PAPER 1

ECONOMICS
STANDARD LEVEL

1 hour 30 minutes

INSTRUCTIONS TO CANDIDATES

Do not open this examination paper until instructed to do so.

You are not permitted access to any calculator for this paper.
Section A: answer one question.
Section B: answer one question.
Use fully labelled diagrams and references to examples where appropriate.
The maximum mark for this examination paper is [50 marks].

Exam questions included up to and including November 2015.

In addition to the assessment criteria, paper-specific mark-schemes will be used. Marks will
be awarded up to the maximum marks indicated below.

Part (a) 10 marks

Leve Description Marks
l
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question. 13
Relevant economic terms are not defined. There is very little knowledge of
relevant economic theory. There are significant errors.
2 There is some understanding of the specific demands of the question. 46
Some relevant economic terms are defined. There is some knowledge of
relevant economic theory. There are some errors.
3 There is understanding of the specific demands of the question. Relevant 78
economic terms are defined. Relevant economic theory is explained and
applied. Where appropriate, diagrams are included and applied. Where
appropriate, examples are used. There are few errors
4 There is clear understanding of the specific demands of the question. 9 10
Relevant economic terms are clearly defined. Relevant economic theory is
clearly explained and applied. Where appropriate, diagrams are included
and applied effectively. Where appropriate, examples are used effectively.
There are no significant errors.

Part (b) 15 marks

Lev Descriptor Marks
el
0 The work does not reach a standard described by the descriptors below. 0
1 There is little understanding of the specific demands of the question. 15
Relevant economic terms are not defined. There is very little knowledge of
relevant economic theory. There are significant errors.
2 There is some understanding of the specific demands of the question. Some 69
relevant economic terms are defined. There is some knowledge of relevant
economic theory. There are some errors.
3 There is understanding of the specific demands of the question. Relevant 10 12
economic terms are defined. Relevant economic theory is explained and
applied. Where appropriate, diagrams are included and applied. Where
appropriate, examples are used. There is an attempt at synthesis or
evaluation. There are few errors.
4 There is clear understanding of the specific demands of the question. 13 15
Relevant economic terms are clearly defined. Relevant economic theory is
clearly explained and applied. Where appropriate, diagrams are included
and applied effectively. Where appropriate, examples are used effectively.
There is evidence of appropriate synthesis or evaluation. There are no
significant errors.
 SECTION A
Answer one question from this section.

MICROECONOMICS
1.1 COMPETITIVE MARKETS
Markets
Demand
Supply
Market equilibrium
The role of the price mechanism
Market efficiency

10 marks questions
Explain the basic features of the market mechanism and how equilibrium is achieved.
(Nov 1998)

Explain the functions that prices perform in a market (economy). (Nov 1999)

Explain how, in a market economy, the price mechanism assists in the allocation of resources.
(May 2001)

Explain the importance of price in allocating scarce resources. (Nov 2005)

The basic economic problem is one of scarcity of productive resources. Explain how
resources are allocated between competing uses in a market (economy).
(May 2006)

Explain the signalling and incentive functions of price in a market economy. (May 2007)

Explain the roles of market forces and government in allocating resources in a mixed
economy. (May 2011, TZ1)

Explain how, in a market system, changes in demand and supply allocate

scarce resources through the signalling and incentive functions of price.
(May 2012, TZ2)

Explain how the price mechanism allocates resources in an economy.

