DP Economics Questionbank

Explain the cause of cyclical (demand-deficient) unemployment.

Discuss the view that the most significant consequence of unemployment is the loss of tax revenue for the government.

Evaluate government policies to deal with the different types of unemployment.

Using Table 1, calculate the unemployment rate.

Discuss the effectiveness of supply-side policies in reducing unemployment.

To what extent is expansionary fiscal policy the best policy to achieve a reduction in the rate of unemployment?

Explain how an increase in unemployment might lead to a loss of gross domestic product (GDP) and a budget deficit.

Define the term structural unemployment indicated in bold in the text (paragraph [4]).

Calculate the unemployment rate in Fairland using Table 1.

Outline two difficulties in measuring unemployment.

Using an AD/AS diagram to support your answer, explain the mechanism through which monetary policy can help an economy reduce the level of unemployment.

Calculate the unemployment rate for 2012 and for 2013. Enter your results in Table 1.

Using the data in Table 1 to support your answer, identify two reasons why many economists would consider Country A’s economy to be performing poorly in 2012.

Explain why measuring unemployment in a country is difficult. 

Discuss whether the most important consequence of unemployment is a loss of income for individuals.

Using an AD/AS diagram, explain how the use of fiscal policy could lower “the high rates of youth unemployment” in South Korea (paragraph [5]).

Evaluate the effectiveness of monetary policy in reducing an economy’s rate of unemployment.

Explain two causes of structural unemployment.

Discuss the consequences of different types of unemployment.

Explain why cyclical (demand-deficient) unemployment may occur in an economy.

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

Table 3

Calculate the unemployment rate in Buranda.

Calculate the total welfare loss resulting from the imposition of the tariff on chia seeds.

Distinguish between inflation and disinflation.

Calculate the inflation rate for 2013 and for 2015 for Country A. Enter your results in Table 1.

The consumer price index (CPI) is a weighted price index. Outline one reason why weights are used in the construction of the CPI.

Outline how a producer price index may prove useful in predicting future inflation.

Explain two reasons why governments attempt to avoid deflation.

Explain the factors that cause demand-pull and cost-push inflation.

Discuss the view that deflation will always be bad for an economy.

Evaluate the effectiveness of using monetary policy to reduce the rate of inflation.

Explain why a high rate of inflation may negatively affect both a country’s export competitiveness and the level of capital investment by firms.

Discuss the view that the use of monetary policy is always the best way to reduce inflation.

Discuss whether an increase in interest rates is the most effective way of reducing the rate of inflation in an economy.

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).

Calculate the rate of consumer price inflation in 2016.

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

Evaluate the view that inflationary pressures in an economy are best reduced using supply-side policies.

Discuss the view that there will always be a trade-off between the unemployment rate and the inflation rate.

Using an AD/AS diagram, explain how Turkey’s reliance on energy imports is putting “further pressure on inflation” (paragraph [4]).

Calculate the inflation rate for 2014 and for 2015. Enter your results in Table 1.

Explain two reasons why low and stable inflation is desirable.

Using the data in Table 1 to support your answer, identify two reasons why many economists would consider Country A’s economy to be performing poorly in 2012.

Calculate the cost of the typical basket in 2016.

The cost of the typical basket was $50 in 2017. Calculate the consumer price index (CPI) for 2017.

The consumer price index for 2014 was 101.23. Calculate the rate of inflation between 2014 and 2015 (the base year).

In 2019, nominal GDP was $102 874.55 million. Using data from Table 2, identify whether Country A experienced inflation or deflation or disinflation in 2019.

Explain why there is a possible trade-off between the unemployment rate and the inflation rate in the short run.

Discuss the view that the redistribution of income is the most important impact that inflation has on an economy.

Define the term inflation indicated in bold in the text (paragraph [2]).

Explain two causes of demand-pull inflation.

Evaluate the effectiveness of interventionist supply-side policies in reducing demand-pull inflation.

Explain the causes of cost-push inflation.

Discuss the view that deflation is more harmful than inflation.

Identify a period in which Country Y experienced disinflation.

Calculate the total welfare loss resulting from the imposition of the tariff on chia seeds.

Define the term economic growth indicated in bold in the text (paragraph 2).

Using a production possibilities curve (PPC) diagram, explain how “billions of US dollars worth of infrastructure investment from China” may affect potential economic output (paragraph 1).

Using a production possibilities curve (PPC) diagram, explain how “the government’s record US$22 billion investment in infrastructure projects” will affect Indonesia’s production possibilities (paragraph 2).

Explain the causes of economic growth in terms of an increase in actual output and an increase in potential output.

Discuss the view that the consequences of economic growth are always beneficial.

Explain how an increase in investment might lead to economic growth.

