IB Economics 3. Macroeconomics Questionbank

(c) Using information from Table 2, calculate the price elasticity of demand for trekking permits in Nepal when the average permit price increases from US$50 to US$60.

(d) Using information from Table 2, calculate the change in total revenue from trekking permit sales between 2021 and 2022.

(e) Define the term “Keynesian multiplier.”

(f) Using an AD/AS diagram, explain how an increase in foreign direct investment might affect real output in Nepal in the short run.

(g) Using information from Table 1, calculate the labour force participation rate in Nepal for 2021.

(h) Using information from the text, explain how income inequality could act as a constraint on Nepal’s economic growth.

(i) Using the text/data provided and your knowledge of economics, recommend a policy which could be implemented by the government of Nepal in order to promote sustainable economic growth.

Albania is a country in Southeastern Europe with an estimated population of about 2.8 million in 2022. The Albanian economy has been transitioning from a centrally planned system to a market-based system and has experienced positive real GDP growth in recent years. Tourism is a significant contributor to Albania’s GDP, and the government has intensified efforts to promote the country’s attractions along its Adriatic and Ionian coasts.

In 2022, Albania’s unemployment rate was around 12%, partly due to structural challenges in the economy. The government operates a progressive personal income tax system, with rates ranging from 0% up to 23%. Corporate income tax is set at 15%. Value-added tax (VAT) on most goods and services stands at 20%.

Albania’s trade balance remains negative, as the country’s main exports (textiles, footwear, and mineral fuels) have not kept pace with imports (machinery, food, and manufactured goods). The government has embarked on several infrastructural projects to attract foreign investment and reduce transport costs, including a newly announced US$200 million investment in highways. Economists estimate the marginal propensity to consume (MPC) in Albania to be about 0.8.

Table 1: Selected Macroeconomic Indicators for Albania

Table 2: Tourism Data in Albania (2022)

(a) Using the information provided in Table 1, calculate the percentage change in Albania’s real GDP between 2021 and 2022.

(c) Using the data in Table 2, calculate the price elasticity of demand (PED) for Albania’s tour packages when the price increases from EUR 400 to EUR 450.

(d) Using the data in Table 1, calculate the absolute change in the unemployment rate between 2021 and 2022.

Vietnam is an emerging economy in Southeast Asia that has seen rapid industrialization over the past decade. The nation relies heavily on its manufacturing sector, which contributes significantly to its export earnings. However, certain domestic sectors, such as the heavy metals industry, have struggled to remain competitive against lower-priced imports. In 2023, the Vietnamese government considered various trade protection measures to support local steel producers who claimed that foreign firms were selling products below the cost of production in the domestic market.

Steel is a vital component for the construction and automotive industries in Vietnam. To address the surge in imports, the government implemented a trade barrier to increase the domestic price and reduce the volume of imports. While this measure was welcomed by local mill owners, representatives from the construction sector warned that increased costs for raw materials could lead to project delays and higher housing prices.

Table 1: Macroeconomic Indicators of Vietnam (2020–2023)

Table 2: Employment by Economic Sector (2022)

Table 3: Market for Imported Steel in Vietnam (Annual)

Table 4: Trade Protection Policies in Vietnam (2023)

Figure 1 illustrates the impact of the trade protection policy on the domestic steel market.

(a) Using the data in Table 1, calculate the percentage change in the trade balance for Vietnam between 2022 and 2023.

(b) Using the information in Table 3, calculate the reduction in the volume of imported steel (in millions of tons) that occurred after the implementation of the tariff.

(c) Using the information in Table 3, calculate the total tax revenue (in US$ millions) collected by the Vietnamese government from the steel tariff.

(d) Using the data in Table 3, calculate the change in total consumer expenditure on steel (in US$ millions) when the price rises from $400 to $450.

Explain what is aggregate demand, and how it is represented by the AD curve.

