Macroeconomics Exam (Even More Refined Study Guide Method) - Questions &
Answers – 100% Solved
An economy is a net-exporter of crude oil. Draw an AD/AS diagram to show the effect of an
increase in global crude oil price on the equilibrium level of real national output of this
economy (4) - ✔✔✔-Initial AD/AS with right curves and axises (1)
Equilibrium (1)
Increase in AD shift (1)
Increase in real national output, price level and equilibrium (1)
Assess the benefits Kenya has gained from its membership of the EAC since 2000 - ✔✔✔-The
EAC allows for free-trade between member states which can be exports for Kenya. Increasing
regional exports leads to faster economic growth with increasing AD, which means EAC is a
benefit for Kenya (1)
Since these countries are linked geographically, they can lead to a movement of labour and fill
shortages when needed - labour is a factor of production that's within LRAS. Therefore, EAC can
increase Kenya's LRAS this way which is a benefit (1)
They may be able to negotiate together and give their countries more power internationally -
for example, when asking to borrow to government spend. G increases AD, which is made
possible through this way indicating a benefit (1)
Since these countries are linked, investment within these countries from another can increase -
this can be with domestic investment or foreign. Investment increases AD which indicates a
benefit (1)
Firms can take advantage of increased economic scale, for example a firm setting up in Uganda,
may easily be able to expand to Rwanda and boost investment (AD) in these countries together
- for example multinational corporations trying to benefit from "Burundi... tax exemptions" (1)
,Macroeconomics Exam (Even More Refined Study Guide Method) - Questions &
Answers – 100% Solved
Joined countries can create trade deals that can withstand with each other during times of crisis
or recession. This is seen in figure 2 wherein exports within EAC are higher than the rest of
Africa. (1)
However, free-trade means the loss of import duties between the EAC. This can be a
disadvantage for the EAC meaning lost revenue. (1)
For example, these countries are developing countries and the benefits they can share with
each other through investment is minimal, minimal from their low GDPs like Burundi's at merely
$2bn(1)
But in 2010, their exports were $1.2bn amongst EAC members indicating some benefit, but not
so much. (1)
Assess the likely impact of falling real incomes on consumers. (10) - ✔✔✔-Lower real incomes
means lower consumption. Real incomes is defined by how much money people earn adjusted
for inflation. Consumption makes up AD (C+I+G+X-M). Falling C of AD results in falling economic
growth. This is seen on the AD/SRAS graph with AD 1 to AD 2 and falling growth Y1 to Y2. For
example, if consumers' income were £675bn in 2008 and £615bn in 2013, they would consume
less and save more. This indicates their MPC will fall. MPC (marginal propensity to consume) is
how much a consumer saves with a given amount of money. Lower MPC lowers economic
growth because of the multiplier. The multiplier is calculated by 1/1-MPC meaning the lower
the MPC the lower the multiplier. A smaller multiplier means smaller economic growth, as it
expands the injections into the economy. Therefore, lower consumption due to falling real
incomes drops economic growth.
Falling real incomes also means falling standards of living. The fall in AD also shifts prices down
from P1 to P2. Lower prices means lesser profits and revenues for firms. Lower revenues for
firms means having to cut down on employees. So due to lower firm-revenue because of falling
consumer spending money, unemployment will rise. Unemployment is defined by how many
people are actively seeking work and without a job. For example if a firm has £675mn in
, Macroeconomics Exam (Even More Refined Study Guide Method) - Questions &
Answers – 100% Solved
revenue and wages £20 - per workers they would have$655 left - but with falling consumption
leading to less revenue for firms, may have $615 in revenue, and £20 wages will give them
£595mn in revenue - much less. If they get rid of workers, they can maintain some revenue.
However, economic growth is not only linked to consumption, there are other factors in an
economy. Government spending and exports drive economic growth. Falling real incomes in the
UK has no affect on government spending an exports from abroad. In
Calculate the percentage change in the claimant count from August 2014 to February 2015 -
✔✔✔-858,344 - 961 = -102,805.
-102,805/961,149 *100
= -10.7%
Columbia and Zambia each produce copper and emeralds. The production possibility frontiers
below show the two countries' productive capacities for these goods.
