Paper 2 Practice: Introduction to Macroeconomics

Original topic practice

The contexts are fictional. This two-question set is not a complete Paper 2.

Question 1: Export confidence and economy-wide equilibrium

A small open economy experiences a rise in overseas orders and stronger business confidence while parts of manufacturing are close to capacity.

(a) Explain how changes in exports and investment may affect aggregate demand and equilibrium real national output and the general price level. [10]

(b) Discuss the factors that determine whether the economy can sustain a large rise in real national output. [15]

Question 2: The size of a fiscal injection

Two economies introduce equally sized increases in government purchases, but one has high household saving and import propensities while the other initially has little spare capacity.

(a) Explain how the multiplier process can cause national income to change by more than an initial autonomous expenditure change. [10]

(b) Discuss why the effects of the two fiscal injections on real national output may differ. [15]

Outlines: Paper 2 Introduction to Macroeconomics — Outlines.