(November 2014)

Explain that when producer surplus and consumer surplus are maximized, allocative
efficiency is achieved.
(November 2014)

Explain the view that an increase in price will lead to a decrease in the quantity demanded
whilst an increase in demand will lead to an increase in price.
(May 2015, TZ1)

Explain the view that an increase in price will lead to an increase in the quantity supplied
whilst an increase in supply will lead to a decrease in price.
(May 2015, TZ2)
Explain the likely effects of falling costs of factors of production on price and output in
agricultural markets.
(May 2015, TZ2)

15 marks questions
(a) With the aid of at least one diagram, explain the difference between a movement
along an existing demand curve for a good and a shift of the demand curve for a good.
[10 marks]
(b) Evaluate the view that the market forces of demand and supply will always lead to the
best allocation of resources. [15 marks]
(May 2010)
1.2 ELASTICITY
Price elasticity of demand (PED)
Cross elasticity of demand (XED)
Income elasticity of demand (YED)
Price elasticity of supply (PES)

10 marks questions
The price elasticity of demand and the price elasticity of supply for many primary
commodities tend to be low. Explain what is meant by this statement, and how this
contributes to the problem of price instability for primary commodity producers.
(May 2008)

15 marks questions
(a) Define price elasticity of demand and explain why it differs between various goods
and services. [10 marks]
(b) Explain why a knowledge of the price and income elasticities of agricultural goods
would be useful to a farmer. [15 marks]
(Nov 1997)

(a) Define, and show how you would calculate price elasticity of demand. [10 marks]
(b) Why may firms wish to know the price elasticity of demand for their goods?
[15 marks]
(May 1998)

(a) What are the various factors that determine the value of (i) price elasticity of demand
and (ii) income elasticity of demand? [10 marks]
(b) Assess the importance of price elasticity and income elasticity of demand for business
decision-making. [15 marks]
(May 2000)

(a) Explain the factors which influence price elasticity of supply. Illustrate your answer
with reference to the market for a commodity or raw material [10 marks]
(b) Discuss the importance of price elasticity of supply and price elasticity of demand for
producers of primary commodities in less developed countries. [15 marks]
(Nov 2002)

(a) Explain the concept of elasticity of demand [10 marks]

(b) Evaluate the significance of elasticity of demand to business and government.
[15 marks]
(Specimen)

(a) Explain the differences between price elasticity of demand (PED) and cross-elasticity
of demand (XED). [10 marks]
(b) Discuss the usefulness of price elasticity of demand (PED) and cross-elasticity of
demand (XED) to businesses trying to increase their sales revenue. [15 marks]
(Nov 2011)
(a) Explain why the price elasticity of demand for primary commodities tend to be
relatively low while the price elasticity of demand for manufactured goods tends to be
relatively high. [10 marks]
(b) The income elasticity of demand for primary goods tends to be lower than that for
manufactured goods and services. Examine the implications of this for producers and
for the economy as a whole. [15 marks]
(May 2013, TZ1)

(a) Suggest reasons why the price elasticity of demand for cigarettes might have a
different value from the price elasticity of demand for foreign holidays. [10 marks]
(b) Examine the usefulness of knowledge of price elasticity of demand to firms and
governments. [15 marks]
(Specimen Paper 2013)

(a) Explain three determinants of price elasticity of demand (PED). [10

marks]
(b) Examine the role of PED for firms making decisions regarding price
changes and their effect on total revenue. [15 marks]
(November 2013)

(a) Explain the view that an increase in price will lead to a decrease in the quantity
demanded whilst an increase in demand will lead to an increase in price.
(b) Discuss the significance of price elasticity of demand for government intervention in
markets.
(May 2015, TZ1)
1.3 GOVERNMENT INTERVENTION
Indirect taxes
Subsidies
Price controls

15 marks questions
(b) Using examples, explain why governments sometimes find it necessary to intervene in
markets by imposing maximum or minimum prices. [15 marks]
(Nov 1998)

(b) Evaluate the possible consequences of implementing maximum and minimum price
controls. [15 marks]
(Nov 2005)

(b) Evaluate the view that it is best to allow primary commodity prices to be determined
purely through the free interaction of market forces. [15 marks]
(May 2008)

(a) Briefly outline the various methods of price control open to governments [10 marks]
(b) Evaluate the effectiveness of using price controls to reduce poverty. [15 marks]
(May 2004)