With reference to the diagram above, which one of the following statements is correct? -
✔✔✔-C. Zambia has an absolute advantage in the production of copper
Define the term 'circular flow of income' (2) - ✔✔✔-Money flows around the economy
between consumers/ households to firms. (1)
Consumption and expenditure are flowing to firms from consumers, whilst firms pay money
back in wages. (1)
Injections like exports expand the circular flow whilst withdrawals like saving contact it. (1)
Answers – 100% Solved
An economy is a net-exporter of crude oil. Draw an AD/AS diagram to show the effect of an
increase in global crude oil price on the equilibrium level of real national output of this
economy (4) - ✔✔✔-Initial AD/AS with right curves and axises (1)
Equilibrium (1)
Increase in AD shift (1)
Increase in real national output, price level and equilibrium (1)
Assess the benefits Kenya has gained from its membership of the EAC since 2000 - ✔✔✔-The
EAC allows for free-trade between member states which can be exports for Kenya. Increasing
regional exports leads to faster economic growth with increasing AD, which means EAC is a
benefit for Kenya (1)
Since these countries are linked geographically, they can lead to a movement of labour and fill
shortages when needed - labour is a factor of production that's within LRAS. Therefore, EAC can
increase Kenya's LRAS this way which is a benefit (1)
They may be able to negotiate together and give their countries more power internationally -
for example, when asking to borrow to government spend. G increases AD, which is made
possible through this way indicating a benefit (1)
Since these countries are linked, investment within these countries from another can increase -
this can be with domestic investment or foreign. Investment increases AD which indicates a
benefit (1)
Firms can take advantage of increased economic scale, for example a firm setting up in Uganda,
may easily be able to expand to Rwanda and boost investment (AD) in these countries together
- for example multinational corporations trying to benefit from "Burundi... tax exemptions" (1)
,Macroeconomics Exam (Even More Refined Study Guide Method) - Questions &
Answers – 100% Solved
Joined countries can create trade deals that can withstand with each other during times of crisis
or recession. This is seen in figure 2 wherein exports within EAC are higher than the rest of
Africa. (1)
However, free-trade means the loss of import duties between the EAC. This can be a
disadvantage for the EAC meaning lost revenue. (1)
For example, these countries are developing countries and the benefits they can share with
each other through investment is minimal, minimal from their low GDPs like Burundi's at merely
$2bn(1)
But in 2010, their exports were $1.2bn amongst EAC members indicating some benefit, but not
so much. (1)
Assess the likely impact of falling real incomes on consumers. (10) - ✔✔✔-Lower real incomes
means lower consumption. Real incomes is defined by how much money people earn adjusted
for inflation. Consumption makes up AD (C+I+G+X-M). Falling C of AD results in falling economic
growth. This is seen on the AD/SRAS graph with AD 1 to AD 2 and falling growth Y1 to Y2. For
example, if consumers' income were £675bn in 2008 and £615bn in 2013, they would consume
less and save more. This indicates their MPC will fall. MPC (marginal propensity to consume) is
how much a consumer saves with a given amount of money. Lower MPC lowers economic
growth because of the multiplier. The multiplier is calculated by 1/1-MPC meaning the lower
the MPC the lower the multiplier. A smaller multiplier means smaller economic growth, as it
expands the injections into the economy. Therefore, lower consumption due to falling real
incomes drops economic growth.
Falling real incomes also means falling standards of living. The fall in AD also shifts prices down
from P1 to P2. Lower prices means lesser profits and revenues for firms. Lower revenues for
firms means having to cut down on employees. So due to lower firm-revenue because of falling
consumer spending money, unemployment will rise. Unemployment is defined by how many
people are actively seeking work and without a job. For example if a firm has £675mn in
, Macroeconomics Exam (Even More Refined Study Guide Method) - Questions &
Answers – 100% Solved
revenue and wages £20 - per workers they would have$655 left - but with falling consumption
leading to less revenue for firms, may have $615 in revenue, and £20 wages will give them
£595mn in revenue - much less. If they get rid of workers, they can maintain some revenue.
However, economic growth is not only linked to consumption, there are other factors in an
economy. Government spending and exports drive economic growth. Falling real incomes in the
UK has no affect on government spending an exports from abroad. In
Calculate the percentage change in the claimant count from August 2014 to February 2015 -
✔✔✔-858,344 - 961 = -102,805.
-102,805/961,149 *100
= -10.7%
Columbia and Zambia each produce copper and emeralds. The production possibility frontiers
below show the two countries' productive capacities for these goods.
With reference to the diagram above, which one of the following statements is correct? -
✔✔✔-C. Zambia has an absolute advantage in the production of copper
Define the term 'circular flow of income' (2) - ✔✔✔-Money flows around the economy
between consumers/ households to firms. (1)
Consumption and expenditure are flowing to firms from consumers, whilst firms pay money
back in wages. (1)
Injections like exports expand the circular flow whilst withdrawals like saving contact it. (1)
