2013 Nov (Supply Side) Paper 3 HL

2013 Nov (Supply Side) Paper 3 HL

Matt Ridley -  How Innovation Works: And Why It Flourishes in Freedom

(d) (i) Outline one possible reason for the high level of investment in South Korea.

 

Low interest rates reduce the cost of borrowing for firms inducing then to borrow more in order to acquire more capital.

 

(ii) Explain 1 supply side benefit to the South Korean economy of a high rate of investment.

 

Investment will increase the quantity and/or quality of factors of production thus shifting the LRAS (or, Keynesian AS) to the right and that a rightward shift in the LRAS curve implies an increase in potential output thus enabling higher economic growth or rising employment or lower inflation.

2013 Nov (GDP/CPI) Paper 3 HL

2013 Nov (GDP/CPI) Paper 3 HL

3. (a) Define the term Expenditure Approach

 

A Method used to calculate GDP by summing total spending on domestic output in an economy or that it is a method of calculating GDP based on summing consumption, investment, government spending and net exports.

 

(b) (i) Using the Data in Table 1 calculate the nominal GDP in 2009 and 2010 for the South Korean economy.

C + I + G + X – M = GDP

 

2009 = 386 + 205 + 89 + (412 – 334) = $758 billion (NGDP)

2010 = 408 + 223 + 93 + (448 – 356) = $816 billion (NGDP)

 

(ii) Using the GDP Deflator, calculate the real GDP for South Korea for 2009 and 2010.

To find the RGDP Formula

NGDP/Deflator x 100 = RGDP

 

$758/97 x 100 = $781.44b RGDP 2009

$816/100 x 100 = $816b    RGDP 2010

 

(iii) Calculate the real economic growth rate for the South Korean economy for 2009 and 2010.

Rate of Change Formula

(New-Old)/Old x 100

                                                         816-781.44 / 781.44 x 100 = 4.42%

(iv) Describe the relative growth performance of the South Korean economy in 2010 compared with OECD countries.

 

Understand that the South Korean economy is growing faster in 2010 than the OECD average. The South Korean growth performance if 4.42% is higher than the 2.9% average growth rate of the OECD countries.

 

(d) (i) Outline one possible reason for the high level of investment in South Korea.

 

Low interest rates reduce the cost of borrowing for firms inducing then to borrow more in order to acquire more capital.

 

(ii) Explain 1 supply side benefit to the South Korean economy of a high rate of investment.

 

(iv) Describe the relative growth performance of the South Korean economy in 2010 compared with OECD countries.

 

Understand that the South Korean economy is growing faster in 2010 than the OECD average. The South Korean growth performance if 4.42% is higher than the 2.9% average growth rate of the OECD countries.

 

(d) (i) Outline one possible reason for the high level of investment in South Korea.

 

Low interest rates reduce the cost of borrowing for firms inducing then to borrow more in order to acquire more capital.

 

(ii) Explain 1 supply side benefit to the South Korean economy of a high rate of investment.

 

Investment will increase the quantity and/or quality of factors of production thus shifting the LRAS (or, Keynesian AS) to the right and that a rightward shift in the LRAS curve implies an increase in potential output thus enabling higher economic growth or rising employment or lower inflation.

2013 May (GDP/CPI) Paper 3 HL

2013 May (GDP/CPI) Paper 3 HL

(a) Calculate the monthly cost of a typical basket of goods in

(a)   

(i)             2011

 

(2 x 20) + (10 x 15) + (1.20 x 10) + (1.60 x 5) + (5 x 10) = $260

 

(ii)           2012

 

(2.20 x 20) + (12 x 15) + (1.50 x 10) + (3.20 x 5) + (5 x 10)  = $305

 

(b) From your results in (a), calculate the percentage change in the cost of living in Ruritania from 2011 to 2012.

 

Rate of Change Formula = (New – Old) / Old x 100

                                              (305 – 260) / 260 x 100 = 17.307 or 17.31

Or

 

Rate of Change Formula = (New/Old -1) x100

                                             (305/260 – 1) x 100 = 17.307 or 17.31

 

 

 

(ii)           Calculate the Rate of Inflation between 2010 and 2011.

 

Rate of Change Formula = (New-Old) / Old x 100

 

2009 to 2010 Rate of Change = (1470 – 1355) / 1355 x 100 = 8.49% so, the Inflation Rate from 2009 (Base Year) to 2010 is 8.49% or the CPI for 2010 is 108.49

 

 

2010 to 2011 Rate of Change – (1705 – 1470) / 1470 x 100 = 15.98%, so the inflation rate from 2010 to 2011 is 15.98%, the CPI for 2011 is 25.83%

 

(ii)           With reference to the terms inflation and disinflation, describe the changes in the cost of living during the period 2009 to 2012.

 

Inflation = a rise in prices of goods and services (increase in the APL).

Disinflation = a slow in the rate of increase of inflation.

