IB Economics HL Unit 3 Macroeconomics Topic Practice

6520+1020+3300+(2295-2450)

Any valid working is sufficient for [1].
$10685000000

An answer of $\$ 10685$ million or $\$ 10.69$ billion (or $\$ 10.685$ billion) without workings is sufficient for [1].

$\frac{10685000000}{420000}$

Any valid working is sufficient for [1].
= $25 440.48 or $25 440

An answer of 25440 without workings is sufficient for [1].

Marking guidance:

OFR applies
N.B. A response which gives the answer to the nearest $\$$ should be accepted as this is standard practice for publication of national income statistics.

Level

0 The work does not reach a standard described by the descriptors below.

1 There is limited understanding.

For a response which is accurate but is limited to one of the two approaches. OR which refers to both approaches in a vague fashion (eg "in the expenditure approach, total spending is calculated").

2 There is clear understanding.

For a clear understanding that in the expenditure approach, total spending on domestic output is summed, whereas in the income approach, incomes earned in the production of domestic output are summed.

A response which states accurately the components of each approach should be fully rewarded ie
expenditure approach =C+I+G+(X-M)
income approach = wages + profits + interest + rent.
However, it is not necessary to state these components in order to earn full marks.

Level

0 The work does not reach a standard described by the descriptors below.

1 There is limited understanding.

For a response which conveys the idea that the term relates to effects on the environment.

2 There is clear understanding.

For a response which explains that green GDP is GDP adjusted for the effects of production on the environment.

Multiplier $=\frac{1}{0.04+0.15+0.06}$

Any valid working is sufficient for [1].
=4

An answer of 4 without workings is sufficient for [1].
If a candidate states $=\frac{1}{0.25}$
=4
this should be fully rewarded.

Any valid working is sufficient for [1].

An answer of 237.5 million (or 237500000 ) without workings is sufficient for [1].

Marking guidance:

OFR applies

Sketch an AD/AS diagram to show the impact of the multiplier.

For an AD/AS diagram (with correct labelling).

For an AD/AS diagram showing a shift in AD.

For an AD/AS diagram showing a shift in AD and a second, larger shift in AD in the same direction.

Candidates who incorrectly label the diagram, or who do not include an AS curve, can be rewarded with a maximum of [2]. Any version of the aggregate supply curve is acceptable.

For the vertical axis, the labelling could be price level, average price level, PL, APL, CPI or GPL. For the horizontal axis, the labelling could be real GDP, real output, real income, RGDP or Y. A title is not necessary.

[4]
Level Marks
0 The work does not reach a standard described by the descriptors below. ..... 0
1 The written response is limited. ..... 1-2
For a response which explains that spending by one person represents income to another OR that an increase in government spending leads to a series of increases in income.
2 The written response is clear. ..... 3-4
For a response which explains that spending by one person represents income to another. Thus an increase in government spending leads to a series of additional increases in income. Therefore the eventual increase in GDP will be greater than the initial increase in government spending.
A response which makes effective use of an algebraic explanation to

demonstrate the successive increments in national income may be fully

rewarded.

(i) Calculate the rate of unemployment in Country Z. ..... [2]
Ue rate $=\frac{66000}{260000} \times 100$ ..... [1]
Any valid working is sufficient for [1].

Unemployment rate = 66000 / 260000 x 100 = 25.38%.

Any valid working is sufficient for [1].

0 The work does not reach a standard described by the descriptors below.

1 The written response is limited.

For one difficulty clearly explained or for two difficulties explained in a vague manner.

2 The written response is clear.

For two difficulties explained clearly. Difficulties may include:
- "hidden" unemployment - underestimation as a result of individuals dropping out of the labour market, this could be because they are discouraged from looking for work
- underemployment - underestimation as a result of part time workers who would have preferred to be working full time
- overestimation as a result of the inclusion in the official unemployment statistic of those working in the parallel economy
- the measure is an average, and therefore ignores disparities between groups in the economy.

Any other valid response.

Level

0 The work does not reach a standard described by the descriptors below.

1 There is limited understanding.

Any one of the responsibilities listed below: 2 There is clear understanding.

Any two of the following responsibilities:
- regulator of commercial banks
- banker to the government
- control of interest rates
- control of money supply
- maintenance of price stability
- control of exchange rate policy
- implementation of monetary policy
- lender of last resort
- pursuit of full employment
- collection of economic data (for making forecasts).

Level

0 The work does not reach a standard described by the descriptors below.

1 Vague definition.

The idea that it is a component of AD, or that it is consumer spending. 2 Accurate definition.

An explanation that it is spending by households (consumers) on goods and services.

$((22668-21989) / 21989) \times 100=3.09 \%$
An answer of 3 . 0 9 % or 3 . 0 9 without working is sufficient for [1].
Note: Correct rounding to more than 2dp is accepted (e.g. 3.088).

8.5-3.1=5.4 %
An answer of 5.4% or 5.4 without working is sufficient for [1].

Explain how commercial banks create money.

Level

Marks

0

The work does not meet a standard described by the descriptors
below.