(a) Explain the importance of price in allocating scarce resources. [10 marks]
(b) Evaluate the possible consequences of implementing maximum and minimum price
controls. [15 marks]
(Nov 2005)

(a) Using supply and demand analysis, explain why the price of agricultural goods tends
to fluctuate more than the price of manufactured goods. [10 marks]
(b) Evaluate the possible role of price controls in agricultural markets. [15 marks]
(Nov 2007)

(a) World food prices have increased sharply over the past five years. With the aid of at
least one diagram, explain how one possible demand factor and one possible supply
factor may have caused this increase. [10 marks]
(b) Consider the following two conflicting views: Food prices are best left to market
forces. and Government should intervene to control rising food prices. Evaluate
whether rising food prices should be left to market forces or controlled by
government. [15 marks]
(May 2010)

(a) Explain how taxes and subsidies differ in their effect on the market price and quantity
of a good. [10 marks]
(b) It is essential that a government supports its farmers by subsidizing agricultural
output. Evaluate this view. [15 marks]
(Nov 2010)

(b) Evaluate the view that government intervention in agricultural

markets will create more problems than it solves. [15 marks]
(May 2012, TZ1)
(a) Explain why a government might introduce subsidies for food. [10 marks]
(b) Discuss possible negative consequences that may arise from a government decision to
subsidise food [15 marks]
(Specimen Paper 2013)

(a) Explain why a government might impose a price ceiling on the

market for rented accommodation and a price floor on the market
for agricultural goods. [10 marks]

(b) Evaluate the possible consequences of price controls on the

stakeholders in a market. [15 marks]
(May 2013, TZ2)

(b) Examine the possible consequences of governments imposing a

price ceiling in the market for rented housing.
(November 2014)

(b) Discuss the consequences of the introduction of an indirect tax on

gasoline (petrol) for consumers, producers and the government.
(November 2014)

(a) Explain why governments impose price floors (minimum prices).

(b) Discuss the consequences for producers, consumers and the
government of imposing a price floor (minimum price) on a good.
(May 2015, TZ1)

(a) Explain the likely effects of falling costs of factors of production on price and output
in agricultural markets.
(b) Discuss the impact on different stakeholders of governments using price floors
(minimum prices) to support farmers when agricultural prices are falling.
(May 2015, TZ2)
1.4 MARKET FAILURE
The meaning of market failure
Types of market failure (externalities, lack of public goods, common access resources,
threatening sustainability)

15 marks questions
(a) In what circumstances does market failure occur in an economy? [10 marks]
(b) To what extent can governments correct market failure? [15 marks]
(May 1998)

(a) What factors might cause market failure? [10 marks]

(b) What can the government do to remedy market failure? [15 marks]
(Specimen paper)

(b) Discuss the view that education and health are best provided through the market
rather than by the state. [15 marks]
(Nov 1999)

(a) Carefully distinguish between merit goods and public goods, illustrating your answer
with examples. [10 marks]
(b) To what extent is it desirable that the government should provide merit goods and
public goods? [15 marks]
(May 2000)

(a) Explain how, in a market economy, the price mechanism assists in the allocation of
resources. [10 marks]
(b) Critically evaluate how the price mechanism deals with the problem of non-renewable
resources. [15 marks]
(May 2001)

(a) Explain how the existence of positive externalities may cause free markets to
misallocate resources [10 marks]
(b) Evaluate the options available to governments to overcome the failure of markets to
take account of positive externalities. Refer to real world examples in your answer.
[15 marks]
(May 2002)

(a) What are positive externalities and how do they arise? Illustrate your answer with
examples. [10 marks]
(b) To what extent should governments attempt to influence markets where positive
externalities exist? [15 marks]
(Nov 2002)

(a) Explain why under-provision of merit goods in an economy is considered to be a

market failure. [10 marks]
(b) Discuss the view that there is strong justification for government intervention in the
market for health care. [15 marks]
(May 2006)
(b) Evaluate the possible measures that a government might use to correct such a
market failure. [15 marks]
(Nov 2006)

