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.

 

2014 May (GDP/CPI) Paper 3 HL

2014 May (GDP/CPI) Paper 3 HL

(1)  (a) Calculate the GDP of Country Z in 2012.

C + I + G + (X – M) = GDP

6520 + 1020 + 3300 + (2295 – 2450) = $10, 685, 000, 000

 

(b) The population of Country Z is 420,000. Calculate per capita GDP for Country Z in 2012.

 

GDP/ Population = GDP (per capita)

10, 685, 000, 000/ 420,000 = $25,440.48

 

(c) Countries may calculate GDP using the output approach, the income approach or the expenditure approach. Outline the difference between the expenditure and the income approach.

 

Expenditure Approach = C + I + G + (X –M)

Income Approach = wages + profits + interest + rent

Output Approach = Sum of 1^st, 2^nd, 3^rd sectors’ output

 

(d) Economists have suggested that it is important to calculate “green GDP”.

Outline the meaning of the term “green GDP”.

 

Green GDP = GDP adjusted for the effects of production on the environment.