 

From 2009 to 2012 prices are rising (Inflation)

From 2011 to 2012 prices are rising but the rate of increase is slowing. (Disinflation)

 

(d) Explain 2 problems which economists face when using a CPI to measure the rate of inflation.

 

·      Different income earners may experience a different rate of inflation as their consumption patterns differ and so the CPI may not accurately represent their cost of living.

·      CPI figures may not accurately reflect consumption patterns as these change over time, as does the quality of products purchased.

·      There may be wide regional differences in prices, so the CPI may not accurately reflect the cost of the basket of goods in all parts of the country.

·      Substitution Bias,

·      Quality Bias

(e) The GDP in 2009 was 60b Yen, while in 2010 it was 65b Yen.

Calculate the percentage change in the real GDP from 2009 to 2010.

 

The Rate of Inflation from 2009 to 2010 was 14%.

 

Real GDP 2010 = Nominal GDP/Deflator x 100 = 57.02b Yen

Real GDP 2009 = Nominal = Real in the base year = 60b Yen

 

Rate of Change in RGDP = (New-Old) / Old x 100

                                          (57.02 – 60) / 60 x 100 = 4.966% or 4.97%

(f) When calculating inflation for the purpose of policy-making, economists might calculate a core/underlying rate of inflation. Explain why they might do this.

 

Large & sudden changes in the price of one or two products (or product groups) may distort the measured rate of inflation. In order to focus on the general price trend, the government may calculate a core/underlying rate of inflation, which excludes products or product groups with highly volatile prices, such as energy and food, on which to base economic policy.

2014 Nov (GDP/CPI) Paper 3 HL

2014 Nov (GDP/CPI) Paper 3 HL

(a)  Explain the difference between GDP, green GDP and GNI.

 

 

Green GDP – is GDP adjusted for the effects of production on the environment.

 

GNI – GDP plus incomes earned/received from abroad minus incomes paid/sent abroad.

Or

GNI is a measure of incomes received by the residents of a country independent of the geographic location of factors of production involved.

 

GDP – is a measure of the value of output produced within the boundaries of an economy independent of the nationality of the factors of production involved.

(a)  Using the data in Table 1

(i)   Calculate the GDP of Country X for 2012.

GDP    = C       + I      + G     + (X-m)

278.4b = 125.6 + 33.9 + 89.1 + (78.5 – 48.7)

 

(ii) Calculate the GNI of Country X for 2012.

 

GNI = GDP + (factor income abroad – factor income paid abroad)

GNI      = GDP  + (factor income abroad – factor income paid abroad)

$285.7b = 278.4 + (296.6 – 22.3)

 

 

(c)  (i) Using the data in Table 2 calculate the level of real GDP for Country X for 2014 to 2016. Enter the results in table 2.

Real GDP = Nominal GDP/Deflator x 100

2014 Real GDP = 308.12/98.9 x 100 = 311.547 or 311.55

2015 Real GDP = 321.99/100 x 100 = 321.99 (the deflator is always 100 in the base year) Nominal = Real with (no inflation) there is no inflation in the base year.

2016 Real GDP = 332.65/102.2 x 100 = 325.489 or 325.49

 

Rate of Change Formula = (New – Old) / Old x 100

 

2015 Real Growth Rate is the change from 2014 to 2015

(321.99 – 311.55) / 311.55 x 100 = 3.35

 

2016 Real Growth Rate is the change from 2015 to 2016

(325.49 – 321.99) / 321.99 x 100 = 1.09

(ii) Outline the difference between nominal and real GDP.

 

Real GDP is nominal adjusted for inflation (changes in the average price level)

 

 

(d)  Calculate the annual growth rate for Country X for 2015 & 2016. Enter in Table 2.

 

Rate of Change Formula = (New – Old) / Old x 100

 

2015 Real Growth Rate is the change from 2014 to 2015

(321.99 – 311.55) / 311.55 x 100 = 3.35

 

2016 Real Growth Rate is the change from 2015 to 2016

(325.49 – 321.99) / 321.99 x 100 = 1.09

 

 

(e)  Using the data in Table 2 calculate the real GDP per capita for Country X for 2014 to 2016.

 

Real GDP (per capita) = RGDP/Population

 

2014 = 311,550,000,000/ 13,273,644 = 23,471

2015 = 321,990,000,000/ 13,340,012 = 24,137

2016 = 325,490,000,000/ 13,473,412 = 24,158

 

 

(f)   Identify which of the 3 letters (a, b, c) on the following business cycle diagram best describes the position of Country X in 2016.

 

Country X in 2016 is at Point A

2018 Nov (AD/AS) Paper 3 HL

2018 Nov (AD/AS) Paper 3 HL

The Government of Country A decides to increase the level of taxation to $34 billion.

 

(i)            Using an AD/AS diagram, explain how this may affect the level of unemployment.