(b) Evaluate the proposition that government intervention in the market for tobacco is
justified. [15 marks]
(May 2007)

(a) Using an appropriate diagram, explain how negative externalities are a type of market
failure. [10 marks]
(b) Evaluate the measures that a government might adopt to correct market failure arising
from negative externalities. [15 marks]
(May 2009)

(b) The process of resource allocation is most efficiently carried out through the free
interaction of demand and supply. This means the provision of merit goods, such as
health care and education, should always be left to market forces. Evaluate this
statement. [15 marks]
(Nov 2009)

(a) Explain the roles of market forces and government in allocating resources in a mixed
economy. [10 marks]
(b) Evaluate the extent to which market forces should be used to lessen the problem of
environmental pollution. [15 marks]
(May 2011, TZ1)

(a) Explain the distinction between public goods and merit goods and why these goods
are examples of market failure. [10 marks]
(b) The operation of the free market is always the best way to allocate scarce resources.
Evaluate this statement.
(May 2011, TZ2)

(b) Evaluate the economic implications of a government policy to

provide merit
goods free of charge. [15 marks]
(May 2012, TZ1)

(a) Explain why common access resources, such as fishing grounds,

might become depleted in the absence of a price mechanism. [10
marks]
(b) Evaluate the view that carbon taxes represent the most effective
government response to the threat to sustainability posed by the use of
fossil fuels. [15 marks]
(May 2012, TZ2)

(a) Explain why merit goods are an example of market failure. [10
marks]
(b) Evaluate the policies a government might use to deal with the
market failure associated with merit goods. [15 marks]
(November 2012)
(a) Analyse the consumption externalities which might arise from the provision of
education and health care for the citizens of a country. [10 marks]
(b) Evaluate the use of government policies to increase the consumption of health care.
[15 marks]
(May 2013, TZ1)

(a) Using a diagram, explain why demerit goods are considered to be an

example of market failure. [10 marks]
(b) Evaluate two possible government responses that could be used to
address the problem of demerit goods. [15 marks]
(November 2013)

(b) Discuss the consequences of the introduction of an indirect tax on

gasoline (petrol) for consumers, producers and the government. [15
marks]
(November 2014)

(a) Explain why a government might decide to impose an indirect tax on the consumption
of cigarettes.
(b) Discuss the possible consequences of the imposition of an indirect tax on cigarettes
for the different stakeholders in the market.
(November 2015)

(a) Explain the concepts of consumer surplus and producer surplus in the market for air
travel.
(b) Discuss the view that a free market at competitive market equilibrium leads to the
most efficient allocation of resources from societys point of view.
(November 2015)

(a) Explain the view that an increase in price will lead to an increase in the quantity
supplied whilst an increase in supply will lead to a decrease in price.
(b) To what extent are subsidies the most effective way of encouraging the consumption
of merit goods?
(May 2015, TZ2)
 Section B
Answer one question from this section.

MACROECONOMICS

2.1 THE LEVEL OF OVERALL ECONOMIC ACTIVITY

Economic activity
The business cycle

(a) To what extent is GNP per capita an appropriate measurement to use to compare
living standards in different countries? [10 marks]
(b) Discuss other measures which might be used to compare living standards. [15 marks]
(Nov 2001)

(a) Explain why countries measure national income. [10 marks]

(May 2012, TZ1)

(a) Describe the phases of the business cycle. [10 marks]

(b) An increase in aggregate demand in an economy is always desirable. Discuss this
statement. [15 marks]
(Specimen Paper 2013)

Explain the effect of a rise in taxation and a fall in government expenditure on the circular
flow of income of an economy.
(May 2015, TZ1)

