Economics 9708/12 October/November 2025: question paper and mark scheme

Question

What is an example of a normative statement? A Government expenditure is an injection into the circular flow of income. B Government expenditure in India in 2022 was 29% of gross domestic product. C The best policy measure to reduce inflation is a reduction in government expenditure. D The United States of America is the country with the highest military expenditure.

Question

A public good must both be non-rivalrous in consumption and have the characteristic of non-excludability. Which situation meets both of these conditions? A a former nationalised rail network which has been privatised B a good that has an opportunity cost C the building of a new toll road which charges all users the same toll D the provision of street lighting which improves a locality

Question

What is not a characteristic of a planned economy? A Consumers have limited influence on what is produced. B Profit is the motive for increasing output. C Resources are owned by the government. D There is limited competition in the market.

Question

A student chooses to study for a degree in engineering at university rather than take a job working as an apprentice engineer. The apprenticeship lasts five years and involves training while working. What will decrease the opportunity cost of this choice? A a decrease in the wages paid to apprentice engineers B a decrease in the number of students studying engineering degrees C a decrease in the number of top grade engineering degrees awarded D a decrease in the length of an engineering apprenticeship to four years

Question

The diagram shows a production possibility curve (PPC) for a country that produces two goods, X and Y. The initial PPC is given by ST. good Y U S O V T W good X What is the effect on the PPC when the productivity of workers producing good X increases? A The PPC shifts from ST to SV. B The PPC shifts from ST to SW. C The PPC shifts from ST to UT. D The PPC shifts from ST to UW.

Question

What is consumer surplus? A the amount of a consumer’s income less the amount paid in income tax B the amount of a consumer’s income less the amount paid for goods and services C the amount of a consumer’s income received in bonuses and overtime pay D the amount a consumer is willing to pay for a product less the amount actually paid

Question

The diagram shows a market supply curve (S). S Y O X What is measured on the X-axis and the Y-axis? X-axis Y-axis A quantity income B quantity price C price income D income quantity

Question

The diagram shows the demand curve for a product. 100 price $ 50 demand 0 0 50 100 quantity What is the price at which the price elasticity of demand is unit elastic? A $0 B $50 C $100 D every price along the demand curve

Question

Public transport in an economy has an income elasticity of demand of – 0.36. What does this mean about public transport? A It is an inferior good. B It is a necessity. C It is a normal good. D It has close substitutes.

Question

Which type of good is most suitable for a successful buffer stock scheme? easy to produce cheap to store perishable A yes yes yes B yes no no C no yes no D no no yes

Question

The demand for electric vehicle batteries is derived from the demand for electric vehicles. To tackle climate change, a government subsidises producers of electric vehicles. What are the likely effects of this subsidy on the price and sales of electric vehicle batteries? price sales A decrease decrease B decrease increase C increase decrease D increase increase

Question

The diagram shows the market for a demerit good. The initial equilibrium is at point X. What will be the new equilibrium if the government imposes a unit tax on this demerit good and successfully informs consumers of its harmful effects? price S3 S1 S2 A X D B C D2 D1 D3 O quantity

Question

To improve the health of people, a government puts a tax on the sale of drinks that contain sugar. What are the likely effects of this tax on both the prices of the drinks that contain sugar and the price of sugar? prices of drinks price of sugar A decrease decrease B decrease increase C increase decrease D increase increase

Question

The income Gini coefficient of a country changes from 0.29 to 0.33 over time. What might explain this change? A an increase in food and energy subsidies B an increase in structural unemployment C an increase in the national minimum wage D an increase in the top rate of income tax

Question

What is an example of an injection into the circular flow of income in an open economy? A consumer spending on goods B expenditure on a government construction project C spending by households on holidays abroad D repayment of loans to commercial banks

Question

The diagram shows the AD and AS curves for a country. The equilibrium level of national income is Y1 and the general price level is P1. AS general price level P1 AD O Y1 national income What is the most likely effect on employment and the general price level of a small decrease in government expenditure? employment general price level A falls falls B falls unchanged C unchanged falls D unchanged unchanged

Question

The diagram shows aggregate demand and aggregate supply curves for an economy. general AS price level AD AD1 O national output What would cause a change in the aggregate demand from AD to AD1? A government campaigns to encourage household savings B consumption of domestic instead of foreign goods C a decrease in the budget surplus D investment in knowledge-based enterprises

Question

A government reduces the benefits that it pays to unemployed workers to increase the incentive to work. Which types of macroeconomic policies are being used? fiscal monetary supply-side policy policy policy A ✓ ✗ ✗ B ✓ ✓ ✗ C ✓ ✗ ✓ D ✗ ✗ ✓

Question

A central bank is asked by the government to help achieve price stability. If inflation rises steeply, which policy will not be directly within the control of the central bank? A increasing the rate of interest to reduce consumer spending B managing a reduction of the money supply C using credit restrictions to regulate lending by commercial banks to households D restricting wage increases in the private and public sectors

Question

What is not a likely reason for a government having the objective of economic growth? A to improve living standards B to improve business confidence C to increase inflationary pressures D to increase consumer choice

Question

What is an example of expansionary monetary policy? A the central bank increasing the money supply B the central bank causing an appreciation of the country’s foreign exchange rate C the central bank increasing controls on credit lending D the central bank increasing the minimum lending rate of interest

Question

What is the effect of an increase in the money supply on the interest rate and the aggregate demand (AD) curve? interest rate AD curve A falls shifts left B rises shifts left C falls shifts right D rises shifts right

Question

A country has a target rate of inflation of 2.5% and has recently experienced the actual rate rising to 6%, with unemployment falling to very low levels. Which policy option is most likely to be implemented? A an increase in government expenditure on training B an increase in indirect taxes on demerit goods C an increase in import tariffs D an increase in interest rates

Question

What is the most likely reason for a government to introduce a progressive tax? A to discourage the consumption of a particular good B to distribute disposable income more evenly C to increase the disposable income of households D to reduce demand for healthcare services

Question

What is the least likely consequence of rapid economic growth? A high levels of pollution B large deficit on the current account of the balance of payments C large deficit in the government’s budget balance D more congestion on the roads

Question

A country with a floating exchange rate has a large deficit on the current account of the balance of payments. What is most likely to decrease as a consequence of this deficit? A competitiveness of the country’s products B level of employment in the country C prices of exports from the country D rate of inflation in the country

Question

What will definitely lead to an improvement in the terms of trade? A Export prices fall whilst import prices rise. B Export prices rise by the same amount as import prices. C Export prices rise slower than import prices. D Export prices rise whilst import prices stay the same.

Question

Between June and the end of July 2016, the UK pound sterling depreciated by 11% against a basket of currencies of the UK’s major trading partners. The diagram shows the original aggregate demand curve AD1 and the original aggregate supply curve AS1 for the UK economy before June 2016. The equilibrium is at X. What would have been the new equilibrium for the UK economy as a result of the depreciation of the pound sterling? price level AS1 A B X D C AD1 O real output

Question

What is the effect of a cut in a country‘s income tax rates on its exports and imports? exports imports A fall fall B fall unchanged C unchanged fall D unchanged rise

Question

The diagram shows the effect of a government removing the tariff on imports of rice into its country. Sdomestic price of rice W V P1 Sworld + tariff P2 Sworld R X T U Ddomestic O Q1 Q2 Q3 Q4 quantity of rice How would the removal of this tariff affect the consumer surplus and the government's revenue? consumer surplus government revenue A increases by VUT decreases by WVTX B increases by VUT decreases by WVQ3Q2 C increases by P1VUP2 decreases by WVTX D increases by P1VUP2 decreases by WVQ3Q2