Answer all the questions.

Answers must be written within the answer boxes provided

Question 1:

Mirua is a developing country, that suffers from low levels of development and GDP per
capita. After years of civil war that destroyed much of the nation’s infrastructure and cost the lives
of many working-age people the country is now at peace and looking forward to a more prosperous
future. In the three years since the war finished the emerging nation has formed partnerships with a
number of Multinational Corporations (MNCs), to extract the nation’s significant oil fields and
export the commodity. The government was also able to attract foreign aid of $10Bn from a donor
government which was invested for an infrastructure development programme. Mirua also wishes
to encourage many of its former citizens, that fled the nation during the civil war, to return.

a) Define foreign aid (2 marks)

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b) Show using a PPC diagram the impact of the civil war which destroyed ‘much of the nation’s
infrastructure and cost the lives of many working age people’, on the economy of Mirua.
(2 marks)

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 c) Explain one benefit and one cost of the decision to allow MNCs to extract oil from the
waters around the coasts of the Pacific island nation (4 marks)

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Table 1: The following table shows employment figures in millions for Mirua.

YEAR POPULATION OF LABOUR FORCE (mn) TOTAL

WORKING AGE (mn) EMPLOYMENT (mn)
2012 20.5 11.5 10.2
2013 21 11.8 10.6
2014 21.2 12.2 11.1
2015 21.5 12.5 11.2
2016 22 12.8 10.8

d) Calculate the number of unemployed workers between 2014 and 2016 (2 marks)

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 e) Calculate the rate of unemployment as a percentage for 2013-2016 (4 marks)

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(PS-the y axis label is to be changed)

In order to raise the living standards of low-wage workers, the government of Mirua has decided to
impose a minimum wage of $10 per hour.

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 f) Draw a curve with proper labels that illustrates Mirua’s minimum wage on Figure 1. (1 mark)

g) State two market-based supply-side policies that are likely to increase the supply of labour
in Mirua (2 marks)

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h) Following the investment of $10 Bn, calculate the change in final GDP if the MPC is 0.5 (2
marks)

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i) State one disadvantage of an MNC to Mirua. (1 mark)

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 j) Using the data provided and your knowledge of economics, recommend a policy (other than
through a minimum wage) that the government could introduce that might lead to higher
levels of real wages in an economy. (10 marks)

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Question 2:

The Atlantis banana growers’ cooperative is one of the largest citrus cooperatives of growers in the
world. The entire cooperative is made up of more than 1,000 grower-members who own more than
50,000 acres of fine citrus groves in central Atlantis. The outlook for Atlantis banana growers looks
to be optimistic this year with the Atlantis Department of Agriculture projecting a 6% increase in
market sales this year.

The following diagram illustrates the market for bananas in Atlantis. D and S represent the domestic
demand and supply for bananas, while bananas can be imported at the current world price of $3
per kg.

a) State one assumption of perfect competition (1 mark)

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b) Draw a diagram illustrating a perfectly competitive firm making abnormal profit and the
industry that fixes the price. (4 marks)

c) At the equilibrium price if the AC is $5 ,calculate the profit made by the firm at equilibrium
output. (2 marks)

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The government of Atlantis decides to impose a quota on banana imports of 150 000kg per month.

The following table provides selected items of the balance of payments for Atlantis in 2018:

Atlantis ($ billion)
Imports of services 1590
Exports of goods 3240
Capital transfers (net) -53
Current transfers(net) -488
Export of services 1928

Portfolio investment (net) 157

Income (net) -456
Imports of goods 3519

d) Define the term Quota (2 marks

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e) Assuming that there are no restrictions on the importing of bananas into Atlantis. Calculate
the monthly expenditure on bananas imported into Atlantis. (1 mark)

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f) Calculate the change in revenue earned by domestic producers of bananas in Atlantis as a

result of the quota. (2 marks)

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 g) Outline the reason why a fall in the price of the dollar will lead to an increase in the quantity
of dollars demanded. (2 marks)

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h) Calculate the current account balance from the data given in Table (2 marks)

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The inflation rate in Atlantis has reached 5.7%, well above the government’s target range of 2% to
4%. The plan to remove the import quota will reduce the inflation rate in Atlantis by up to 0.4 %.

i) Using an AD/AS diagram, explain how removing the import quota will reduce the inflation
rate in Atlantis. (4marks)

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j) Using the data provided and your knowledge of economics, recommend a policy the
Atlantis government could use to increase the consumption of healthy goods such as
bananas. (10marks)

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