CAIE A-Level Economics 5 Government Macroeconomic Intervention Question Bank

The Lagos economy is working

Nigeria discovered oil 50 years ago and is now the world's sixth biggest oil exporter. The recent increase in global oil prices has had a very large positive effect on the country's balance of trade and has also improved the country's terms of trade.

Lagos is the largest city in Nigeria, with a population of over 20 million, and has undergone a successful economic transformation in recent years. It has used the private sector to become the most productive and dynamic part of Nigeria's economy. The owner of one of Nigeria's largest companies has stressed the enormous economic progress that the country has made in recent years: "I'm a great believer in Nigeria because the opportunities here are enormous." His company's success shows what private enterprise can achieve in a mixed economy especially if it is provided with the right incentives by the government.

Most Nigerian entrepreneurs are operating in Lagos and entrepreneurship has certainly played a key role in the modern Lagos economy. Start-up initiatives have been encouraged and the need to be innovative has been increasingly recognised, leading to the development of new goods, services and markets. The city is the centre of thriving music, fashion, film and technology industries that have significant influence throughout Africa.

A 'free trade zone' on the edge of Lagos has been established where private sector firms pay no business taxes to the government and there are now numerous start-up enterprises that are thriving. The government aims to lower costs, reduce bureaucracy and make the economy more flexible and efficient with the hope of boosting trade. The zone is located next to a deep sea port and has good road connections with both the rest of Nigeria and other countries in the region.

Lagos is an important transport hub, with three major ports and West Africa's most important international airport. In 2016 the output of Lagos was valued at US$136 billion while Nigeria's total national output was valued at US$405 billion.

A former governor of the Nigerian central bank, has stated: "Since 2000, Lagos has been transformed. In terms of an improved infrastructure and a supportive economic environment, the government has given firms a greater opportunity to thrive."

Source: Adapted from The Financial Times, 26 March 2018

Explain why 'free trade zones' (FTZ) can be considered a supply-side policy.

A central bank is asked by the government to help achieve price stability.

If inflation rises steeply, which policy will not be directly within the control of the central bank?

What is not a likely reason for a government having the objective of economic growth?

The table shows government spending and revenue over a three-year period.

What can be concluded from the data?

What is an example of a supply-side policy?

What is the most likely consequence when there is an increase in the national debt?

A worker earns $ 10000 and pays $ 1000 in income tax.
Another worker earns $ 30000 and pays $ 4500 in income tax.
A third worker earns $ 150000 and pays $ 50000 in income tax.
Which type of tax is this?

An increase in interest rates is an example of which type of policy?

Which combination identifies a main aim of supply-side policy and a measure used to achieve this target?

Which policy's principal aim is to ensure sound public finances?