The macroeconomy Banker

1. (a) A consumer price index (2024 = 100) was 112.0 in 2025 and 120.4 in 2026. What was the rate of inflation in 2026?A 7.0%B 7.5%C 8.4%D 20.4% [1]

Invented data for a consumer price index:Food: weight 40, price change +10%Housing and utilities: weight 30, price change +5%Transport: weight 20, price change +15%Other items: weight 10, price change −2%

1. (a) Calculate the value of the price index at the end of the year (start of year = 100). [3]
2. (b) Explain why weights are used when calculating a consumer price index. [2]

1. (a) Define deflation. [2]
2. (b) Explain two possible consequences of deflation for an economy. [4]

1. (a) In a country the annual rate of inflation falls from 9% to 4%. Which statement must be correct?A The general price level has fallen.B The general price level is still rising, but more slowly.C The purchasing power of money has risen.D The economy is experiencing deflation. [1]

Invented data. A factory worker in Faisalabad earned Rs 50,000 a month in 2025 and Rs 56,000 a month in 2026. The consumer price index rose from 100 in 2025 to 118 in 2026.

1. (a) Calculate the percentage change in the worker's money wage. [1]
2. (b) Calculate the worker's real wage in 2026 at 2025 prices, to the nearest rupee, and the percentage change in the real wage. [2]
3. (c) Explain what has happened to the worker's standard of living. [2]

1. (a) With the help of an AD/AS diagram, explain the difference between demand-pull and cost-push inflation. [4]
2. (b) Consider which type of inflation is more likely in an oil-importing economy when the world price of crude oil rises by 40%. [4]

1. (a) Assess whether a high rate of inflation is always more harmful to an economy than deflation. [12]

Invented data for Country K:Year: 2024, 2025, 2026Inflation rate (%): 25, 12, 6Central bank policy interest rate (%): 22, 18, 11

1. (a) Calculate the price level at the end of 2026, taking the end of 2023 as 100. Give your answer to one decimal place. [2]
2. (b) Using real interest rate ≈ nominal interest rate − inflation rate, calculate the real interest rate in 2024 and in 2026. [2]
3. (c) Consider whether the fall in inflation from 2024 to 2026 shows that the economy is performing well. [4]

1. (a) In an economy, consumption is $600bn, investment $150bn, government spending $200bn, exports $250bn and imports $300bn. What is aggregate demand?A $600bnB $900bnC $1,200bnD $1,500bn [1]

1. (a) Explain why the aggregate demand curve slopes downwards from left to right. [3]
2. (b) State two causes of a rightward shift of the long-run aggregate supply curve. [2]

1. (a) With the help of an AD/AS diagram, explain the effect of a fall in consumer confidence on the price level and real output. [4]
2. (b) State two components of aggregate demand other than consumption. [2]

1. (a) Which change would shift the short-run aggregate supply curve to the left?A a rise in consumer confidenceB a fall in the world price of oilC a rise in money wage rates with no change in productivityD a cut in the rate of income tax [1]

Invented data for Country Q, $bn at constant prices:2025: C 420, I 95, G 130, X 160, M 1752026: C 438, I 88, G 150, X 172, M 186

1. (a) Calculate aggregate demand in 2025 and 2026 and the percentage change. Give the percentage to one decimal place. [3]
2. (b) Identify the component whose change made the largest contribution to the change in AD. [1]
3. (c) With the help of an AD/AS diagram, explain the likely effect of this change in AD on the price level and real output. [4]

1. (a) Explain why a large rise in world oil prices shifts the short-run aggregate supply curve of an oil-importing economy. [2]
2. (b) Assess whether a large rise in world oil prices is likely to reduce real output more than it raises the price level in an oil-importing economy. [6]

1. (a) Explain how an increase in investment affects both aggregate demand and aggregate supply, and consider whether its effect on the price level is likely to be inflationary. [8]

