| Date | November 2019 | Marks available | 10 | Reference code | 19N.1.HL.TZ0.4 |
| Level | Higher level | Paper | Paper 1 | Time zone | Time zone 0 |
| Command term | Explain | Question number | 4 | Adapted from | N/A |
Question
Explain the effect an increase in investment might have on real gross domestic product (GDP) using the Keynesian multiplier.
Discuss the view that interventionist supply-side policies are the most effective way for a government to achieve economic growth.
Markscheme
Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.
Answers may include:
- definitions of real GDP, investment, Keynesian multiplier
- Keynesian AD/AS diagram to show the multiplier effect (successive increases in AD and real GDP)
- explanation of how an initial increase in investment, a component of AD, leads to multiple successive increases in AD and real GDP
- hypothetical numerical example(s) to support the explanation or a historical example of specific situations where an increase in investment has possibly led to a multiplier effect.
Award a maximum of level 2 marks if a candidate does not use the concept of the Keynesian multiplier.
Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.
Answers may include:
- definitions of interventionist supply-side policies, economic growth
- diagram to show an increase in both AD and LRAS (resulting in increasing real GDP) or a production possibilities frontier diagram
- explanation that interventionist supply-side policies, such as investment in human capital, investment in new technology, investment in infrastructure or industrial policies, are conducted by the government and aim to improve the economy’s capacity to produce (the quality and/or the quantity of the economy’s factors of production)
- examples of specific interventionist supply-side polices in practice and/or countries where interventionist supply-side policies might have led to economic growth
- synthesis or evaluation (discuss).
Discussion may include: consideration of alternative policies (market-based supply-side policies, expansionary monetary policies, expansionary fiscal policies) with regard to factors such as time lags, the ability to create employment, the impact on the government budget, the short-run effect on the AD, the administrative requirements and the political support required for their implementation, social effects and effects on the environment.
Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.
