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

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.

2016 (GDP/CPI) Paper 3 HL

2016 (GDP/CPI) Paper 3 HL

(a)  Calculate the Consumer Price Index (CPI) for Country A in 2016.

 

2015 (Basket of Goods)

5.6 x 25 + 3.45 x 18 + 1.2 x 40 + 8.40 x 5 + 2.55 x 12 = 322.70

 

2016 (Basket of Goods)

6.3 x 25 + 3.5 x 18 + 1.05 x 40 + 9.20 x 5 + 2.35 x 12 = 336.70

 

Understand that the base year CPI is 100 and the rate of change for inflation from 2015 to 2016 was 4.34%

 

To find the rate of change use the formula

(New – Old) / Old x 100 = (Change in Inflation)

336.70 – 322.70 / 322.70 x 100 = 4.34%

 

or

 

New/ Old x 100 = CPI in 2016

2016/ 2015 x 100 = CPI in 2016

336.70/322.70 x 100 = 104.34

 

(b)  State two reasons why the CPI may not accurately reflect changes in the cost of living for citizens of Country A.

 

·      Different income earners may experience different consumption patterns, college students would be hit harder for clothing that senior citizens and senior citizens will be hit harder by increases in medical costs.

·      Consumption patterns change frequently, if the costs of certain items increase people can switch to cheaper goods ubstitution bias

·      Wide regional differences in prices, the cost of housing in San Francisco CA, is much higher than Columbia SC.·       

·      Substitution Bias – when consumers choose to substitute one good for another after its price becomes cheaper than the good they normally buy.

·      Quality Bias – over time, technological advances increase the life and/or the usefulness of products.

·      Outlet Bias – consumers shift to new shopping areas such as wholesale clubs or online retailers that are not well represented by the CPI.

 

 (a)  (i) Using the data in Table 2 to support your answer, identify one year in which Country B experienced deflation and one year in which Country B experienced Disinflation.

The CPI decreased from 2008 (98) to (97) in 2009. = Deflation

Deflation  = is the sustained decrease in the Average Price Level or the idea that deflation is a decrease in the prices of goods and services.

 

Disinflation  = refers to a decrease in the rate of the increase of the Average Price Level or a decrease in the rate of inflation.

 

Disinflation was experienced between 2011 and 2012 as the rate of increase in the CPI (4.55%) was lower than the previous years inflation increase of 10%.

 

Remember – Rate of Change Formula  = (New-old)/ old x 100

 

(ii) In Country B, Nominal GDP (per capita) is $800 per month in 2010 and $940 per month in 2012. Using the CPI in Table 2 as a deflator, calculate the percentage change in the real (per capita) GDP from 2010 to 2012.

 

To go from Nominal to Real

 

The rate of inflation from 2010 (base year) to 2012 = 15%

RGDP = (NGDP/Price Index) x 100

817.39 = ($940/115) x 100

 

Understand that the Nominal = Real in the Base year (as there is no inflation)

 

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

2.17%   =  (817.39 - 800) / 800 x 100

 

(a)  Using an AD/AS diagram, explain one reason why deflation may lead to a higher level of unemployment.

Vertical Axis may be PL, APL or inflation

Horizontal Axis may be output, real output, national output, real national output, national income (Y) or GDP

2017 (GDP/CPI) Paper 3 HL

2017 (GDP/CPI) Paper 3 HL

(3) (a) Distinguish between inflation and disinflation.

 

Inflation – refers to a sustained increase in the Average Price Level – or the idea that inflation is an increase in the price of goods and services.

 

Disinflation – refers to a decrease in the rate of increase of the Average Price Level or a decrease in the rate of inflation.

 

(b) (i) Calculate the inflation rate for 2013 and for 2015 for Country A.

Rate of inflation formula = (New-old)/old x 100

 

(156.28 – 151.58) / 151.58 x 100 = 3.10

 

(156.07 - 158.93) / 158.93 x 100 = -1.799 or -1.80

 

 

(ii) Identify the year that Country A experienced disinflation.

 

2014 as the Rate of inflation in 2013 was 3.1 % while the Rate of Inflation in 2014 was 1.7% (There was an increase in inflation of 1.7% but the rate of that change was less than the previous year) = Disinflation

 

2015 was deflation as the PL actually decreased from the previous year.

 

(c) (i) The Consumer Price Index (CPI) is a weighted price index. Outline one reason why weights are used in the construction of the CPI.

 

Weights reflect the proportion of total spending allocated so that increased prices in goods with a larger weight lead to a more significant effect on the inflation rate than goods with a smaller weight.

 

Or

 

Increased prices are not of equal significance to the typical consumer so weights are used to reflect the relative importance of each good.

(ii) Determine the percentage change in the CPI of Country A between the base year and 2013.

 

Assuming that 2012 is the base year with a CPI of 100 (as the base year’s CPI is always 100) then the change in the CPI (inflation) from 2012 to 2013 was an increase in prices of 56.28%

 

(d) Outline how a producer price index may prove useful in predicting future inflation.

 

A producer price index measures the costs of bought-in raw materials and intermediary products (factors of production) and that current increases/ decreases in production costs are likely to lead to increases/decreases in consumer prices in the future.

 

(e) Explain two reasons why governments attempt to avoid deflation.

 

·      Deflation induces households to postpone purchases, further decreasing spending which in turn further decreases consumption expenditures and thus AD and leads to further decreases in real output.

·      Real debt of households/firms increases so that consumption expenditures further decrease (or banks accumulate bad loans increasing the likelihood of a bank crisis).

·      Deflation being typically caused by a fall in AD leads to an increase in cyclical unemployment.

·      The real cost of government debt servicing increases, putting pressure on other areas of government spending.

·      Deflation puts downward pressure on firms’ profits because after buying raw materials and making goods, price might have fallen below the costs of the goods/ raw materials; therefore firms are less likely to expand.

·      Higher real interest rates or lower business confidence will discourage firms from borrowing for investment projects.