DP Economics Questionbank

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

To what extent is the use of national income statistics an effective way of comparing the standard of living between countries?

Discuss the view that, apart from indicating economic growth rates over time, national income statistics are of little use.

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

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

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

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

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

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

Define the term real gross domestic product (GDP) indicated in bold in the text (paragraph [2]).

Explain the impact that a cut in taxation and an increase in government spending might have on the circular flow of income.

Discuss whether the real gross national income (GNI) per capita of a country is a good indicator of its standard of living.

State the reason for the difference between Ghana’s GNI per capita and its GDP per capita (Table 1).

Using the information in Table 2 for Country B calculate nominal GDP in 2014. Enter your result in Table 2.

Using the information in Table 2 for Country B calculate nominal GNI in 2015. Enter your result in Table 2.

Using the information in Table 2 for Country B, determine real GDP in 2014 and in 2015. Enter your results in Table 2.

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.

Define the term gross domestic product (GDP) indicated in bold in the text (paragraph [3]). 

Explain how the size of the circular flow of income in an economy is likely to be affected by a decrease in the rate of interest.

Define the term gross domestic product (GDP) per capita indicated in bold in the text (paragraph [1]).

With reference to the data in Table 2, explain why the GNI per capita for Guatemala is lower than its GDP per capita.

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

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.

Define the term gross domestic product indicated in bold in the text (paragraph [4]).

Using a business cycle diagram from 2010 to 2019, explain how cyclical unemployment may have changed during the economic boom (paragraph [1]) and the recession (paragraph [2]) in Brazil.

Using the data in Table 2, calculate factor income sent (paid) abroad in 2019.

In many developing countries GNI figures are lower than GDP figures. Outline how this may be due to the high levels of foreign direct investment (FDI) in developing countries.

Define the term gross domestic product (GDP) indicated in bold in the text (Text D, paragraph [1]).

Using information from Table 3, calculate real GDP (at 2010 prices) in 2019 using the price deflator.

Explain the possible impact of an increase in wealth and consumer confidence on aggregate demand.

Examine why, in contrast to the monetarist/new classical model, the economy will not automatically return to the full employment level of output in the Keynesian model.

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

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

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 an AD/AS diagram, explain why the “decrease in the prices of imports, especially oil” might reduce inflationary pressure (paragraph [5]).

Explain how aggregate demand in an economy might be affected by a rise in the exchange rate and a decrease in the income of major trading partners.

Explain how a deflationary gap might occur.

Using the monetarist/new classical model and the Keynesian model, discuss the view that increases in aggregate demand will inevitably be inflationary.

Discuss the view that economies will always return to the full employment level of output in the long run.

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

Using an AD/AS diagram, explain the impact of the trade agreement between Japan and the EU (JEEPA) on Japan’s economic growth (paragraph [1]).

Using an AD/AS diagram, explain the likely impact on the Canadian economy of the increase in the official interest rate (paragraph [1]).

Using Figure 5, state two likely causes for the change in Mexico’s spending on imports of goods and services in 2009.

Explain how aggregate demand is likely to be affected by an increase in the wealth of consumers and an increase in business confidence.

Define the term consumption indicated in bold in the text (paragraph [3]).

Using an AD/AS diagram, explain how an increase in oil prices “could worsen inflationary pressures” (paragraph [4]).

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

Using an externalities diagram, explain why the construction of dams on the Mekong River might lead to market failure (paragraph [2]).

Using an AD/AS diagram, explain how removing “the import quota will reduce the inflation rate in the Philippines” (paragraph [5]).

Using an AD/AS diagram, explain how “increasing China’s interest rate” could affect its economic growth (paragraph [5]).

Using an AD/AS diagram, explain how the change in the balance of trade in goods and services from 2018 to 2019 could have affected South Korea’s economy (Table 1 and paragraph [1]).

Sketch an AD/AS diagram to illustrate the possible effect on the Burundian economy in the long run if the government reduces the rate of corporate income tax from 30 % to 26 %.

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

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

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 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).

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]).

Calculate the rate of consumer price inflation in 2016.

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

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.

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

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

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

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

Explain the difference between a current account deficit and a budget deficit (paragraph [5]).

Using an AD/AS diagram, explain how expansionary monetary policy might lead to economic growth (paragraph [1]).

Explain the difference between economic growth and economic development (paragraph [7]).

Calculate the unemployment rate in Fairland using Table 1.

Outline two difficulties in measuring unemployment.

Draw and label a curve that illustrates Fairland’s minimum wage on Figure 6.

Calculate the resulting unemployment among the low-wage workers.

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]).

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

Calculate the unemployment rate for 2012 and for 2013. 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.

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.

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.

Explain why measuring unemployment in a country is difficult. 

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

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

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

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

Explain two causes of demand-pull inflation.

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.

Explain the causes of cost-push inflation.

Discuss the view that deflation is more harmful than inflation.

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

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

Table 3

Calculate the unemployment rate in Buranda.

Identify a period in which Country Y experienced disinflation.

Explain how rising commodity prices and wages might lead to cost-push inflation.

Discuss the possible consequences of deflation for an economy.

Explain how a better trained and educated labour force might affect economic growth.

