Using Table 1, calculate the unemployment rate.

Using the graph, determine short-run values for the unemployment rate in 2016 and the inflation rate in 2018. Enter your answers in Table 2 below.

Table 2

The government in Country Alpha reduces income taxes in 2019.
Using information from the graph to support your answer, explain the likely effect on the inflation rate and the unemployment rate.

The natural rate of unemployment in Country Alpha is 5 %.

On the diagram draw and label the long-run Phillips curve (LRPC).

The price of oil is expected to rise significantly, causing a sustained increase in energy costs.

Describe the likely effect of this sustained cost increase on the short-run Phillips curve (SRPC).

Explain the reason for your answer to part (d) (i).

Using the data in Table 3, calculate the level of investment.

In Country Beta, investment by firms increases in the first quarter of 2019.

State two possible reasons for the increase in investment by firms.

The following diagram illustrates the long-run aggregate supply curve (LRAS), short-run aggregate supply curve (SRAS) and aggregate demand curve (AD) for Country Beta before the increase in investment.

The increase in investment results in both short-run and long-run effects on the economy. On the diagram above, draw and label the two curves that illustrate these effects.

In Country Beta, investment by firms increases in the first quarter of 2019.

The following diagram illustrates the long-run aggregate supply curve (LRAS), short-run aggregate supply curve (SRAS) and aggregate demand curve (AD) for Country Beta before the increase in investment.

The increase in investment results in both short-run and long-run effects on the economy. On the diagram above, draw and label the two curves that illustrate these effects.

Calculate the real growth rate in 2018 using the figures in Table 4 below.

Table 4

Calculate the maximum possible increase in gross domestic product (GDP) that could result from the rise in investment.

Country Delta is an open economy with a government sector. Investment rises by $2 billion in both Delta and Beta. Explain how the size of the multiplier and the resulting effect on gross domestic product (GDP) might be different in the two countries.

$\frac{1.12}{\left(13.72+1.12\right)}\times 100$

Any valid working is sufficient for [1]

= 7.55 % 

An answer of 7.55 (without workings) is sufficient for [1].

Both cells must have the correct numbers entered for [1].

N.B.: A response which does not refer to AD (or to consumption) may be awarded a maximum of [2].

A correctly drawn LRPC earns [1].

A shift to the right or vertical upward shift or an outward shift of SRPC is sufficient for [1].

71 + l +  32 + 12 − 15 = 109

Any valid working is sufficient for [1].

l = $9 billion

An answer of $9 billion or 9 billion (without workings) is sufficient for [1].

For each correctly drawn and labelled shift [1] as shown below.

If candidates show a left shift (or vertical upward shift) of SRAS instead of the right shift in LRAS (focusing on theory of high wages and input costs after AD shifts right and price level rises), they may be awarded full marks.

N.B.: The new short-run equilibrium could be to the left or right or on the intersection of the new LRAS and AD curve.

N.B.: A shift to the right of SRAS may also be shown, but to earn two marks, both AD and LRAS must shift.

N.B.: The new curves should be appropriately labelled.

For each correctly drawn and labelled shift [1] as shown below.

If candidates show a left shift (or vertical upward shift) of SRAS instead of the right shift in LRAS (focusing on theory of high wages and input costs after AD shifts right and price level rises), they may be awarded full marks.

N.B.: The new short-run equilibrium could be to the left or right or on the intersection of the new LRAS and AD curve.

N.B.: A shift to the right of SRAS may also be shown, but to earn two marks, both AD and LRAS must shift.

N.B.: The new curves should be appropriately labelled.

$\left(\frac{109}{99.4}\right)\times 100=109.66$

$\left(\frac{107}{101.2}\right)\times 100=105.73$

$\left(\frac{109.66}{105.73}\right)=1.03717$

$\left(1.03717-1\right)\times 100$

Any valid working is sufficient for [1].

= 3.72 % 

An answer of 3.71 % (due to no early rounding) should also be accepted.

An answer without working is sufficient for [1].

$\frac{1}{\left(1-0.8\right)}\times 2=5\times 2$

Any valid working is sufficient for [1].

= $10 billion

An answer of $10 billion or 10 billion is sufficient for [1].