Explain the effect of a rise in saving and a fall in investment on the circular flow of income of
an economy.
(May 2015, TZ2)
2.2 AGGREGATE DEMAND AND AGGREGATE SUPPLY
Aggregate demand (AD)
Aggregate supply (AS)
Equilibrium

(a) What macroeconomic policies would a government adopt if it wished to reduce

aggregate demand in an economy? [10 marks]
(b) Should a government attempt to manage the level of aggregate demand to influence
unemployment and inflation rates? [15 marks]
(Nov 2002)

(a) The world economy may be subjected to economic shocks, such as a sudden increase
in oil prices and terrorist attacks. With the help of an aggregate demand / aggregate
supply diagram, explain the possible economic effects of such shocks. [10 marks]
(b) Evaluate the main economic policies that governments might use to minimise these
effects. [15 marks]
(May 2004)

(a) Identify the components of aggregate demand and briefly explain two factors which
might determine each of these components. [10 marks]
(b) Evaluate the likely impact on an economy of a substantial rise in the level of interest
rates. [15 marks]
(May 2006)

(a) Aggregate demand consists of consumption, investment, government spending and

net exports (exports minus imports). Explain two factors that may influence
consumption and two factors that may influence government spending. [10 marks]
(b) Evaluate the possible impact of an increase in consumption expenditure on the
performance of an economy. [15 marks]
(May 2010)

(a) Aggregate demand consists of consumption, investment, government spending and

net exports (exports minus imports). Explain two factors that may influence
investment and two factors that may influence net exports. [10 marks]
(b) Evaluate the effectiveness of an increase in investment expenditure on the
performance of an economy. [15 marks]
(May 2010)

(a) Using appropriate diagrams, explain how an increase in government spending

could affect both aggregate demand and aggregate supply in an economy. [10 marks]
(b) The lower the level of government spending, the better. Evaluate this view.
(May 2011)

(b) An increase in aggregate demand in an economy is always desirable. Discuss this

statement. [15 marks]
(Specimen Paper 2013)

(a) Explain how business spending on research and development and

government expenditure on infrastructure might shift the long-run
aggregate supply curve.
(May 2015, TZ1 & TZ2)
(a) Explain the effect of a rise in saving and a fall in investment on the circular flow of
income of an economy.
(b) Discuss the view that an economy will always return to the full employment
equilibrium level of output in the long run.
(May 2015, TZ2)
2.3 MACROECONOMIC OBJECTIVES

Questions related to macroeconomic objectives in general

(a) What are the macroeconomic aims of a government? [10 marks]
(b) Why is it difficult to achieve all of these aims at once? [15 marks]
(Nov 1997)

(a) Briefly explain the main economic policy objectives of governments. [10 marks]
(b) Discuss the way fiscal policy might be used to achieve these objectives [15 marks]
(Nov 2000)

(a) What macroeconomic policies would a government adopt if it wished to reduce

aggregate demand in an economy? [10 marks]
(b) Should a government attempt to manage the level of aggregate demand to influence
unemployment and inflation rates? [15 marks]
(Nov 2002)
Questions related to low rate of unemployment
(a) Explain the following different types of unemployment:
frictional unemployment
structural unemployment
cyclical/demand-deficient unemployment
real wage/classical unemployment. [10 marks]
(b) Evaluate the effectiveness of the different measures available to governments to deal
with the types of unemployment in (a). [15 marks] (Nov 2006)

(a) Explain the various costs of unemployment. [10 marks]

(b) Evaluate the alternative policies aimed at reducing unemployment. [15 marks]
(May 2000)

(a) What are the costs of a high level of unemployment in a developed economy?
[10 marks]
(b) Suggest and evaluate measures to deal with high unemployment. [15 marks]
(Nov 2001)

(a) There are various types of unemployment. Explain how any three types of
unemployment may cause a rise in the unemployment rate of an economy. [10 marks]
(b) Evaluate the view that the unemployment rate can be most effectively reduced
through the use of measures designed to increase aggregate demand in an economy.
[15 marks](May 2009)

