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Date	November 2018	Marks available	1	Reference code	18N.3.HL.TZ0.3
Level	Higher level	Paper	Paper 3	Time zone	Time zone 0
Command term	Calculate	Question number	3	Adapted from	N/A

Question

The information provided in Table 1 represents data for Country X in 2015.

Table 1

The information provided in Table 2 relates to Country Y.

Table 2

Figure 4 represents the circular flow of income in Country A, with values in billions of dollars ($).

Figure 4

The government of Country A decides to increase the level of taxation to $34 billion.

Table 3 provides information on the rates of direct tax in Country A.

Table 3

Table 4 provides information on the household distribution of income in Country A.

Table 4

Calculate gross domestic product (GDP) for Country X in 2015.

[2]

Calculate gross national income (GNI) for Country X in 2015.

[1]

Calculate the rate of consumer price inflation in 2016.

[1]

Using the GDP deflator, calculate the percentage change in real GDP between 2014 and 2015.

[2]

Identify the term represented in Figure 4 by the letter V.

[1]

e.i.

Identify the term represented in Figure 4 by the letter M.

[1]

e.ii.

State the four factor payments which constitute the income flow in the circular flow of income model.

[2]

Define the term leakages.

[2]

Determine the size of the budget surplus/deficit and state which using Figure 4.

[1]

Using an AD/AS diagram, explain how this may affect the level of unemployment.

[4]

Calculate the average tax rate for an individual who earns $64 000 per year.

[2]

Draw and label the Lorenz curve diagram for Country A on Figure 5.

[2]

Explain how an increase in the top rate of direct tax from 32 % to 36 % might affect equity and efficiency in Country A.

[4]

Markscheme

GDP = C + I + G + (X − M)
= 745 + 229 + 437 + 234 − 289

Any valid working is sufficient for [1].

= $1356 billion

An answer of 1356 billion or $1356 (without working) is sufficient for [1].

GDP + net factor income = GNI
1356 − 111 = $1245 billion

An answer of 1245 (without working) is sufficient for [1].

OFR applies.

$\left[ {\frac{{\left( {109.21 - 105.35} \right)}}{{105.35}}} \right] \times 100 = 3.66\,{\text{% }}$

An answer of 3.66 (without working) is sufficient for [1].

real GDP in 2015
$\frac{{4814}}{{105.11}} \times 100 = 4579.96$

rate of change
$\left[ {\frac{{\left( {4579.96 - 4465} \right)}}{{4465}}} \right] \times 100$

Any valid working is sufficient for [1].

= 2.57 %

An answer of 2.57 (without working) is sufficient for [1].

Income OR factor income OR household income OR factor payments.

Award [1] for identifying the term correctly.

e.i.

imports

Award [1] for identifying the term correctly.

e.ii.

rent, wages, interest and profit

Award [1] for three payments provided.

Award [2] for four payments provided.

budget surplus of $5 billion

Award [1] for determining the size of the budget correctly.

NB A response in which the AS curve shifts to the left, on the basis that the increase in taxation may be indirect taxation, should be rewarded.

12 000 × 5 % + 15 500 × 12 % + 32 500 × 21.5 % + 4 000 × 32 %
= $10 727.50

Working is not required.

average tax rate

$\left( {\frac{{10\,727.5}}{{64\,000}}} \right) \times 100$

Any valid working is sufficient for [1].

= 16.76 %

An answer of 16.76 or 0.17 (without working) is sufficient for [1].

Award [1] for an accurate Lorenz curve.

Award [1] for a Lorenz curve which is inaccurate but which goes from (0,0) to (100,100) and which lies below the line of perfect equality AND axes labelled accurately.

Award [2] for an accurate Lorenz curve with axes correctly labelled.

NB The term “cumulative” is not necessary for labelling of axes.

NB A response which explains that inequality will be reduced, without explicitly using the term equality/inequality, should be rewarded.