Paper 2 Practice: Macroeconomic Objectives and Policies

Original topic practice

The contexts are fictional. This is not a complete Paper 2.

Question 1: Growth and living standards

An economy records rapid real GDP growth, but median real income is stagnant and air pollution is worsening.

(a) Explain why real GDP per capita may be more useful than nominal GDP for comparing material living standards over time. [10]

(b) Discuss whether continued economic growth is likely to improve the living standards of most residents. [15]

Question 2: Inflation and unemployment

A small open economy faces high inflation after imported input costs rise, together with increasing unemployment.

(a) Explain how fiscal and monetary policies may reduce demand-pull inflation. [10]

(b) Discuss the most appropriate policies when inflation is mainly cost-push and unemployment is increasing. [15]

Outlines: Macroeconomic Policy — Outlines.