TEST CODE 02216020

FORM TP 2019197 MAY/JUNE 2019

CARIBBEAN E XAM I NAT I O N S COUNCIL

CARIBBEAN ADVANCED PROFICIENCY EXAMINATION®

ECONOMICS

UNIT 2 – Paper 02

2 hours 30 minutes

READ THE FOLLOWING INSTRUCTIONS CAREFULLY.

1. This paper consists of THREE questions, one from each module. Answer ALL questions.

2. Write your answers in the spaces provided in this booklet.

3. Do NOT write in the margins.

4. You may use a silent, non-programmable calculator to answer questions.

5. If you need to rewrite any answer and there is not enough space to do so on the
original page, you must use the extra lined page(s) provided at the back of this booklet.
Remember to draw a line through your original answer.

6. If you use the extra page(s) you MUST write the question number clearly in the box
provided at the top of the extra page(s) and, where relevant, include the question
part beside the answer.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

Copyright © 2018 Caribbean Examinations Council

All rights reserved.
‘‘*’’Barcode Area”*”
02216020/MJ/CAPE 2019 Sequential Bar Code
 -4-

DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA  
Answer ALL questions.

MODULE 1: MODELS OF THE MACROECONOMY

Draw ALL diagrams neatly and carefully, and clearly label ALL axes and curves.

1. (a) Describe EACH of the following components of aggregate expenditure:

(i) Investment

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................
[2 marks]

(ii) Gross spending

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................
[2 marks]

GO ON TO THE NEXT PAGE

02216020/MJ/CAPE 2019
‘‘*’’Barcode Area”*”
Sequential Bar Code
 -5-
DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA  

(b) Use the equation below to answer the questions which follow.

C = a + 0.8Yd

(i) State what EACH of the following elements from the equation above represents.

a ..............................................................................................................................

0.8 ..........................................................................................................................

Yd ...........................................................................................................................

.................................................................................................................................
[3 marks]

(ii) Calculate the marginal propensity to save.

[2 marks]

GO ON TO THE NEXT PAGE

02216020/MJ/CAPE 2019
‘‘*’’Barcode Area”*”
Sequential Bar Code
 -6-

DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA  
(iii) Calculate the simple multiplier and interpret your answer.

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................
[4 marks]

(c) Using the classical model, analyse the impact of an increase in the money supply on prices
and output. Your analysis must be supported by a fully labelled aggregate demand and
aggregate supply diagram.

GO ON TO THE NEXT PAGE

02216020/MJ/CAPE 2019
‘‘*’’Barcode Area”*”
Sequential Bar Code
 -7-
DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA  

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................
[12 marks]

Total 25 marks

GO ON TO THE NEXT PAGE

02216020/MJ/CAPE 2019
‘‘*’’Barcode Area”*”
Sequential Bar Code
 -8-

DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA  
MODULE 2: MACROECONOMIC PROBLEMS AND POLICIES

2. (a) Identify FOUR issues that can be addressed by fiscal policy.

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................
[4 marks]

(b) (i) Explain how fiscal policy can be used to address ONE macroeconomic issue.

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................
[3 marks]

GO ON TO THE NEXT PAGE

02216020/MJ/CAPE 2019
‘‘*’’Barcode Area”*”
Sequential Bar Code
 -9-
DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA  

(ii) Assuming a required reserve ratio of 10% and initial deposits of $100, illustrate
how commercial banks create money.

[6 marks]

GO ON TO THE NEXT PAGE

02216020/MJ/CAPE 2019
‘‘*’’Barcode Area”*”
Sequential Bar Code
 - 10 -

DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA  
(c) Discuss THREE ways in which governments could manage the national debt in a country.

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................
GO ON TO THE NEXT PAGE
02216020/MJ/CAPE 2019
‘‘*’’Barcode Area”*”
Sequential Bar Code
 - 11 -
DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA  

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................

.............................................................................................................................................
[12 marks]

Total 25 marks

GO ON TO THE NEXT PAGE

02216020/MJ/CAPE 2019
‘‘*’’Barcode Area”*”
Sequential Bar Code
 - 12 -

DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA  
MODULE 3: GROWTH, SUSTAINABLE DEVELOPMENT
AND GLOBAL RELATIONS

3. (a) Distinguish between ‘economic growth’ and ‘economic development’.

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

.............................................................................................................................................
[4 marks]

(b) Explain EACH of the following economic concepts:

(i) The World Trade Organization (WTO) dispute resolution function

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................
[3 marks]

GO ON TO THE NEXT PAGE

02216020/MJ/CAPE 2019
‘‘*’’Barcode Area”*”
Sequential Bar Code
 - 13 -
DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA  

(ii) The theory of comparative advantage

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................
[3 marks]

(iii) The terms of trade

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................

.................................................................................................................................
[3 marks]

GO ON TO THE NEXT PAGE

02216020/MJ/CAPE 2019
‘‘*’’Barcode Area”*”
Sequential Bar Code
 - 14 -

DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA  
(c) Discuss TWO arguments for and ONE argument against the protection of infant industries.

............................................................................................................................................

............................................................................................................................................

............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................
GO ON TO THE NEXT PAGE
02216020/MJ/CAPE 2019
‘‘*’’Barcode Area”*”
Sequential Bar Code
 - 15 -
DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA      DO NOT WRITE IN THIS AREA  

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................

..............................................................................................................................................
[12 marks]

Total 25 marks

END OF TEST

IF YOU FINISH BEFORE TIME IS CALLED, CHECK YOUR WORK ON THIS TEST.

02216020/MJ/CAPE 2019
‘‘*’’Barcode Area”*”
Sequential Bar Code