National Income (Edexcel A Level Economics A)

Exam Questions

1 hour14 questions
1
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1 mark

The planned investment in the redevelopment of Dover Port will cost £115 million. The Chief Executive said it will lead to many ‘new job opportunities for local people and a transformed waterfront experience’ with new cafés, bars, and shops.

(Source adapted from: https://www.kentonline.co.uk/dover/news/docklands‑redevelopment‑work‑to‑start‑118581/)

If the value of the multiplier is 1.8, which one of the following will be the total increase in GDP from the redevelopment, assuming other things are equal?

  • £64 million

  • £115 million

  • £207 million

  • £230 million

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2
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2 marks

The table below shows marginal propensity to save data for an economy. 

Year

Marginal propensity to save (mps)

2010

0.11

2011

0.09

2012

0.07

2013

0.05

2014

0.05

2015

0.04

Explain one possible reason for the changes in the marginal propensity to save as shown in the table.

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3
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2 marks

The table below shows marginal propensity to save data for an economy. 

Year

Marginal propensity to save (mps)

2010

0.11

2011

0.09

2012

0.07

2013

0.05

2014

0.05

2015

0.04

Explain the likely effect of a fall in the marginal propensity to save on the value of the multiplier if other things remain equal.

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4
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1 mark

The table below shows marginal propensity to save data for an economy. 

Year

Marginal propensity to save (mps)

2010

0.11

2011

0.09

2012

0.07

2013

0.05

2014

0.05

2015

0.04

An economy has marginal propensity to save of 0.1, marginal propensity to tax of 0.2 and marginal propensity to import of 0.1.

Which one of the following is the correct size of the multiplier?

  • 0.4

  • 0.6

  • 1.7

  • 2.5

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5
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1 mark

Which of the following groups refer only to forms of income rather than wealth?

  • Weekly wages, total amount of money in bank account and birthday money from relatives

  • Annual salary, rental income from a second home and value of main residence 

  • Annual salary, dividends received on shares owned and interest earned from savings in bank account

  • Weekly wages, money spent on lottery tickets and prize money from a lottery win

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6
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1 mark

An economy is in macroeconomic equilibrium. Investment is £500m per year, total savings are £300m per year and the government is running a budget deficit of £100m per year. What is the value of net exports?

  • A deficit of £300m

  • A deficit of £100m

  • A surplus of £100m

  • A surplus of £300m

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7
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1 mark

The Marginal Propensity to Consume is 0.6. There is an injection to the economy of £200m. To the nearest £ million, what will be the total increase in real GDP after the multiplier has been taken into account?

  • £300m

  • £320m

  • £333m

  • £500m

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1
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4 marks

The planned investment in the redevelopment of Dover Port will cost £115 million. The Chief Executive said it will lead to many ‘new job opportunities for local people and a transformed waterfront experience’ with new cafés, bars, and shops.

(Source adapted from: https://www.kentonline.co.uk/dover/news/docklands‑redevelopment‑work‑to‑start‑118581/)

Using the example above, explain how the multiplier process leads to an increase in aggregate demand.

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2
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4 marks

The Hong Kong‑Zhuhai‑Macau Bridge is the world’s longest sea bridge. It reduces the journey time from Hong Kong to Zhuhai from 4 hours to just 30 minutes. It cost the equivalent of $18.8 billion and was government funded.

(Source adapted from: www.theguardian.com) 

Draw an aggregate demand and aggregate supply diagram to show the likely impact of this new bridge on the price level and real output in the region.

9ec0-02-q5a-nov-2020

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3
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4 marks

The International Monetary Fund has called on the G20 group of large industrialised countries to boost government spending on infrastructure.

(Source: https://www.theguardian.com/business/2016/jul/23/ imf-calls-for-more-government-spending-as-rate-cuts-lose-their-impact)

Draw an aggregate demand and aggregate supply diagram to show the likely impact of an increase in government spending on infrastructure on a country’s price level and real output.

9ec0-02-q2a-june-2019

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4
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4 marks

Draw an aggregate demand and aggregate supply diagram illustrating the likely impact of a rise in interest rates on the price level and real output.

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5
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4 marks

The chart below shows the UK unemployment rate, seasonally adjusted, from 2008 to 2015

9ec0-02-june-2017-q1

Explain the likely effects on the circular flow of income of the change in unemployment between 2013 and 2015.

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1
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25 marks

Global oil prices fell from a 2008 peak of $147 a barrel to $27 in 2016.

Evaluate the likely macroeconomic consequences of a significant fall in global oil prices (25)

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2
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25 marks

With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic impact on Chile’s economy of changes in the level of investment (25) 

Figure 2: US dollar per 100 Chile pesos exchange rate, 2007–2015

9ec0-03-june-2017-q1-fig-2

Extract A

Chile’s economic outlook brightens

Chile has been hit hard by a worldwide fall in commodity prices since 2011. Copper accounts for 20% of Chile’s GDP and 60% of its exports; one third of the world’s copper is produced by Chile. China purchased 40% of the world’s copper, so a slowdown in China combined with increased global over-supply has meant copper prices have collapsed (see Figure 1). Chilean government income from copper exports had reached $11.5 billion a year before copper prices fell, but now tax revenues from this source have fallen drastically. Growing numbers of copper mines struggle to break even at current prices.

Chile’s GDP is now growing, helped by a weak currency that has boosted export industries outside the mining sector, such as its successful wine and salmon industries. There are strengths in tourism and high-tech products. Public services are good in Chile, and poverty rates have been falling fast. On top of this, a large and diversified financial sector with high domestic savings provides a useful safety net, given high levels of corporate debt and the government’s need to finance a fiscal deficit of 3% of GDP. 

Chile’s economy is often regarded as the best run in the region. This is attributed to the credibility of its financial institutions, relatively low levels of national debt (about 15% of GDP) and its free-trade model, which is unrestricted by government interventionism that has distorted the economies of countries such as Argentina and Venezuela. “Chile is an example of how credible institutions can smooth the economic cycle and make adjustments less traumatic,” said Mr Valdés, the minister of finance in Chile, pointing to its widely respected and independent central bank and a well-established fiscal rule that give officials the freedom to implement counter-cyclical policies.

However, there are worries that without enough spare capacity in the economy, expansionary fiscal and monetary policies could end up increasing inflation rather than economic growth. Meanwhile monetary policy is restricted by inflation that has reached 5%, well outside the central bank’s 2–4% target range, fuelled by a weaker exchange rate. Crucially, investment remains low because of uncertainty over the outcome of the Prime Minister’s reforms, which are aimed at reducing inequality. A recent rise in corporation tax from 20% to 25% and labour market reforms that strengthen the power of trade unions may have a negative effect on business confidence.

Despite a “mildly contractionary” budget, Valdés insisted that the government would continue with costly reforms. Increased taxes on those on higher incomes are considered by the government to be necessary to sustain economic development in Chile. “We do want to change society, while recognising all the good things that have been done in the past 25 years,” said Mr Valdés, referring to an average growth rate of 5.3% over the past three decades, but under 2% in 2015. There is broad consensus that investment in education is the key to unlocking Chile’s growth potential.

(Sources: adapted from http://www.ft.com/cms/s/0/89926ce8-df96-11e4-a6c400144feab7de html#axzz3pCnzT3PC FT 20 April 2015 and http://www.ft.com/cms/s/0/d60ac2b2-7453- 11e5-a129-3fcc4f641d98.html?siteedition=uk#axzz3pCnzT3PC FT 19 October 2015 and http://www.ft.com/cms/s/0/d60ac2b2-7453-11e5-a129-3fcc4f641d98.html?siteedition=

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