M22 Economics Paper 2

Questions with markscheme

Define the term foreign direct investment (FDI).

Long-term investment in another country
Investment in productive facilities in another country
May be investment by a multinational corporation (MNC)

Define the term unemployment rate.

The percentage of the labor force that is without a job and looking for one, but unable to find it.
(labor force without employment/total labor force)*100

Calculate North Macedonia's annual rates of inflation between 2016 and 2019.

Annual rate of inflation: (current year-previous year)/previous year * 100

2017: (110.9 - 109.4)/109.4 x 100 \= 1.37%
2018: (112.5 - 110.9)/110.9 x 100 \= 1.44%
2019: (113.4-112.5)/112.5 x 100 \= 0.8%

Identify the year disinflation set in.

2019

Calculate North Macedonia's balance of trade in 2018.

Balance of trade \= Value of export - Value of import

7.57-9.56 \= -1.99

-(US)$ 1.99 billion

Using an AD/AS diagram, explain the likely impact of North Macedonia's supply-side policies on its full employment level of output.

The supply-side policies would lead to an increase in efficiency and an increase in the quantity of factors of production.

And AD/AS diagram with a vertical LRAS shifting to the right. Y-axis is Price Level, x-axis is real GDP.

The diagram shows an increase in full employment level of output.

Using an externalities diagram, explain how dependence on coal could be a source of market failure.

The burning of coal leads to environmental degredation and pollution resulting in a situation where the market is operating at a level that is not socially efficient (MSB does not equal MSC) and welfare loss

A market failure diagram showing the negative externalities on consumption.
- Where Market Social Benefit (MSB) is below Market Private Benefit (MPB)
- A socially efficient level of output is lower than the market equilibrium level of output

Using an exchange rates diagram, explain how the central bank of North Macedonia is preventing an appreciation of the denar against the euro.

The central bank sells the denar and buys foreign currencies, which results in the supply of the denar on the international market increasing. This prevents appreciation.

An exchange rate diagram (two diagonal lines leaning to the right with dotted lines to the left with xr1 and xr2 + one diagonal demand line to the left)
- Showing a shift of the supply curve to the right (therefore two lines)
- The intersection between S2 and D shows the fall in value of the denar

Using an international trade diagram, explain the likely impact of the removal of import quotas on North Macedonia's production of wine.

The removal of a quota will result in a decrease in domestic production due to an increase in imports. This also leads to a decrease in domestic price to be able to compete.

A trade diagram showing a removal of the quota and a decrease in the quantity supplied by domestic producers.