Graded homework assignment Macroeconomics

Due: 15.10.2017.
IB Economics HL/SL
United World College in Mostar
Section 1: Paper 1 style questions
Question 1:
(a) Explain how a rise in consumer confidence and business confidence might affect economic
growth. [10 marks]
(b) Discuss the view that economic growth always raises the living standards in a country. [15
marks]
Question 2:
(a) With the aid of diagrams, explain the causes of inflation. [10 marks]
(b) Discuss the effectiveness of the governments decision to combat inflation by raising taxes,
cutting government expenditure and increasing interest rates. [15 marks]
Question 3:
(a) Explain the difficulties involved in measuring unemployment. [10 marks]
(b) Discuss the consequences and costs of unemployment. [15 marks]

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Section 2: Paper 3 style questions (HL only)
Question 1
The following diagram illustrates the aggregate demand and short run aggregate supply curves for
country A according to the monetarist/new classical model.

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) Identify two possible reasons for a decrease in consumer expenditure [2]
(b) On the diagram draw and label the new aggregate demand curve following the decrease in
consumer expenditure. [1]
(c) State the amount (in $ billion) by which the full employment level of output exceeds the short-
run equilibrium level of output. [1]
(d) On the diagram, draw and label the LRAS for country A. [1]
(e) 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. [1]
(f) Explain, giving two reasons, why the aggregate demand curve has a negative slope. [4]

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Question 2:
Table 1 below sets out data for the South Korean economy for the years 2009 and 2010. The data are
used to calculate the South Korean GDP using the expenditure approach. Many economists see the
success of South Koreas economy as being due to its strong exports and high level of investment.

The GDP deflator for South Korea in 2009 is 97 and for 2010 it is 100. Average growth rate of OECD
economies in 2010 is 2.9%.
(a) Define the term expenditure approach. [2]
(b) Using the data in Table 1, calculate the nominal GDP in 2009 and 2010 for the South Korean
economy. [2]
(c) Using the GDP deflator, calculate the real GDP for South Korea for 2009 and 2010. [2]
(d) Calculate the real economic growth rate for the South Korean economy for 2009 to 2010. [2]
(e) Describe the relative growth performance of the South Korean economy in 2010. [2]

Question 3:
The following labour statistics refer to Riverland in 2010.
Population Labour force Discouraged Under- Part-time Full-time
workers employed workers workers
workers
4 500 200 2 500 000 250 000 150 000 200 000 1 900 00

(a) Define unemployment [2 marks]

(b) Calculate Riverlands unemployment rate in 2010. [2 marks]
(c) Outline the meaning of discouraged workers. [2 marks]
(d) Outline the meaning of underemployed workers. [2 marks]

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Question 4:
Calculate the value of the multiplier if MPS=0.1, MPT=0.4, and MPM=0.25.
Calculate the increase in GDP which will occur, if investment is increased by $300 million.