CAIE IGCSE Economics: Government & Macroeconomy

[Maximum number: 7]

Read the source material carefully before answering Question 1.

Source material: The advantages of visiting, producing and living in Bermuda

Bermuda is a well-known holiday destination. It offers luxury holidays which are expensive.
Bermuda bans foreign fast-food outlets. It does have one foreign outlet selling fried chicken in the island's capital, Hamilton. This was opened before the ban was introduced in 1997. Some foreign multinational companies (MNCs), which produce other goods and services, operate in Bermuda. Bermuda is considered a tax haven. It does not have any corporation tax, but it does charge high import tariffs particularly on demerit goods which are harmful to health.

Bermuda has a higher literacy rate and a lower population growth rate than most other countries. Its GDP per head is high. Fig. 1.1 shows the relationship between GDP per head ($) and life expectancy (years) in selected countries in 2018.

$Fig. 1.1 The relationship between GDP per head (\$) and life expectancy (years) in selected countries 2018$

Fig. 1.1 The relationship between GDP per head (\$) and life expectancy (years) in selected countries 2018

Bermuda also has a relatively larger tertiary sector than most other countries. Insurance and other financial services contributed $85 \%$ of its GDP in 2018. The Bermudian Monetary Authority (BMA) carries out most of the functions of a central bank. For example, it acts as banker to the government, holds the country's reserves of foreign currency and implements the government's monetary policy. The BMA has been relatively successful in keeping inflation low. However, government policy measures designed to reduce unemployment may affect the inflation rate. This is because policy measures can influence total demand, productivity and firms' costs of production.

Bermudian government policy may change, not only to cut unemployment, but also to reduce market failure. For example, higher indirect taxes on demerit goods may be used but it can be difficult to change people's spending patterns.

(a)

Calculate the number of Bermudian workers who were unemployed in 2018.

[ 1 ]

(b)

Discuss whether or not Bermudian government policy measures designed to reduce unemployment would increase the inflation rate.

[ 6 ]

[Maximum number: 2]

The food processing, tourism, and education industries all contribute significantly to the government budget for the US state of Wisconsin. The contribution of the education industry is higher than that of other industries due to the higher wages earned in education. This industry also contributes to the population growth of the state. This not only creates private benefits but also external benefits.

Define government budget.

[Maximum number: 10]

More government spending creates opportunity costs. This was one of the problems that the president of France faced in 2017. Since he came to power, he has focused on using supply-side policy measures, rather than monetary policy. Trade union membership has reduced in France in recent years.

(a)

Define monetary policy.

[ 2 ]

(b)

Discuss whether or not supply-side policy measures always promote economic growth.

[ 8 ]

[Maximum number: 1]

Which statement about supply-side policy is correct?

A

It aims to increase the productive potential of the economy.

B

It aims to increase total demand in the economy.

C

It involves changes in the equilibrium foreign exchange rate.

D

It involves changes in the rate of interest.

CAIE IGCSE Economics 4. Government & the macroeconomy Question Bank

Covered syllabus points

Covered syllabus points

4. Government and the macroeconomy question 1

Question (a)

Question (b)

4. Government and the macroeconomy question 2

4. Government and the macroeconomy question 3

Question (a)

Question (b)

4. Government and the macroeconomy question 4