DP Economics Questionbank

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]).