CAMBRIDGE INTERNATIONAL AS & A LEVEL ECONOMICS: COURSEBOOK ANSWERS

Exam-style questions and sample answers have been written by the authors. In examinations, the way marks are awarded
may be different.

Coursebook answers
Chapter 15
Economics in context
Learners’ discussion might include:
• Governments need to assess what is happening to average incomes in the country and to compare the
country’s economic performance with other countries.
• Nigerians’ income could have changed by only a very small amount overnight. They could not have
been significantly richer on 5th April 2013 than on 4th April 2013 as there be would hardly any time for
output to have changed.
• Nigerians are likely to be richer now than they were in 2013 as the output of most countries rises over
time and so more incomes are generated.

Activities
Activity 15.1
a Learners’ own answers.
Learners’ answers might include:
b China, India, Indonesia and Mexico are predicted to be in the top ten in 2050 but did not appear
there in 1991. The countries which are predicted to fall out of the top ten are Italy, Canada, France
and Spain.
c In 2050, the top 10 countries currently have larger populations, in total, than those in 2018. In 2018,
three countries come from Asia. In 2050, it is predicted to increase to four. In contrast, the number of
European countries is predicted to fall from four to three (including Russia).

Activity 15.2
Learners’ own answers.

Activity 15.3
a Philippines
b Japan or US
c Qatar.

Activity 15.4
The pay of civil servants, the pay of nurses and the profits of firms should be included in the income
method of measuring GDP. This is because they are payments made to factors of production in return for
producing goods and services. However, government subsidies to farmers and state pensions should not be
included as they are transfer payments. Government subsidies to farmers should increase output but that
output will be measured by farmers’ higher incomes (income method) and consumers’ higher spending on
food (expenditure method).

1 Cambridge International AS & A Level Economics - Bamford & Grant © Cambridge University Press 2021
 CAMBRIDGE INTERNATIONAL AS & A LEVEL ECONOMICS: COURSEBOOK ANSWERS

Activity 15.5
$980 billion − $60 billion (NDP at basic prices) + $30 billion (GDP at basic prices) +
$40 billion − $15 billion = GDP at market prices = $975 billion.

Think like an economist

Learners’ discussion might include:
1 Whether all the national income measures place Vietnam ahead of Laos. The information may be
gathered from a number of sources such as The World Factbook (CIA), World Bank, IMF.
2 National income figures can be used to compare economic activity over time and to help in
determining government policy.

Exam-style questions: Multiple choice

1 D A, B and C are all measures of GDP and are different ways of measuring what is produced in a
country. In contrast, wealth is a stock of assets that have been built up over time.
2 B Net property income from abroad includes profit, interest and dividends.
3 B Net income from abroad is included in GNI but not GDP. If there is no property income from
abroad, the two measures would be equal. Both measures are adjusted for indirect taxes and
subsidies. Transfer payments are not included in either measure.
4 C $500bn − $20bn. This converts GNI at basic prices to GDP at basic prices.
$480 + $40bn − $10bn change GDP at basic prices to GDP at market prices. Unemployment
benefits are transfer payments and so are not included in either GNI at basic prices or GDP at
market prices.
5 C GNI is GDP plus net income from abroad. If net income from abroad is negative, a figure would
be deducted from GNI. Capital goods, consumer goods, net exports and indirect taxes are treated
the same in GDP at basic prices and GNI at basic prices.
6 B There is a loss of $200 000 from loss of initial jobs but an extra plus $108 000 from the new jobs
gained. A state pension and unemployment as transfer payments and so are not included.
7 D GDP, measured by the expenditure method, is consumer expenditure, government spending,
investment and net exports. In this case, this is $490bn + $80bn + $100bn + ($50bn - ?) = $640bn.
8 A To convert from basic prices to market prices, indirect taxes are added and subsidies are deducted.
To go from net to gross, depreciation has to be added and to go from national income to domestic
income, net income from abroad has to be deducted.
9 C Consumer expenditure plus investment plus government spending plus expenditure minus imports
is GDP at market prices. In this case, this is $700bn + $2000bn + $100bn − $50bn = $950bn.
GDP at market prices – indirect taxes and subsidies = GDP at basic prices. Here this is
$950bn - $30bn + $15bn = $935bn. A is NDP at basic prices, B is NNI at market prices and
D is GNP at basic prices.
10 C In calculating GDP by the output method, it is important to avoid double counting. Measuring
the value of finished products would mean that image processors would already have been counted
in the output of the smartphones industry.

2 Cambridge International AS & A Level Economics - Bamford & Grant © Cambridge University Press 2021