(a) Explain the difference between cyclical/demand-deficient and

structural unemployment. [10 marks]
(b) Evaluate the view that high unemployment is the most serious
economic problem a country can face. [15 marks] (November 2012)

(a) Explain the difficulties involved in measuring the level of unemployment. [10 marks]
(b) Examine the reasons why the maintenance of a low level of unemployment is
considered to be an important macroeconomic objective. [15 marks]
(Specimen paper 2013)

(a) Distinguish between structural unemployment and cyclical (demand-deficient)

unemployment. [10 marks]
(b) Discuss policies that a government might use to reduce the levels of structural
unemployment and cyclical (demand-deficient) unemployment. [15 marks]
(Specimen Paper 2013)

(a) Explain the difficulties involved in measuring the level of

unemployment. [10 marks]
(b) Examine the reasons why the maintenance of a low level of
unemployment is considered to be an important macroeconomic
objective. [15 marks]
(May 2013, TZ2)

(a) Distinguish between the causes of cyclical (demand-deficient)

unemployment and structural unemployment. [10 marks]
(b) Evaluate government policies used to deal with cyclical
unemployment. [15 marks]
(November 2013)
Questions related to low and stable rate of inflation
(a) With the aid of diagrams, explain the causes of inflation. [10 marks]
(b) Evaluate the effectiveness of demand-side policies in reducing inflation. [15 marks]
(Nov 2008)

(a) What are the costs of a high rate of inflation? [10 marks]
(b) What policies are effective in reducing inflation? [15 marks]
(May 1999)

(a) What problems can a prolonged period of high inflation bring to an economy?
[10 marks]
(b) Evaluate the strategies that can be used to reduce the level of inflation. Include some
reference in your answer to countries with which you are familiar [15 marks]
(May 2002)

(a) What macroeconomic policies would a government adopt if it wished to reduce

aggregate demand in an economy? [10 marks]
(b) Should a government attempt to manage the level of aggregate demand to influence
unemployment and inflation rates? [15 marks]
(Nov 2002)

(a) What macroeconomic policies would a government adopt if it wished to reduce

aggregate demand in an economy? [10 marks]
(b) Should a government attempt to manage the level of aggregate demand to influence
unemployment and inflation rates? [15 marks]
(Nov 2002)

(a) Describe the main causes of inflation. [10 marks]

(b) If inflation is a major problem faced by governments it must follow that the opposite,
deflation, is desirable. To what extent do you agree with this statement? [15 marks]
(May 2005)

(a) Explain the costs of inflation and the costs of deflation. [10 marks]
(b) Evaluate demand-side policies as a means of reducing inflation. [15 marks]
(Nov 2005)

(a) Use AD/AS (aggregate demand/aggregate supply) diagrams to explain the causes of
inflation. [10 marks]
(b) Evaluate the view that governments should make the control of inflation their highest
priority. [15 marks]
(May 2007)

(a) Distinguish between cost push inflation and demand pull inflation. [10 marks]
(b) Evaluate the view that the consequences of inflation are more harmful to an economy
than the consequences of unemployment. [15 marks]
(Nov 2007)

(a) With the aid of diagrams, explain the causes of inflation. [10 marks]
(b) Evaluate the effectiveness of demand-side policies in reducing inflation. [15 marks]
(Nov 2008)
(a) Explain the difficulties involved in measuring the rate of inflation. [10 marks]
(b) Discuss the view that deflation is a more serious problem than inflation for the
economy of a country. [15 marks]
(May 2013, TZ1)

(a) Explain how a producer price index could be useful in predicting

future inflation.
[10 marks]
(b) To what extent can supply-side policies help in fighting inflation? [15
marks]
(November 2013)

(a) Explain the difference between cost-push and demand-pull inflation.

