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May 2025 Section II (Set 1)

0/20 marks

2025 · 3 questions · 17 parts · 20 marks

0Correct0Partial0Wrong17Unattempted

1(A)1(B)(i)1(B)(ii)1(C)1(D)1(E)(i)1(E)(ii)1(F)2(A)2(B)2(C)2(D)3(A)3(B)3(C)(i)3(C)(ii)3(D)

Context for question 3

The table provided shows the quantities and unit prices of shirts, bread, and pants, the only three goods produced in the country of Middleland in 2021 and 2022. Assume that 2021 was the base year.

	Shirts	Bread	Pants
Unit Prices in 2021	$11	$4	$12
Unit Prices in 2022	$10	$5	$15
Quantities Produced in 2021 and 2022	50	70	30

3(A)National Income, Circular Flow and Aggregate DemandEasy1 mark

Was the real GDP in 2021 in Middleland greater than, less than, or equal to the nominal GDP in 2021? Explain.

3(B)National Income, Circular Flow and Aggregate DemandEasy1 mark

Calculate the real GDP in Middleland in 2022.

Context for 3(C)

Assume that Middleland was in short-run equilibrium in 2022 and that POTENTIAL real GDP was $1,150 in 2022. Draw a correctly labeled graph of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves for Middleland in 2022, and show each of the following.

3(C)(i)Aggregate Supply and Macroeconomic EquilibriumEasy1 mark

The equilibrium real output and price level, labeled

Y_{1}

and

P L_{1}

, respectively

3(C)(ii)Aggregate Supply and Macroeconomic EquilibriumEasy1 mark

The full-employment output, labeled

Y_{F}

3(D)Fiscal Policy, Taxation and Public DebtEasy1 mark

Assume the marginal propensity to consume in Middleland is 0.8. Calculate the minimum change and state the direction of change in government spending required to close the output gap in the short run in Middleland. Show your work.