How do Economists Approach the World? (DP IB Economics: HL)

Exam Questions

26 mins10 questions
12 marks

Case Study

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The government of New Zealand has introduced a carbon tax to reduce emissions. Positive economic proponents argue that this policy aligns with scientific research showing the urgent need to cut carbon output. Meanwhile, some economists disagree.

Define the term positive economics indicated in bold (Text A, Paragraph 2).

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22 marks

Case Study

Text D, Paragraph 1

Facing rapid inflation, the central bank of Japan has raised interest rates, expecting this to reduce consumer spending and slow down inflation. Critics argue that the outcome of this policy may depend on factors such as global energy prices and household savings rates, which were not considered. Economists typically use the assumption of ceteris paribus when analysing such measures.

Define the term ceteris paribus indicated in bold (Text D, Paragraph 1).

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32 marks

Case Study

Text F, Paragraph 2

In Switzerland, a debate over minimum wage increases has been framed by both factual and opinion-based arguments. On one side, economists use positive economics to highlight how wage hikes have affected employment rates in similar countries. On the other hand, some critics make normative economics arguments about fairness and workers' rights.

Define the term normative economics indicated in bold (Text F, Paragraph 2).

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42 marks

Case Study

Text A, Paragraph 1

In the late 18th century, Adam Smith argued that markets function best when left to operate freely, without heavy government intervention. His concept of the invisible hand laid the foundation for modern economic liberalism.

Define Adam Smith’s invisible hand indicated in bold (Text A, Paragraph 1).

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52 marks

Case Study

Text B, Paragraph 3

In the 19th century, debates about the structure of society and the economy intensified, with some thinkers like Karl Marx offering radical critiques of how resources were distributed in capitalist systems. His views on the relationship between workers and owners were widely discussed.

State two of Karl Marx's critiques of capitalism indicated in bold (Text B, Paragraph 3)

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62 marks

Case Study

Text D, Paragraph 1

A 19th-century economist formulated a principle that focuses on the relationship between production and consumption. The idea, often referred to as Say’s Law, is central to many classical economic theories and has been debated by later economists.

Define the term Say’s Law indicated in bold (Text D, Paragraph 1).

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72 marks

Case Study

Text J, Paragraph 4

A growing number of companies are adopting business models that minimise waste and promote sustainability. Advocates of the circular economy believe that this approach can address many of the challenges posed by resource depletion, in contrast to the more traditional linear economy model.

Define a circular economy indicated in bold (Text J, Paragraph 4).

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14 marks

Case Study

Text A, Paragraph 3
In recent years, Cuba has shifted its economic policies towards reducing government intervention and promoting market-led development. This approach is inspired by the Neo-Classical Counter-Revolution, which argues that free markets and minimal regulation generate better economic outcomes than state-led planning. However, critics worry that such policies could exacerbate inequality and fail to address issues like poverty.

Explain the key ideas contained within the Neo-Classical Counter-Revolution in Cuba.

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24 marks

Case Study

Text A, Paragraph 3
During a period of economic downturn, the government of Portugal is considering stimulus measures to boost demand. Policymakers are debating between increasing public spending or reducing taxes to encourage consumer spending. Supporters of Keynesian economics argue that government intervention is essential to revive economic activity, while critics, inspired by classical economic thought, believe the market will self-correct over time without intervention.

Explain how Keynesian economic thought would support government intervention during an economic downturn in Portugal.

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34 marks

Case Study

Text B, Paragraph 2
A recent policy proposal in Ireland suggested that corporate taxes should be increased to support public healthcare funding. Business leaders argue against it, saying it would discourage investment. Meanwhile, advocates believe higher taxes on corporations would ensure fairer income distribution and improve social welfare. This debate reflects differing opinions on what the best course of action should be to achieve economic equity and public wellbeing.

Explain how normative economic statements are used in debates about tax policy in Ireland.

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