Cambridge International AS and A Level Economics

Chapter 4 Worksheet
The macroeconomy
1 Weighted average
Fill in the missing words to complete the sentences.
weight month inflation rate comparison interest rate multiplied basket of goods and services

A survey is carried out to determine the bought by the typical household. More
important items are assigned a reflecting the relative importance of each item
in the basket. Prices of each item are then recorded and compared to the same
in the previous year. The price change is then by the weight of the
item to give the weighted average. These weighted averages are then added together to give the overall
.

2 Data interpretation – index numbers

Look at the data below and answer the questions that follow.
Consumer price index for Costa Rica (2005 = 100)
2009 2010 2011 2012 2013
149.1 157.5 165.2 172.7 181.7

(Source: Adapted from http://data.worldbank.org/indicator/FP.CPI.TOTL)

a What does it mean when it says ‘2005 = 100’?

b Calculate the percentage change in Costa Rica’s inflation rate between 2012 and 2013.

c Calculate the percentage change in Costa Rica’s inflation rate between 2009 and 2013.

3 Multiple choice
What is money illusion? Circle the correct answer.
A The same as the multiplier effect.
B Failure to take inflation into account when looking at prices and wages.
C When the central bank prints more money.
D The opportunity costs of holding money.

4 Inflation – cost or benefit?

Write the letter C (for cost) or B (for benefit) next to each statement.
a Reduce the international competitiveness of a country’s products.
b Redistribution of income from savers to borrowers.
c Catalogues, price tags, bar codes and advertisements have to be changed.
d Higher paper profits.
e Time spent searching for best prices.
f People and firms are dragged into higher tax brackets.
© Cambridge University Press 2015 Cambridge International AS and A Level Economics Chapter 4 Worksheet 1
 Cambridge International AS and A Level Economics

g Reduces debt burden.

h Lower investment.

5 Deflation vs disinflation
Select the correct words to complete the following sentences.
Deflation refers to a sustained rise/fall in the price level. It results in a rise/fall in the value of money, with each
currency unit having greater/lower purchasing power. Deflation involves a positive/negative inflation rate, for
example, −1%/+1%.
In contrast, disinflation occurs when the inflation rate falls/rises but is still positive/negative. For instance, the
inflation rate may increase/decline from 6%/4% to 6%/2%. In this case, the price level is still rising/falling but at
a slower/faster rate.

6 Balance of payments
What would happen to the balance of payments current account in the following situations, ceteris paribus?
Complete the table.
Situation Component of Worsen or Explanation
current account? improve?
A country loses its
comparative advantage in
manufacturing

An increase in tourism
within the country

Domestic citizens receive

higher dividends from
shares owned in foreign
companies

An increase in net migration

© Cambridge University Press 2015 Cambridge International AS and A Level Economics Chapter 4 Worksheet 2