[10 marks]
(b) A rise in the inflation rate will always result in negative
consequences for the economy. To what extent is this statement true?
(November 2014)
Questions related to economic growth
(a) Describe three strategies which governments may use to increase their economic
growth rates. [10 marks]
(b) Should increasing the rate of economic growth be the major policy objective of
governments? [15 marks]
(May 2003)

(b) Evaluate the view that demand-side policies are the most effective
method of
increasing the level of national income. [15 marks]
(May 2012, TZ1)

(a) Explain how labour market reforms may be used to promote

economic growth.
[10 marks]
(b) Market-oriented supply-side policies will always be more effective
in promoting
economic growth than demand-side policies. To what extent do you
agree with this statement? [15 marks]
(May 2013, TZ2)

(a) Explain how a rise in consumer confidence and business confidence might affect
economic growth.
(b) Discuss the view that economic growth always raises living standards in a country.
(November 2015)
Question related to distribution of income
(a) Briefly outline the various methods of price control open to governments [10 marks]
(b) Evaluate the effectiveness of using price controls to reduce poverty. [15 marks]
(May 2004)

(a) Describe the various types of taxation used by governments. [10 marks]
(b) Evaluate the effectiveness of taxation as a means of redistributing income. [15 marks]
(Specimen paper)

(a) Using appropriate diagrams, explain how a reduction in income tax could
affect both aggregate demand and aggregate supply in an economy. [10 marks]
(b) The lower the level of both direct and indirect taxation, the better.
Evaluate this view. [15 marks]
(May 2011, TZ1)

(a) Using AD/AS diagrams, explain how inflation may be caused by

demand pull and cost push factors. [10 marks]
(b) Evaluate the view that the consequences of deflation are likely to be
more harmful to an economy than the consequences of inflation. [15
marks]
(May 2012, TZ2)

(a) Explain the difficulties involved in measuring the rate of inflation.

[10 marks]
(b) Discuss the view that deflation is a more serious problem than
inflation for the economy of a country. [15 marks]
(May 2013, TZ2)

(a) Using an appropriate diagram, explain how a recession might lead

to more poverty. [10 marks]
(b) Evaluate the view that attempts to achieve greater equity in the
distribution of income will reduce economic efficiency. [15 marks]
(November 2014)
2.4 FISCAL POLICY
The government budget
The role of fiscal policy

(a) Briefly explain the main economic policy objectives of governments. [10 marks]
(b) Discuss the way fiscal policy might be used to achieve these objectives [15 marks]
(Nov 2000)

(a) The world economy may be subjected to economic shocks, such as a sudden increase
in oil prices and terrorist attacks. With the help of an aggregate demand / aggregate
supply diagram, explain the possible economic effects of such shocks. [10 marks]
(b) Evaluate the main economic policies that governments might use to minimise these
effects. [15 marks]
(May 2004)

(a) Explain the following different types of unemployment:

frictional unemployment
structural unemployment
cyclical/demand-deficient unemployment
real wage/classical unemployment. [10 marks]
(b) Evaluate the effectiveness of the different measures available to governments to deal
with the types of unemployment in (a). [15 marks]
(Nov 2006)

(a) Explain how fiscal policy could be used to increase aggregate demand. [10 marks]
(b) In the long-run, a countrys economic performance can only be improved through
the implementation of supply-side policies. Evaluate this statement. [15 marks]
(May 2008)

(a) Using appropriate diagrams, explain how an increase in government spending

could affect both aggregate demand and aggregate supply in an economy. [10 marks]
(b) The lower the level of government spending, the better. Evaluate this view.
[15 marks]
(May 2011, TZ2)

(b) Evaluate the view that demand-side policies are the most effective
method of increasing the level of national income. [15 marks]
(May 2012, TZ1)

(a) Explain the effect of a rise in taxation and a fall in government expenditure on the
circular flow of income of an economy.
(b) Evaluate the effectiveness of fiscal policy to reduce the rate of inflation.
(May 2015, TZ1)
2.5 MONETARY POLICY
Interest rates
The role of monetary policy

