Practice IB Economics Topic 1.2 How Do Economists Approach the World? with authentic exam-style questions for both SL and HL students. This question bank focuses on the exact syllabus content for 1.2 How Do Economists Approach the World? and mirrors Paper 1, 2, 3 style where relevant.
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Explain the difference between positive economics and normative economics.
Using real-world examples, discuss how differing normative judgements can lead to different policy responses to market failure (such as negative externalities or the under-provision of merit goods).
Brazil, the largest country in Latin America, has undergone significant economic and social transformations in recent years. In 2020, Brazil’s real GDP contracted by due to disruptions in global trade and domestic demand. However, by 2022, real GDP had grown by , supported by stronger exports of agricultural commodities and a gradual recovery in consumer confidence. Despite these improvements, inflation reached an annual average of in 2022, prompting the central bank to raise the benchmark interest rate to in an effort to stabilize prices.
Unemployment has remained a challenge. In mid-2021, the national jobless rate peaked above . The government responded by expanding social assistance programs and introducing job-training initiatives for the growing youth population. In addition, it implemented a “fiscal responsibility law,” which sets constraints on budget deficits while allowing for targeted spending on infrastructure and social welfare. The rationale is to boost long-term growth without triggering unsustainable debt.
Brazil’s export profile is dominated by agricultural products and mineral commodities, including soybeans, coffee, iron ore, and crude oil. Over of export revenue comes from China, followed by markets in the European Union and the United States. However, the reliance on commodities makes Brazil’s external trade vulnerable to fluctuations in global prices. The government aims to diversify by promoting higher-value manufactured exports and expanding service-sector trade, partly through new trade agreements under Mercosur.
Income inequality, measured by the Gini coefficient, has fallen slightly over the past decade but remains high by international standards. Government transfer programs and progressive taxation have played a role in reducing poverty, yet rural areas—especially in the north and northeast—continue to lag behind in access to education, healthcare, and formal employment opportunities. Moreover, the introduction of a “price floor” for select agricultural products (such as coffee and sugarcane) is intended to stabilize farmers’ incomes, but critics argue it may distort market signals and lead to inefficiencies.
Environmental concerns have gained urgency in recent years, particularly regarding deforestation in the Amazon region. Brazil’s “Green Growth Plan,” announced in 2022, sets ambitious targets to reduce emissions and protect biodiversity. The plan includes incentives for sustainable agriculture, reforestation projects, and stricter monitoring of illegal logging. However, balancing environmental protection with economic development poses ongoing political and economic challenges.
On the monetary front, the Central Bank of Brazil operates a managed float of the Brazilian real. While the exchange rate often reflects shifts in commodity prices, authorities occasionally intervene using foreign reserve assets to prevent excessive volatility. Foreign direct investment (FDI)—especially in agribusiness, infrastructure, and energy—has grown with support from the “Green Growth Plan”, although critics note that the benefits have not always trickled down to local communities.
To spur growth in the industrial sector, policymakers have launched new supply-side measures, emphasizing research and development (R&D) grants, technology partnerships, and incentives for small and medium-sized enterprises (SMEs). Proponents argue that these policies can diversify the economy beyond raw commodities, while skeptics worry about the fiscal costs and the slow pace of structural reforms.
Overall, Brazil stands at a crossroads. The government continues to grapple with persistent inflation, high unemployment, and unequal development. Yet, the country’s vast natural resources, large domestic market, and ongoing policy reforms offer potential for sustainable and inclusive growth. Whether the new Green Growth Plan and efforts to strengthen fiscal responsibility will translate into long-term stability remains a central question for Brazil’s future trajectory.
Table 1: Brazil’s Selected Macroeconomic Indicators (2020–2023)
| Indicator | 2020 | 2021 | 2022 | 2023 (est.) |
|---|---|---|---|---|
| Nominal GDP (US$ billion) | 1420 | 1490 | 1580 | 1640 |
| Real GDP Growth Rate (%) | -4.1 | 0.7 | 2.3 | 2.5 |
| Inflation Rate (%) | 4.5 | 7.3 | 8.2 | 6.1 |
| Unemployment Rate (%) | 13.7 | 14.1 | 12.9 | 11.8 |
| Exchange Rate (BRL per US$, average) | 5.15 | 5.35 | 5.10 | 4.95 |
Table 2: Development and Environmental Indicators
| Indicator | 2020 | 2021 | 2022 | 2023 (est.) |
|---|---|---|---|---|
| Gini Coefficient | 0.53 | 0.52 | 0.51 | 0.50 |
| Deforestation Rate (Amazon region, thousand km² cleared/year) | 10.1 | 10.9 | 11.2 | 10.3 |
| Public Spending on “Green Growth Plan” (% of GDP) | – | 0.5 | 1.0 | 1.2 |
| Rural Poverty Rate (%) | 23.0 | 22.5 | 21.0 | 20.0 |
| FDI Inflows (US$ billion) | 34.5 | 39.2 | 43.8 | 46.0 |
Define the term sustainable as used in the Green Growth Plan paragraph.
Define the term price floor.
Using information from Table 1, calculate the increase in Brazil’s nominal GDP (in US$ billions) from 2020 to 2023 (est.).
Sketch an AD/AS diagram to show how a rise in consumer spending might contribute to changes in the inflation rate, with reference to the inflation data in Table 1.
Using a production possibilities curve (PPC) diagram, explain how investment in research and development (R&D) could affect Brazil’s capacity to produce goods and services in the long run.
Using a demand-and-supply diagram, explain how setting a price floor for agricultural products (e.g., coffee) may lead to market inefficiencies.
Using a Lorenz curve diagram, explain the change in income inequality suggested by the Gini coefficient trend in Table 2.
Using a business cycle diagram, explain how fluctuations in global commodity prices could influence Brazil’s real GDP growth path over time.
Using information from the text/data and your knowledge of economics, discuss the impact of Brazil’s Green Growth Plan on the country’s economic growth and development.
Explain how a government-imposed price ceiling can lead to a shortage in a market.
Using real-world examples, evaluate the effectiveness of price ceilings in improving equity and economic well-being in a market.