1. (a) A country's nominal GDP rises from $800bn to $880bn in a year. Over the same year the GDP deflator rises from 100 to 106. What is the rate of real economic growth, correct to one decimal place?A 3.8%B 4.0%C 10.0%D 16.6% [1]

1. (a) Explain the difference between actual economic growth and potential economic growth. [2]
2. (b) Explain how more spending on education can lead to potential economic growth. [3]

Invented data for Country R:Year: 2023, 2024, 2025, 2026Real GDP ($bn): 300, 309, 315, 330Population (million): 200, 204, 208, 212

1. (a) Calculate the rate of economic growth in 2026. Give your answer to one decimal place. [2]
2. (b) Calculate the percentage change in real GDP per head between 2023 and 2026. Give your answer to one decimal place. [3]
3. (c) Explain why a rise in real GDP per head may overstate the improvement in living standards. [3]

1. (a) Explain one cause of actual economic growth that comes from the demand side of the economy. [2]
2. (b) Consider whether an increase in government spending on roads and electricity grids will lead to sustained economic growth. [4]

1. (a) Assess whether the benefits of economic growth always outweigh its costs for a developing economy such as Pakistan. [12]

1. (a) A country has a labour force of 64 million, of whom 59.2 million are employed. What is the unemployment rate?A 4.8%B 7.5%C 8.1%D 92.5% [1]

1. (a) Identify the type of unemployment in each case:(1) Weavers in Faisalabad lose their jobs when mills install automatic looms.(2) A new graduate spends three months searching for a suitable job.(3) Construction workers are laid off when spending falls during a recession. [3]
2. (b) Explain one consequence of high unemployment for the government's budget. [2]

Invented data for Country S: working-age population 120 million; labour force 78 million; unemployed according to the labour force survey 5.46 million; people claiming unemployment benefits 3.12 million.

1. (a) Calculate the unemployment rate shown by each measure. [2]
2. (b) Explain two reasons why the claimant count measure is lower than the labour force survey measure. [4]

1. (a) Explain how a recession causes cyclical unemployment. [2]
2. (b) Assess whether structural unemployment is more harmful than cyclical unemployment to an economy. [6]

Invented data for an open economy, $bn per year:Investment 120, Government spending 200, Exports 180Saving 100, Taxation 210, Imports 220

1. (a) Calculate the total injections and the total withdrawals. [2]
2. (b) Explain what will happen to the level of national income. [2]
3. (c) State the two main flows between households and firms in the circular flow. [2]

1. (a) In the circular flow of income, which is an injection?A income tax paid by householdsB spending on imported goodsC spending by foreigners on a country's exportsD money saved by households in banks [1]

1. (a) Explain the circular flow of income in an open economy with a government sector, and consider whether an increase in spending on imports will always reduce national income. [8]

Invented data for Country T, $bn:GDP at market prices: 350Primary income (profits, interest, dividends) received from abroad: 12Primary income paid to foreign owners: 20Capital consumption (depreciation): 30

1. (a) Calculate gross national income (GNI). [2]
2. (b) Calculate net national income (NNI). [2]
3. (c) Explain why GNI may be lower than GDP for a country where many firms are foreign-owned. [2]

Invented data for Country U: GDP at market prices $500bn; indirect taxes on spending $60bn; subsidies on products $15bn.

1. (a) Calculate GDP at basic prices. [2]
2. (b) Explain why the output, income and expenditure methods of measuring GDP should give the same total. [3]
3. (c) State one reason why the three totals differ in practice. [1]

Invented data for Country V:2020: nominal GDP Rs 50 trillion, GDP deflator 100, population 220 million2026: nominal GDP Rs 105 trillion, GDP deflator 190, population 245 million

1. (a) Calculate real GDP in 2026 at 2020 prices, in Rs trillion, to one decimal place. [2]
2. (b) Calculate the percentage change in real GDP per head between 2020 and 2026, to one decimal place. [3]
3. (c) Explain why economists use real GDP per head rather than nominal GDP when comparing living standards over time. [2]