(a) What macroeconomic policies would a government adopt if it wished to reduce

aggregate demand in an economy? [10 marks]
(b) Should a government attempt to manage the level of aggregate demand to influence
unemployment and inflation rates? [15 marks]
(Nov 2002)

(a) The world economy may be subjected to economic shocks, such as a sudden increase
in oil prices and terrorist attacks. With the help of an aggregate demand / aggregate
supply diagram, explain the possible economic effects of such shocks. [10 marks]
(b) Evaluate the main economic policies that governments might use to minimise these
effects. [15 marks]
(May 2004)

(a) With the aid of diagrams, explain the causes of inflation. [10 marks]
(b) Evaluate the effectiveness of demand-side policies in reducing inflation. [15 marks]
(Nov 2008)

(b) Evaluate the view that demand-side policies are the most effective
method of increasing the level of national income. [15 marks]
(May 2012, TZ1)

(a) Explain, using a diagram, how interest rates are determined in an economy.
(b) Discuss the effectiveness of using expansionary monetary policy to reduce
unemployment.
(November 2015)
2.6 SUPPLY-SIDE POLICIES
The role of supply-side policies
Interventionist supply-side policies
Market-based supply-side policies
Evaluation of supply-side policies

(a) With the help of examples, explain the purpose of the various supply-side policies.
[10 marks]
(b) Evaluate the success of these measures in countries where they have been
implemented. [15 marks]
(May 2001)

(a) What macroeconomic policies would a government adopt if it wished to reduce

aggregate demand in an economy? [10 marks]
(b) Should a government attempt to manage the level of aggregate demand to influence
unemployment and inflation rates? [15 marks]
(Nov 2002)

(a) Explain the following different types of unemployment:

frictional unemployment
structural unemployment
cyclical/demand-deficient unemployment
real wage/classical unemployment. [10 marks]
(b) Evaluate the effectiveness of the different measures available to governments to deal
with the types of unemployment in (a). [15 marks]
(Nov 2006)

(a) Explain how fiscal policy could be used to increase aggregate demand. [10 marks]
(b) In the long-run, a countrys economic performance can only be improved through
the implementation of supply-side policies. Evaluate this statement. [15 marks]
(May 2008)

(a) With the aid of diagrams, explain the causes of inflation. [10 marks]
(b) Evaluate the effectiveness of demand-side policies in reducing inflation. [15 marks]
(Nov 2008)

(a) Explain two possible demand-side factors that may cause an increase in the level of
unemployment. [10 marks]
(b) Evaluate the view that demand-side policies are more effective than supply-side
policies in reducing the level of unemployment. [15 marks]
(Nov 2009)

(a) Using appropriate diagrams, explain the difference between demand-side and supply-
side economic policies. [10 marks]
(b) Evaluate the use of supply-side policies to improve the performance of an economy.
[15 marks]
(Nov 2010)
(a) Using appropriate diagrams, explain how an increase in government spending
could affect both aggregate demand and aggregate supply in an economy. [10 marks]
(b) The lower the level of government spending, the better. Evaluate this view.
(May 2011, TZ2)

(a) Explain three factors that could cause an economy to go into recession. [10 marks]
(b) Evaluate the effectiveness of governments using demand-side policies to take an
economy out of a recession. [15 marks]
(Nov 2011)

(a) Explain how labour market reforms may be used to promote

economic growth.
[10 marks]
(b) Market-oriented supply-side policies will always be more effective
in promoting
economic growth than demand-side policies. To what extent do you
agree with this statement? [15 marks]
(May 2013, TZ2 & TZ1)

(a) Explain how business spending on research and development and

government expenditure on infrastructure might shift the long-run
aggregate supply curve.
(b) Evaluate the effectiveness of interventionist supply-side policies to
achieve economic growth.
(May 2015, TZ1 & TZ2)