CAPE Economics Unit 2 · 2006 · Paper 2

58 questions and parts from this paper. Open one to see it in full, then practise it on Quelpr and get it marked against the mark scheme.

1. 1(a)4 marksUsing the definition of GDP, explain why transfer payments such as social security benefits are excluded when computing the 'government purchases' component of GDP.
2. 1(b)1 markState the formula for converting nominal GDP to real GDP.
3. 1(c)(i)a)5 marksUsing 2001 as the base year, compute the Nominal GDP for each year (2001, 2002, and 2003).
4. 1(c)(i)b)5 marksUsing 2001 as the base year, compute the Real GDP for each year (2001, 2002, and 2003).
5. 1(c)(i)c)5 marksUsing 2001 as the base year, compute the GDP deflator for each year (2001, 2002, and 2003).
6. 1(c)(ii)a)5 marksCompute the percentage change in Nominal GDP from 2001 to 2002 and from 2002 to 2003.
7. 1(c)(ii)b)5 marksCompute the percentage change in Real GDP from 2001 to 2002 and from 2002 to 2003.
8. 1(c)(ii)c)5 marksCompute the percentage change in the GDP deflator from 2001 to 2002 and from 2002 to 2003.
9. 1(d)5 marksExplain why economists use real GDP rather than nominal GDP to measure economic well-being.
10. 1(e)(i)2 marksCompute Barry's contribution to Gross domestic product.
11. 1(e)(ii)2 marksCompute Barry's contribution to Net national product.
12. 1(e)(iii)2 marksCompute Barry's contribution to National income.
13. 1(e)(iv)2 marksCompute Barry's contribution to Personal income.
14. 1(e)(v)2 marksCompute Barry's contribution to Disposable personal income.
15. 2(a)(i)3 marksExplain the meaning of Aggregate demand.
16. 2(a)(ii)3 marksExplain the meaning of Aggregate demand curve.
17. 2(a)(iii)3 marksExplain the meaning of Aggregate supply.
18. 2(a)(iv)3 marksExplain the meaning of Aggregate supply curve.
19. 2(a)(v)3 marksExplain the meaning of Equilibrium price level.
20. 2(b)(i)9 marksUsing aggregate demand and aggregate supply curves to illustrate your points, discuss the impacts on price level (P) and equilibrium GDP (Y) in the short run of a tax cut holding government purchases constant, with the…
21. 2(b)(ii)9 marksUsing aggregate demand and aggregate supply curves to illustrate your points, discuss the impacts on price level (P) and equilibrium GDP (Y) in the short run of an increase in the money supply during a period of high…
22. 2(b)(iii)9 marksUsing aggregate demand and aggregate supply curves to illustrate your points, discuss the impacts on price level (P) and equilibrium GDP (Y) in the short run of an increase in the price of oil caused by war in the…
23. 2(c)8 marksExplain how the variability of profits and expectations contribute to the instability of investment.
24. 3(a)(i)6 marksDifferentiate between 'discretionary fiscal policy' and 'automatic stabilizers'.
25. 3(a)(ii)6 marksUsing examples, explain how discretionary fiscal policy and automatic stabilizers work during periods of recession or inflation in an economy.
26. 3(b)(i)8 marksExplain how the government can use fiscal policy (taxing and spending) to increase the equilibrium level of output from 900 billion to 1100 billion.
27. 3(b)(ii)10 marksUsing a 45° line diagram, graph the original situation and the solution identified in (b)(i).
28. 3(c)10 marksSuppose the government finances the increase in government spending with an equal increase in taxes to maintain a balanced budget. Explain what happens to aggregate spending as a result of a rise in both taxes and…
29. 3(d)(i)4 marksWhat is the balanced budget multiplier?
30. 3(d)(ii)6 marksReferring to the solution in (c), how large is the balanced budget multiplier? Explain your answer.
31. 4(a)(i)6 marksDiscuss TWO advantages of paper money.
32. 4(a)(ii)6 marksDiscuss TWO advantages of cheques as compared to commodity money.
33. 4(a)(iii)6 marksDiscuss TWO disadvantages of commodity money.
34. 4(b)12 marksDiscuss the role of acceptability and fiat or law in determining the value of money.
35. 4(c)(i)8 marksDiscuss the basic determinant of the transactions demand for money and the speculative demand for money.
36. 4(c)(ii)12 marksAssume that the money market is initially in equilibrium and that the money supply is increased. With the use of a diagram, explain the adjustments toward a new equilibrium interest rate.
37. 5(a)(i)6 marksUsing graph paper, plot the domestic demand and supply curves for shirts.
38. 5(a)(ii)3 marksIdentify the equilibrium price (PE) and equilibrium quantity (QE).
39. 5(a)(iii)4 marksShow the world price of $3 as P_w on the diagram you have drawn.
40. 5(a)(iv)4 marksOn your diagram, indicate the levels of domestic consumption and domestic production at the world price.
41. 5(b)(i)3 marksShow the tariff price as P_t on the diagram you have drawn.
42. 5(b)(ii)2 marksFollowing the imposition of the tariff, by how much will domestic production increase?
43. 5(b)(iii)2 marksWhat is the new level of domestic consumption following the tariff?
44. 5(b)(iv)3 marksFollowing the imposition of the tariff, how many shirts will be imported?
45. 5(b)(v)3 marksIn terms of tax revenues, how much will the tariff yield?
46. 5(c)(i)5 marksOn your diagram, shade in the area representing the net welfare loss (deadweight loss) caused by the tariff.
47. 5(c)(ii)5 marksCalculate the total loss in welfare (deadweight loss).
48. 5(d)(i)4 marksExplain who gains and who loses when a country allows trade and becomes an exporter.
49. 5(d)(ii)4 marksExplain who gains and who loses when a country allows trade and becomes an importer.
50. 5(d)(iii)2 marksConsidering the circumstances in (d)(i) and (d)(ii), do the gains from trade exceed the losses?
51. 6(a)(i)4 marksUsing appropriate examples, explain the term 'Free-trade area'.
52. 6(a)(ii)4 marksUsing appropriate examples, explain the term 'Customs union'.
53. 6(a)(iii)4 marksUsing appropriate examples, explain the term 'Common market'.
54. 6(b)(i)a)3 marksDescribe, briefly, CARICOM.
55. 6(b)(i)b)3 marksDescribe, briefly, CSME.
56. 6(b)(i)c)3 marksDescribe, briefly, FTAA.
57. 6(b)(ii)9 marksOutline THREE objectives of Caribbean integration.
58. 6(c)20 marksDiscuss FOUR advantages to CARICOM member states arising from the free movement of factors of production — goods, services, capital and people — under the CSME.