Case Study: Germany’s Economy and Energy Transition in the Early 2020s

Germany, as Europe’s largest economy, has historically relied on its robust industrial sector, strong exports of machinery and automobiles, and high-value-added manufacturing. During the early 2020s, it faced a combination of opportunities and challenges. On the one hand, demand for German exports remained high in global markets, supported by a reputation for quality engineering. On the other hand, supply chain disruptions in semiconductors and rising energy prices, partly triggered by shifts in international energy markets and global uncertainties, weighed on industrial output.

In 2022, Germany recorded a nominal GDP of US$4.4 trillion, with real GDP growth at 1.8% a deceleration from the 2.5% reported in 2021. Average inflation rose to 7.5% in 2022, up from 3.2% the previous year. Some macroeconomists attributed this spike in inflation to a combination of higher global commodity prices, labor shortages, and an expansionary fiscal stance aimed at countering pandemic-related slowdowns. In addition, rising household disposable incomes contributed to higher consumer spending, adding demand-side pressure on the price level. The government’s budget deficit reached 3.8% of GDP in 2022, spurred by increased health expenditures and targeted subsidies for certain industries, especially those transitioning to greener production methods.

A core focus of German policy has been the energy transition (“Energiewende”), which aims to phase out nuclear power while boosting renewable energy sources such as wind and solar. The government introduced new subsidies for households installing solar panels and for firms adopting more energy-efficient processes. Although these measures have helped reduce emissions, critics argue they impose higher short-term production costs on businesses. In 2022, approximately 46% of Germany’s electricity came from renewables, illustrating a notable increase compared to 35% five years earlier. Nevertheless, some economists worry about energy security, cautioning that reliance on imported natural gas may expose the economy to price volatility.

In microeconomic terms, the government has also promoted a minimum wage policy to address income inequality and stimulate productivity within the service sector. In 2021, the minimum wage was increased by almost 10%, affecting over 4 million workers. Critics claim that small businesses may struggle with higher labor costs, while proponents emphasize that increased household income boosts consumption. Moreover, with Germany’s aging population, policymakers have launched campaigns to attract high-skilled migrant labor to fill gaps in advanced manufacturing and technological innovation.

Internationally, Germany’s trade relationships with European Union partners remain pivotal. Its exporters benefit from lower intra-EU trade barriers, and the euro acts as a common currency among 20 member states. However, some German manufacturers report that demand is influenced by exchange rate fluctuations with non-eurozone trading partners, particularly the United States and China. Before 2022, the euro experienced periods of depreciation against the U.S. dollar, making German exports more competitive globally.

With sustainability goals on the horizon, Germany has advanced plans to tax carbon-intensive production and invest in green infrastructure. Early results suggest an uptick in purchases of electric vehicles (EVs). A government-backed EV subsidy, set at €4,500 per vehicle, significantly lowered the price for consumers and led to a 30% increase in EV registrations from 2021 to 2022. Automotive firms quickly adapted supply chains to meet demand, though rising lithium and battery costs introduced uncertainties. In parallel, the government occasionally intervenes in energy markets to stabilize electricity prices and support households facing higher utility bills.

Many German economists expect moderate growth prospects in the coming years but emphasize caution due to potential external shocks such as geopolitical tensions and global financial volatility. The labor market, historically strong with an unemployment rate around 5.3% in 2022, could see pressure if foreign demand weakens. Nevertheless, policymakers remain focused on balancing green initiatives, fiscal prudence, and social welfare reforms. Their strategy includes maintaining Germany’s status as a leading export-driven economy, advancing climate objectives, and sustaining social protections.

Table 1: Germany’s Selected Macroeconomic Indicators

Table 2: Germany’s Energy and EV Transition Indicators

(a) Define the term “subsidies” mentioned in the text.

(b) Define the term “unemployment rate” mentioned in the text.

(c) Using information from Table 1, calculate the absolute change in Germany’s nominal GDP between 2020 and 2022 (in US$ trillion).

(d) Sketch an AD/AS diagram to show how higher consumer spending, prompted by rising household incomes, might affect the price level (inflation).

(b) The Albanian government’s US$200 million highway project is expected to raise national income through the Keynesian multiplier, assuming the marginal propensity to consume (MPC) is 0.8. Calculate the total increase in national income that could result from this project.