CAIE IGCSE Economics 3.2 Households Topic Practice

Question 1

[Maximum number: 4]

Read the source material carefully before answering Question 1.

Source material: Population, household spending and poverty in Romania

Source material: Population, household spending and poverty in Romania

Between 1990 and 2022, Romania's population fell from 23 million to 19 million. The country's birth rate and death rate both fell over this period. Some workers from other countries, including Sri Lanka and Vietnam, came to live in Romania. However, more Romanian workers left the country to work and live mostly in other European countries.

If the Romanian economy continues to grow at its relatively high rate, fewer of its people may emigrate and more immigrants may be attracted. Recent economic growth has been driven largely by increases in household spending. Romanians have become wealthier, more confident about their future and have experienced low interest rates.

In April 2022, the Romanian Government placed a maximum price on electricity. Romanians spend a relatively high proportion of their income on electricity and on food. Table 1.1 shows selected countries' GDP per head and average spending on food as a percentage of total household spending.

Table 1.1 GDP per head and average spending on food as a percentage of total household spending in 2022

Table 1.1 GDP per head and average spending on food as a percentage of total household spending in 2022

The poor are particularly affected by changes in electricity prices and food prices. Romania has a relatively high level of poverty. To reduce poverty, some economists have suggested that the government should attract more foreign multinational companies (MNCs) to Romania. More MNCs may affect poverty because of the possible effects on unemployment and prices.

Another way to reduce poverty would be to encourage more women to work. The proportion of women in Romania who work or seek work has fallen in recent years. There is a range of influences on whether women enter the labour force. These include social attitudes, female education and whether childcare facilities and part-time work are available.

Explain two reasons why household spending has increased in Romania.

Question 2

[Maximum number: 4]

Jordan has a fixed foreign exchange rate with the US dollar. The monetary policy of Jordan, therefore, follows the monetary policy of the US very closely. Due to low confidence in the global economy in 2019, central banks around the world, including Jordan and the US, cut interest rates to stimulate growth. However, this may have conflicted with the macroeconomic aim of low inflation.

Explain the effects of low confidence on both spending and borrowing.

Question 3

[Maximum number: 6]

Nicaragua experienced a 4% decrease in GDP in 2019, although household spending rose. One Nicaraguan product that increased in supply was bananas, which are a merit good. The Nicaraguan government encouraged its banana farmers and its other producers to increase their output. Increases in output can affect a firm's average costs of production.

Analyse how the level and pattern of household spending may change when GDP decreases.

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