Calculate Averna’s nominal gross domestic product (GDP) in 2019.

Define the term price deflator.

Using your answer to part (a), calculate Averna’s real GDP per capita in 2019.

Explain two reasons why an increase in real GDP per capita may not lead to an improvement in living standards.

Table 3 provides information relating to the labour market in the country of Buranda.

Table 3

Calculate the unemployment rate in Buranda.

Define the term underemployment.

Identify a period in which Country Y experienced disinflation.

With reference to the short-run Phillips curve, describe the relationship between inflation and unemployment in Country Y for the period 2011 to 2016.

Outline how the data for the period 2016 to 2018 may reflect a change in the short-run Phillips curve for Country Y.

Calculate Buranda’s terms of trade index for 2008 and 2018.

Using your answers to part (g)(i), explain how the change in Buranda’s terms of trade may act as a barrier to economic development.

GDP = 2350 + 1380 + 1624 + (462 − 476)

Any valid working is sufficient for [1].

= $5340 million or $5.34 billion 

An answer of $5340 million, $5.34 billion (or 5340 or 5.34) without any valid working is sufficient for [1].

If a candidate makes a small error in transcribing the figures e.g. 1642 instead of 1624, then they can still receive [1] for valid working.

Calculating GDP at factor cost (plus subsidies less indirect taxes) may be fully rewarded:

GDP at factor cost = 2350 + 1380 + 1624 + (462 − 476) + 681 − 759

= $5262 million or $5.26 billion

For full marks to be awarded the response must provide valid working and include correct units.

Real GDP = 5340 × 100/125 = $4272 million

Real GDP per capita = 4 272 000 000/213 600

Any valid working is sufficient for [1] e.g. using nominal GDP instead of real GDP (5340/213 600 = $25 000) or neglecting to convert to per capita figure (=$4272m).

Neglecting to multiply by 100 in calculating real GDP may be considered a units error.

= $20 000

An answer of $20 000 or 20 000 (without working) is sufficient for [1].

For full marks to be awarded the response must provide valid working and include correct units.

OFR applies from part (a). Per capita figures may be rounded to the nearest dollar.

Reasons may include:

• The distribution of income may become uneven, so that the benefits of increasing real GDP may not be enjoyed by some.
• Due to structural changes, employment opportunities decrease for some groups, who will not benefit from higher real GDP.
• More accurate recording of self-provided goods may account for the increase in real GDP without a corresponding increase in output/income.
• An increase in real GDP may lead to negative environmental effects, such as poor air quality, meaning that living standards do not improve.
• The composition of output may have changed. An increase in real GDP that results from an increase in military spending (or without an increase in spending on health and education) may not improve living standards.
• GNP could be lower than GDP due to profit repatriation by MNCs or to income remittances overseas by immigrant workers.
• An increase in real GDP might be accompanied by reduced leisure time/freedom.
• Any other reasonable response.

$\frac{1.2}{5.7+1.2}\times 100$

Any valid working is sufficient for [1].

= 17.39 % or 17.39

An answer of 17.39 % or 17.39 (without working) is sufficient for [1].

2011 – 2012
OR 2011 – 2013
OR 2012 – 2013
OR 2012
OR 2013

Award [1] for identifying the period correctly.

PLEASE NOTE: This question part is not on the syllabus for first teaching 2020/first exams 2022.

2008:

$\frac{106.5}{108.9}\times 100=97.80$

An answer of 97.80 is sufficient for [1].

2018:

$\frac{107.2}{124.3}\times 100=86.24$

An answer of 86.24 is sufficient for [1].

NB Candidates who make a similar rounding error/misplace the decimal point/do not multiply by 100 on both calculations should be penalized once only.

PLEASE NOTE: This question part is not on the syllabus for first teaching 2020/first exams 2022.

There were relatively few accurate responses to this question. The majority of candidates included "Government expenditure on unemployment benefits" which should have been excluded as the item represents a transfer payment. It was also common to see every item included in the calculation. 

Most students were able to describe the price deflator or provide the formula. Lower-achieving responses tended to refer to "adjusting a price for inflation", demonstrating a weak grasp of the term. 

Many responses earned full marks via the Own Figure Rule. Lower-achieving responses calculated per capita GDP OR real GDP but not both. A common error was to neglect to multiply by 100 when converting nominal GDP to real GDP 

Candidates were generally able to identify the relevant concepts needed to answer the question such as the distribution of income, the composition of output, the creation of externalities of the amount of leisure time available. However, many neglected to focus on the possible impact of an increase in real GDP, and simply wrote that "GDP does not measure health/education/happiness". Stronger responses explained clearly the possible reasons why an increase in real GDP may not lead to more spending on health, education or other merit goods. 

Although the majority of responses were accurate, it is surprising, given the number of times this calculation has been required in previous examination sessions, to see so many inaccurate responses. The denominator was often shown as 9.3 million (the population) or 5.7 million (the employed). 

Generally well answered, with the idea of skills being under-utilised forming the basis of student responses. Lower-achieving responses referred to "the existence of part-time workers" without stating that they would like to work full-time or confused underemployment with unemployment. 

It was surprising that so many responses indicated that disinflation occurred after 2013, possibly due to candidates referring to the incorrect column i.e. looking at the data for unemployment. 

Generally well-answered. Candidates were able to state the Phillips curve relationship and identify this relationship in Country Y between 2011 and 2016. 

The majority of candidates were able to identify that the traditional Phillips curve relationship had broken down and that this may be reflected by an outward shift of the curve. Lower-achieving responses explained incorrectly that the breakdown of the relationship signified a move to the long-run Phillips curve. 

Although many candidates were able to perform the appropriate division, it was common for the index to be expressed as decimal fraction, often expressed to 3 decimal places. Lower-achieving responses divided the 2019 data by the 2018 data or subtracted one element from another. 

This question was answered poorly. Relatively few candidates were able to explain the meaning of a deterioration of the terms of trade. The majority of responses merely focused on the prices of exports and imports, treating them separately rather than considering the relative changes and making simple inferences regarding the current account deficit. Many responses discussed the volume of exports and imports rather than the (relative) prices. It was rare to see any references to elasticities or the Marshall-Lerner condition when explaining the implications of a deteriorating terms of trade.