Text A, Paragraph 1
In 2022, the government of Canada launched an initiative to stimulate the economy by increasing public spending and introducing tax incentives for businesses. This was aimed at boosting what economists refer to as aggregate demand.
Define the term aggregate demand as indicated in bold (Text A, paragraph 1).
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Text C, Paragraph 1
In response to ongoing investment in new technology and education, economists are forecasting a shift in the country’s long-run aggregate supply over the next decade. This shift is expected to have significant implications for future economic growth.
Define the term long-run aggregate supply as indicated in bold (Text C, paragraph 1).
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Text A, Paragraph 2
Australia has been experiencing rapid price increases, sparking concern about an inflationary gap. As businesses struggle to meet rising demand, there has been a noticeable impact on price levels throughout the economy.
Define the term inflationary gap as indicated in bold (Text A, paragraph 2).
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Text B, Paragraph 1
The government of Sweden introduced policies in 2024 aimed at achieving full employment. These measures were designed to maximise the use of labour resources, ensuring that the economy operates at its potential.
Define the term full employment as indicated in bold (Text B, paragraph 1).
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Text E, Paragraph 1
Higher interest rates in the Eurozone have led to many problems for businesses. As borrowing becomes more expensive, many firms have to adjust their strategies, raising concerns about long-term economic growth.
Outline one impact of higher interest rates on investment as indicated in bold (Text E, paragraph 1).
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Text A, Paragraph 3
China has experienced shifts in both short-run aggregate supply and long-run aggregate supply in response to various changes in technology and resource availability. Analysts are now focusing on how these shifts will affect the nation’s growth prospects.
Outline the difference between short-run aggregate supply and long-run aggregate supply as found in bold (Text A, paragraph 3).
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Text D, Paragraph 3
The government of India is counting on the multiplier effect to boost overall economic activity. By investing in large-scale infrastructure projects, it hopes to create jobs and stimulate further investment across multiple sectors.
Define the term multiplier effect as indicated in bold (Text D, paragraph 3).
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Extract A, Paragraph 2
India's economy faced multiple challenges in 2023 as consumer confidence dropped sharply following a series of interest rate increases. The Reserve Bank of India raised rates from 4.5% to 6.5% to combat inflation. Housing sales declined by 15%, while retail spending fell by 8%. Several major retailers reported rising inventory levels and reduced their investment plans. Despite these domestic challenges, export orders remained stable due to strong demand from trading partners.
Using an AD/AS diagram, explain how increases in interest rates might affect aggregate demand.
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Extract C, Paragraph 3
South Korea's won depreciated by 15% against major trading currencies in 2023, significantly affecting trade patterns. Export-orientated manufacturers reported increased international orders, while domestic consumers faced higher prices for imported goods. Major retailers noted a shift in consumption patterns as households considered locally produced alternatives. The Bank of Korea estimated that changes in trade flows were substantially impacting aggregate demand.
Using an AD/AS diagram, explain how a currency depreciation might affect aggregate demand in South Korea.
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Extract C, Paragraph 1
Vietnam's manufacturing sector faced significant challenges in 2023 as new environmental regulations required firms to install pollution control equipment. The government mandated these changes to comply with international environmental standards, affecting particularly the textile and food processing industries. While the long-term benefits were acknowledged, industry representatives expressed concerns about the immediate impact on production costs and output levels.
Using an AD/AS diagram, explain how increased production regulations might affect the macroeconomic equilibrium in Vietnam.
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Extract C, Paragraph 1
Brazil's economic performance divided analysts in 2023 as GDP remained 15% below pre-pandemic levels. The central bank implemented aggressive monetary stimulus, while the government increased spending significantly. However, business investment remained low despite these interventions, and unemployment persisted at 11%. Classical economists and Keynesian analysts view the need for government intervention differently.
Explain why Classical and Keynesian economists might disagree about appropriate policies during a recession.
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Extract B, Paragraph 1
Taiwan's economy showed signs of overheating in 2023 as GDP growth reached 7.5%, significantly above the estimated trend rate of 3%. Manufacturing capacity utilisation hit record levels of 98%, while businesses reported severe labour shortages across all sectors. The central bank noted that wage rates were rising rapidly as firms competed for scarce workers, leading to concerns about cost-push inflation. Several economists predicted that current production levels were unsustainable given the economy's long-run capacity constraints.
Using a Classical AD/LRAS diagram, explain how an economy like Taiwan operating above full employment might adjust in the long run.
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Extract B, Paragraph 3
Indonesia implemented significant institutional reforms in 2023, streamlining business registration processes and strengthening property rights protection. The average time to start a business decreased from 90 to 15 days, while legal proceedings for contract enforcement were expedited. The World Bank noted that these changes had substantially improved the business environment. Foreign direct investment increased by 45% as international firms responded to the improved institutional framework.
Using an AD/AS diagram, explain how institutional reforms might affect Indonesia's productive capacity.
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Extract D, Paragraph 2
New Zealand experienced simultaneous shocks in 2023 as a severe drought reduced agricultural output while international tourism surged following the lifting of pandemic restrictions. Agricultural production costs increased by 30% as farmers faced higher feed prices and reduced yields. Meanwhile, tourism revenues reached record levels, creating significant demand pressure in the hospitality sector. The Reserve Bank noted that these opposing forces were creating complex adjustment challenges for the economy.
Using an AD/AS diagram, explain how an economy like New Zealand might adjust to simultaneous demand and supply shocks.
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Extract B, Paragraph 3
Ireland's economy faced challenges in 2023 as consumer confidence collapsed following a banking crisis. Retail sales fell by 20%, while business investment declined sharply. Manufacturing output dropped to 75% of capacity, and unemployment rose to 10%. The Central Bank of Ireland implemented monetary stimulus measures, but traditional policy tools showed limited effectiveness. Keynesian economists argued that market forces alone would not restore full employment.
Using an AD/AS diagram, explain how the challenges mentioned led to a deflationary output gap in Ireland.
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