Show a leftward shift of the AD curve with a decrease in output and the PL (price level) and an explanation that as taxes increase there will be a reduction in consumption as consumers have less disposable income. This leads to a decrease in the output level and therefore an increase in unemployment.

2015 (AD/AS) Paper 3 HL

2015 (AD/AS) Paper 3 HL

The full employment level of output for Country A is identified as $18 billion per year. A decrease in consumer expenditure has led to a decrease in aggregate demand of $9 billion.

 

(a)  (i) Identify two possible reasons for a decrease in consumer expenditures.

·      Taxes could have increased causing consumers to have less disposable income therefore reducing consumer spending.

·      Decrease in consumer confidence will decreases consumer spending.

·      Increases in interest rates cause consumers to curtail borrowing, including loans, credit cards, and investment.

·      High levels of household debt will cause consumers to buy less as their disposable income are used to service their debt.

·      A decrease in wealth (the stock market decreases) if people’s wealth falls people will feel poorer and therefore will spend less.

·      If the economy has become a recession people have lost their jobs and therefore consumer spending will fall.

 

(ii) On the diagram, draw and label the new aggregate demand curve following the decrease in consumer spending.

(iii) State the amount in billions by which the full employment level of output exceeds the short-run equilibrium level of output.

 

$18b – 14b = $4b

 

A reduction of 9b of consumer spending is a horizontal shifting left of the AD curve by 9b but the upward sloping SRAS curve coupled with the AD has equilibrium decreasing by 4b.

(iv) On the diagram, draw and label the long-run aggregate supply curve for Country A.

(v) Identify the Average Price Level and level of real output when Country A has returned to long run equilibrium as a result of the interaction of market forces.

 

Real output = $18b

APL = 75 (measured by the CPI)

Understand that if the economy is in a recession, in the long-run people will accept lower wages, input prices will fall, with lower input prices and wages businesses will lower their prices,

shifting the SRAS curve to the right,

The economy will return back to LR equilibrium (Output 18b) at a lower Price Level (75)

(b)  Explain, giving two reasons, why the aggregate demand curve has a negative slope.

 

Interest Rate Effect - If the APL increases, interest rates are likely to rise, discouraging investment and consumer spending.

 

Export Effect - If the APL increases, the economies exports become less competitive, reducing demand for exports.

 

Real Wealth Effect - If the APL increases, then real wealth decreases, so people will spend less. (Real income not acceptable)

2019 (Monetary Policy) Paper 3 HL

2019 (Monetary Policy) Paper 3 HL

Show the AD curve shifting right and an explanation that as the FED increases the Money Supply the Nominal Interest Rates will fall, increasing investment and/or consumer spending and/or lowering saving, causing the AD to shift right causing an increase in output and a reduction in unemployment.

2016 (Elasticity) Paper 3 HL

2016 (Elasticity) Paper 3 HL

The gradient of a linear demand curve is constant along the curve. However the rates of change of price and quantity are not constant. As price increases, the % change in price diminishes while the % change in quantity demanded increases. Therefore the slope, which is constant, cannot represent the formula.

2017 (Monopoly, Elasticity) Paper 3 HL

2017 (Monopoly, Elasticity) 

Paper 3 HL

When demand is price inelastic, a decrease in output / increase in price will:

·      Increase total revenue

·      Decrease output and therefore total costs

·      Increase profit

·      The monopolist never wants to produce in the inelastic section of its demand curve as its MR is negative.

·      MC = MR is a condition for profit max

 

The profit-maximizing monopolist would never choose to produce on the inelastic portion of its demand curve, as profit could always be increased by raising price/decreasing output.

2018 Nov (Price Discrimination) Paper 3 HL

2018 Nov (Price Discrimination) 

Paper 3 HL

Urban customers PED = .8 (inelastic)

Rural customers PED = 1.2 (elastic)

 

To raise Revenue Firm B could

·      Price Discriminate in two separate markets (charge different prices in different/separate markets)

·      Charge a higher price to urban customers (or a lower price to rural)

·      When there is inelastic demand a price increase will increase Total Revenue or when there is elastic demand lowering the price will increase Total Revenue.

·      Firm B needs to separate the two markets so there is no resale (or firm B needs to have some monopoly/price-setting power)

2018 Nov (Monopolistic Competition) Paper 3 HL

2018 Nov (Monopolistic Competition) 

Paper 3 HL

Understand that the original problem was a perfectly competitive firm

If a perfectly competitive firm industry becomes a monopolistically competitive industry the type of goods produced will go from being (homogenous (the same) = perfectly competitive industry) to (differentiated = monopolistically competitive).

 

In essence there are now more substitutes in a monopolistically competitive industry compared to a perfectly competitive industry and therefore the demand curve will slope down because the demand for the product is no longer perfectly elastic because it now has the power to change its price.

 

Or

The demand curve now slopes down as the firm now has monopoly power (is a price taker)

 

Or

The demand curve will slope down as its now a monopolistic competitor.