Discuss the possible consequences of economic growth on living standards, unemployment and inflation.

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.

Explain the potential effects on the economic growth rate from a substantial increase in the number of skilled people of working age entering a country.

Using a production possibilities curve (PPC) diagram, explain the effect on economic growth of the “destruction of much of the country’s physical, social and human capital” (paragraph [1]).

Explain the role of improved productivity in achieving economic growth.

Discuss the view that economic growth can only be achieved at the expense of other macroeconomic objectives such as a low and stable rate of inflation and equity in the distribution of income.

Using a production possibilities curve (PPC) diagram, explain how rising numbers of university graduates will affect Bhutan’s potential output (paragraph [5]).

Define the term productivity indicated in bold in the text (paragraph [5]).

Explain, using a production possibilities curve (PPC) diagram, an increase in the actual output of an economy.

Discuss the view that economic growth always leads to a rise in living standards.

Define the term economic growth indicated in bold in the text (paragraph [2]).

Using the information in Table 2 for Country B, calculate the rate of economic growth between 2014 and 2015.

Gardia is aiming to increase its economic growth rate. Explain two sources of economic growth for economically less developed countries.

Using data from Table 2, state the reason why there is a difference between the real GDP growth rate and the real GDP per capita growth rate between 2015 and 2019.

An economist forecasts that the real GDP growth rate in 2020 will be 3.41 %. Using the data in Table 2, calculate the forecast for real GDP ($ million) in 2020.

Using an AD/AS diagram, explain the desired impact of China’s “eased monetary policy” on its economic growth (paragraph [5]).

Using a production possibility curve (PPC) diagram, explain how damage to Fiji’s infrastructure has affected its production possibilities (paragraph [1]).

Define the term economic growth indicated in bold in the text (paragraph [1]).

Using a production possibilities curve (PPC) diagram, explain how the production possibilities (potential output) of the DRC might be affected if there were greater access to electricity (paragraph [4]).

Define the term investment indicated in bold in the text (paragraph [5]).

State one reason why the production possibility curve (frontier) for Country H might shift outwards.

Calculate the total welfare loss resulting from the imposition of the tariff on chia seeds.

Discuss the view that the best way to achieve greater equity in the distribution of income in a country is to use a progressive tax system.

Fernando earns $35 000 in 2015. Calculate his average rate of tax.

Maki, who earns $70 000 in 2015, pays an average rate of tax of 27.14 %. Using the figures provided in Table 1, outline why her average tax rate is higher than that of Fernando.

Outline one potential advantage and one potential disadvantage of a progressive tax system.

Fernando receives a pay rise in 2016. His total income rises to $43 000. Calculate the percentage of his additional income which must be paid as tax.

Country Z implements a 10 % sales tax in 2016. Explain why an indirect tax is unlikely to be used as a mechanism to promote equity.

Calculate the percentage of income received by the highest 20 % in Country X. Enter your answer in Table 2.

Outline why Country X has a higher Gini coefficient, using the data in Table 2.

On the following axes, plot the Lorenz curve for Country Y.

Outline why the Gini coefficient must have a value between 0 and 1 (or between 0 and 100).

Country X raises the level of transfer payments. Explain two reasons why this policy could help to break the poverty cycle.

Angola and Namibia have different Gini coefficient values. Using a Lorenz curve diagram, explain what this means (Figure 1).

Using the data in Figure 1, comment on the degree of income inequality in the United States (US), Sweden and Brazil.

Using your answer to part (f), sketch and label a Lorenz curve for Brazil and for Sweden in the following box.

Evaluate the view that the best way to reduce income inequality in a country is by using progressive taxation.

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

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

Explain how government spending might promote greater equity in an economy.

Evaluate the view that government policies to promote greater equity will always have a negative effect on efficiency.

Define the term absolute poverty indicated in bold in the text (paragraph [2]).

Fred is a low-wage worker in Fairland. As a result of the minimum wage his income will increase from $15 000 per year to $19 000 per year.

Calculate how much additional income tax Fred will need to pay.

Using a Lorenz curve diagram, explain the possible impact on the distribution of income in the Philippines when “the income tax for the highest income earners has been raised from 30 % to 35 %” (paragraph [4]).

Define the term relative poverty indicated in bold in the text (paragraph [2]).

Explain how the Lorenz curve and the Gini coefficient are used to measure differences in income inequality between countries.

Discuss the view that taxation is the most effective means of achieving equity in the distribution of income.

Using a Lorenz curve diagram, explain the likely impact on income distribution of “plans to encourage investment in rural areas”  (paragraph [5]).

Define the term absolute poverty indicated in bold in the text (paragraph [2]).

Calculate the total welfare loss resulting from the imposition of the tariff on chia seeds.