Discuss the view that economic growth always leads to rising living standards.

Define the term unemployment indicated in bold in the text (paragraph [6]).

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

Using an AD/AS diagram, explain how “lower prices for food and raw materials” might put downward pressure on inflation (paragraph [1]).

Explain two possible positive consequences of economic growth in Kanyaland.

Using Table 3, calculate the rate of inflation in 2017 and in 2018.

Define the term unemployment rate indicated in bold in the text (Text A, paragraph [6]).

Using information from Table 1, calculate North Macedonia’s annual rates of inflation between 2016 and 2019.

Using your answer to part (b)(i), identify the year disinflation set in.

Using the information in Table 3, calculate Sierra Leone’s rate of economic growth between 2017 and 2018.

Using an AD/AS diagram, explain how the increase in the price of fuel might have contributed to inflation (Text D, paragraph [5]).

Using the information provided in Table 1, calculate the rate of unemployment for Burundi in 2019.

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]).

Evaluate the view that progressive income tax is the best way to increase equity in an economy.

Define the term human capital indicated in bold in the text (paragraph [7]).

Using a Lorenz curve diagram, explain what is meant by an “increase in income inequality from 2015 to 2019” (paragraph [6]).

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

Using a Lorenz curve, explain how a progressive tax system could change Vanuatu’s income distribution (paragraph [7]).

Using Table 4, identify the marginal tax rate for Rufus.

Using Table 4, calculate the average tax rate for Sammy.

Calculate the amount of VAT which was paid on the purchase of this equipment.

Using the text/data provided and your knowledge of economics, recommend a policy which could be introduced by the government of Burundi to reduce income inequality in Burundi.

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

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

List two functions of the central bank (paragraph [2]).

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

Using an AD/AS diagram, explain how expansionary monetary policy might lead to economic growth (paragraph [1]).

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.

Outline two roles of a country’s central bank (paragraph [1]).

State one reason why monetary policy is considered to have limited effectiveness in increasing aggregate demand if an economy is in a deep recession.

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

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

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

Explain how expansionary monetary policy could be used to close a deflationary (recessionary) gap.

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

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

Evaluate the view that fiscal policy is the best way to reduce unemployment.

List two responsibilities of a central bank (paragraph [4]).

If the government increased expenditures by K$21 billion, calculate the new level of GDP achieved.

With reference to the CPI data in Table 3, describe the most likely monetary policy response adopted at the end of 2018 by the central bank of Kanyaland.

Using real-world examples, evaluate the effectiveness of monetary policy to achieve low unemployment.

Using real-world examples, evaluate the effectiveness of monetary policy to achieve low inflation.

Using a demand and supply of money diagram, explain the likely effect on interest rates of a reduction in the minimum reserve requirement for banks (Text C, paragraph [1]).

Explain how expansionary fiscal policy could be used to close a deflationary (recessionary) gap.

Explain how expansionary fiscal policy could be used to close a deflationary (recessionary) gap.

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

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.

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.

Using the concept of the multiplier, explain how an increase in investment might affect aggregate demand.

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

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

Using this information, calculate the value of the Keynesian multiplier.

Using your answer to part (i), calculate the increase in government spending necessary to increase nominal GDP by $100 billion.

Explain the effect an increase in investment might have on real gross domestic product (GDP) using the Keynesian multiplier.

Explain two reasons why fiscal policy may prove effective in lifting an economy out of a deep recession.

Gardia’s investment (in plant and equipment) increased by 11 million gamma in the last month. In the same month, its government spending decreased by 8 million gamma. It has been estimated that the marginal propensity to consume (MPC) on domestic goods and services in Gardia is 0.75.

Calculate the maximum possible increase in real gross domestic product (GDP) in Gardia that could result from the changes in investment and government spending.

Calculate the estimated value of the multiplier used by the economist.

Calculate the estimated value of the multiplier used by the economist.

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 fiscal policy as a means of achieving long-term economic growth.

Using real-world examples, evaluate the effectiveness of monetary policy to achieve low unemployment.

Using an AD/AS diagram, explain how a reduction in government spending may reduce inflation (Text D, paragraph [4]).

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

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

Explain how increased investment by the government in education and training can affect both aggregate demand and aggregate supply.

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

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

State two interventionist supply-side policies that are likely to increase the demand for low-wage labour in Fairland.

State two market-based supply-side policies that are likely to increase the supply of labour in Fairland.

Discuss the view that interventionist supply-side policies are the most effective way for a government to achieve economic growth.

Using an AD/AS diagram, explain the impact on the potential output of the Philippines of the government increasing its “spending on new airports, roads and bridges” (paragraph [4]).

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

Evaluate the effectiveness of interventionist supply-side policies in reducing the level of unemployment in an economy.

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

Using real-world examples, evaluate the effectiveness of monetary policy to achieve low unemployment.

Explain how the use of supply-side policies might encourage greater domestic competition and improve the international competitiveness of a country.

Using real-world examples, evaluate the view that the use of interventionist supply-side policies is the most effective way of reducing a country’s rate of unemployment.

Using an AD/AS diagram, explain the likely impact of North Macedonia’s supply-side policies on its full employment level of output (Text B, paragraph [2]).