of supp"y.side

po"icies to improve t#e performanceof an economy [15 marks]

Ans$ers may inc"ude%a distinction 'et$een maret.oriented and interventionist supp"y.sidepo"iciesadvantages of supp"y.side po"icies in terms of t#eir impact on%

: productivity: economic gro$t#: emp"oyment: inf"ation: current account: distri'ution of incomeuse of AD=AS diagrams to i""ustrate t#e a'oveDisadvantages of supp"y.side po"icies in terms of%

: $e"fare 'enefits: cost of funding t#em: pu'"ic services: exp"oitation of "a'our: time it taes t#em to $or!ffective eva"uation may 'e to%consider s#ort.term versus "ong.term conseuences

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examine t#e impact on different stae#o"dersdiscuss advantages and disadvantagesprioritie t#e arguments


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macroeconomic past paper questions and mark schemes 2009 - 2011sorted

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