Explain the impact that a fall in the world price of oil might have on aggregate supply and gross domestic product (GDP) in an economy.

Evaluate the view that economic growth is best achieved through improvements in technology.

Answers may include:

• definitions of aggregate supply and GDP
• diagram to show AS/SRAS shifting to right and GDP increasing
• explanation that in an oil importing country a fall in the price of oil reduces production costs to industry and causes the aggregate supply to increase and GDP to rise
• example of economies where fall in oil prices has increased aggregate supply and GDP in an economy.

Explanation may include: the perspective of an oil exporting country as an alternative to an oil importing country. In this case, a fall in the world price of oil would mean reduced export revenues, and as net exports are a component of aggregate demand, this would cause aggregate demand and GDP to decrease.

Marks should be allocated according to the Paper 1 markbands for May 2013 forward, part A.

Answers may include:

• definition of economic growth
• diagram to show LRAS increasing and real output increasing
• explanation of how technological improvements cause LRAS to increase in the long term as industry becomes more productive
• examples of technological improvements increasing LRAS in an economy
• synthesis or evaluation.

Evaluation may include: the effect of advances in technology being dependent on the skill level of the labour force and whether the technology is appropriate for the development level of the economy. The response may also consider how factors other than technology might affect LRAS such as the discovery of new natural resources and the importance of aggregate demand in affecting growth in the short term. A PPF diagram may be rewarded equally if used to explain economic growth effectively.

Marks should be allocated according to the Paper 1 markbands for May 2013 forward, part B.