1

The written response is limited.

1-2

One of the bullet points below [1]

Two of the bullet points below [2]

2

The written response is accurate.

3-4

Three of the bullet points below [3]

Four of the bullet points below [4]

OR with a correct quantitative example
- An increase in (commercial) bank reserves (through a cash deposit or through open market purchases)
- Permits the bank to lend out (to customers) a portion of these additional reserves
- The quantity of possible loans depends on the minimum reserve requirement (MRR)/(required reserve ratio (RRR))
- These loans create (new) money OR the process is repeated.

Level

Marks

0

The work does not meet a standard described by the descriptors
below.

1

The written response is limited.

Quantitative easing is a form of expansionary monetary policy
OR the central bank purchases financial assets from commercial
banks

2

The written response is accurate.

Quantitative easing is a form of expansionary monetary policy AND the central bank purchases financial assets from
commercial banks

Quantity of money

For a money market diagram, the vertical axis may be labelled interest rate, real interest rate, nominal interest rate, discount rate, cost of borrowing. The horizontal axis can be quantity of money or quantity. All abbreviations are acceptable. The curves should be labelled MD and MS, DM and SM or D and S.

Level

Marks

0

The work does not meet a standard described by the descriptors
below.

1

There is a correct diagram BUT incorrect labelling or omissions.

For sketching a correct diagram showing an increase in the money supply and a fall in the rate of interest (Note: the changes must be
indicated clearly via arrows or numbers, such as IR1 to IR2 and MS1 and MS2)

2

There is a correct diagram AND correct labelling.

For sketching a correct diagram showing an increase in the money supply and a fall in the rate of interest (Note: the changes must be indicated clearly via arrows or numbers, such as IR1 to IR2 and MS1 and MS2)

AND the money supply curves must be vertical.

In 2015, the typical basket costs

In 2016, the typical basket costs

Any valid working is sufficient for [1].
The CPI in $2016=\frac{336.70}{322.70} \times 100$
=104.34

An answer of 104.34 without workings is sufficient for [1].

Marking guidance:

OFR applies, assuming that the correct method of calculating the cost of the baskets is applied.

Level

0 The work does not reach a standard described by the descriptors below.

1 Vague answer.

One reason is stated.

2 Accurate answer.

Two reasons are stated.
Reasons may include:
- different income earners may experience consumption patterns
- consumption patterns change frequently
- there may be wide regional differences in prices
- any other valid response.

NB Candidates may use terms such as "substitution bias", "outlet bias" and "quality bias" but such terms are not necessary to earn full marks.

Level

0 The work does not reach a standard described by the descriptors below.

1 The written response is limited.

For an AD/AS diagram showing a decrease in aggregate demand and a fall in real output and APL or an explanation such as those offered below.

2 The written response is accurate.

For an AD/AS diagram showing a decrease in aggregate demand and a fall in real output and APL and an explanation such as those offered below.

Reasons may include:
- deflation discourages spending by consumers who postpone purchases in the expectation of lower prices. As a result, aggregate demand decreases, reducing the level of output and employment
- deflation discourages borrowing as the real value of debt increases. This may reduce the level of investment and consumer spending, and thus aggregate demand, reducing the level of output and employment as a result
- as the real value of debt increases, bankruptcies may result, with the closure of firms creating greater unemployment
- any other reasonable explanation should be rewarded.

If a candidate draws an accurate diagram but explains only that AD decreases, APL decreases (hence deflation) and GDP decreases (hence greater unemployment) then a maximum of [3] may be awarded.
Candidates who incorrectly label diagrams can be rewarded with a maximum of [3].

For AD/AS, the vertical axis may be price level, average price level, or inflation.
The horizontal axis may be output, real output, national output, real national output, national income (Y), or GDP. Any appropriate abbreviations, such as APL, CPI, RNO or RNY are allowable. A title is not necessary.
NB do not penalise candidates who label the vertical axis APL followed by a currency (eg APL($))

Level ..... Marks

0 The work does not reach a standard described by the descriptors

below.

0
1 Vague distinction. ..... 1
The idea that there is a difference between "fairness" and "sameness" or an accurate outline of the meaning of either equity or equality.
2 Accurate distinction. ..... 2
Equity refers to an income distribution which is fair, while equality refers to the extent to which income is distributed equally.

Level Marks
0 The work does not reach a standard described by the descriptors below. ..... 0
1 The written response is limited. ..... 1-2
For an explanation that an indirect tax is regressive, as the tax represents a higher proportion of income for lower income households and therefore may be considered inequitable/unfair or an appropriate example is provided and explained.
2 The written response is accurate. ..... 3-4
For an explanation that an indirect tax is regressive, as the tax represents a higher proportion of income for lower income households and therefore may be considered inequitable/unfair and an appropriate example is provided and explained.
An appropriate example might be numerical or might relate to a type of tax (eg a named indirect tax such as VAT) or to a named product (eg cigarettes).
NB It is not essential that the term "regressive" is used, providing that the meaning is demonstrated clearly.