Practice 4. The Global Economy with authentic IB Economics exam questions for both SL and HL students. This question bank mirrors Paper 1, 2, 3 structure, covering key topics like microeconomics, macroeconomics, and international trade. Get instant solutions, detailed explanations, and build exam confidence with questions in the style of IB examiners.
Nepal is a landlocked country in South Asia with an estimated population of 29 million. Agriculture remains central to the economy, accounting for about 27% of gross domestic product (GDP) and employing a sizeable proportion of the workforce. However, the country also relies heavily on tourism and remittances from migrant workers abroad, which make up more than 25% of Nepal’s total GDP. Nepal has been seeking to diversify its economy through foreign direct investment (FDI) in energy, infrastructure, and services.
In 2020, Nepal’s GDP stood at US$29.3 billion. By 2021, it had increased to US$30.5 billion, partly due to post-pandemic economic recovery and continued growth in the tourism sector. Official unemployment figures in Nepal are relatively low, but underemployment remains a major issue, especially in rural areas. The country’s Gini coefficient is estimated at 0.32, indicating moderate income inequality, though rural–urban disparities still persist. Nepal’s tax system includes both direct and indirect taxes; the highest marginal rate for personal income tax is approximately 30%.
The tourism sector is vital. Trekking permits, especially for the Annapurna, Everest, and Langtang regions, represent a key source of government revenue. Due to recent changes in permit fees and fluctuations in tourism numbers, local businesses have experienced varying levels of income from trekking-related services.
Table 1: Labour market data in Nepal (2021)
| Population (millions) | Labour force (millions) | Employed (millions) | Unemployed (millions) |
|---|---|---|---|
| 29 | 16.0 | 15.6 | 0.4 |
Table 2: Trekking permit data for Nepal
| Year | Average permit price (USD) | Number of permits sold |
|---|---|---|
| 2021 | 50 | 150 000 |
| 2022 | 60 | 120 000 |
Using the information in Table 1, calculate the official unemployment rate in Nepal for 2021.
Using the data provided in the text, calculate Nepal’s real GDP growth rate from 2020 to 2021. Show your working.
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.
Using information from Table 2, calculate the change in total revenue from trekking permit sales between 2021 and 2022.
Define the term “Keynesian multiplier.”
Using an AD/AS diagram, explain how an increase in foreign direct investment might affect real output in Nepal in the short run.
Using information from Table 1, calculate the labour force participation rate in Nepal for 2021.
Using information from the text, explain how income inequality could act as a constraint on Nepal’s economic growth.
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$200 million investment in highways. Economists estimate the marginal propensity to consume (MPC) in Albania to be about 0.8.
Table 1: Selected Macroeconomic Indicators for Albania
| Year | Real GDP (billion US$) | Unemployment Rate (%) | Gini Coefficient |
|---|---|---|---|
| 2021 | 15.2 | 11.5 | 0.30 |
| 2022 | 16.0 | 12.0 | 0.31 |
Table 2: Tourism Data in Albania (2022)
| Price per Tour Package (EUR) | Quantity Demanded of Tour Packages (thousands) |
|---|---|
| 400 | 140 |
| 450 | 120 |
Using the information provided in Table 1, calculate the percentage change in Albania’s real GDP between 2021 and 2022.
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.
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.
Using the data in Table 1, calculate the absolute change in the unemployment rate between 2021 and 2022.
Define the term “progressive tax.”
Using an AD/AS diagram, explain how an increase in government spending on infrastructure could affect real GDP in Albania.
Using information from Table 1, calculate the approximate percentage change in Albania's Gini coefficient between 2021 and 2022. Show your working.
Using information from the text, explain how a persistent trade deficit might impact Albania’s economic growth.
Using the text/data provided and your knowledge of economics, recommend a policy which the government of Albania could implement in order to reduce unemployment.
Guatemala is a Central American country with an estimated population of 17.9 million (2022). According to World Bank data, real GDP was approximately US$85 billion in 2022. Agriculture, particularly coffee, sugar, and bananas, makes up a significant portion of Guatemala’s exports (around 28% of total exports). While the tourism sector has been expanding, recent global events caused slowdowns. The country experiences persistent inequality, with a Gini coefficient estimated at about 0.48 in 2021. Poverty remains a major concern, especially in rural areas.
Guatemala’s tax system includes both direct and indirect taxes, although collection remains challenging. Personal income tax rates are progressive, with a top rate of 31%, while the corporate income tax rate is 25%. A value-added tax (VAT) of 12% applies to most goods. Government spending has focused on infrastructure and social programs to reduce poverty and increase potential long-term growth.
Table 1: Macroeconomic Indicators of Guatemala (2019–2022)
| Year | Real GDP (US$ bn) | Nominal GDP (US$ bn) | Exports of Goods & Services (US$ bn) | Government Spending (US$ bn) |
|---|---|---|---|---|
| 2019 | 76.0 | 78.2 | 11.5 | 11.8 |
| 2020 | 73.5 | 75.0 | 10.2 | 12.1 |
| 2021 | 78.4 | 81.0 | 12.4 | 12.3 |
| 2022 | 85.0 | 88.0 | 13.5 | 13.2 |
Table 2: Income Distribution in Guatemala (2021)
| Quintile | Income share |
|---|---|
| 1 (lowest 20%) | 4.1% |
| 2 | 9.0% |
| 3 | 15.0% |
| 4 | 24.0% |
| 5 (highest 20%) | 47.9% |
Table 3: Market for Guatemalan Coffee in the US (price per 50 kg bag)
| Price per 50 kg bag | Quantity Demanded (tons) | Quantity Supplied (tons) |
|---|---|---|
| $110 | 900 | 550 |
| $120 | 850 | 600 |
| $130 | 800 | 650 |
| $140 | 750 | 700 |
| $150 | 700 | 740 |
Table 4: Tax Rates in Guatemala
| Type of tax | Rate of tax |
|---|---|
| Corporate income tax | 25% |
| Personal income tax | Progressive up to 31% |
| Value Added Tax (VAT) | 12% on most goods; some items taxed at 0% |
Figure 1 (not drawn here) shows that, when government spending in Guatemala increases by US$1 billion, real GDP rises by an estimated US$2.5 billion. This suggests a government spending multiplier of 2.5.
Using the information in Table 1, calculate the real GDP growth rate from 2021 to 2022.
Using Figure 1, the government spending rises by US$1 billion, yet real GDP rises by US$2.5 billion. Calculate the government spending multiplier and explain the main step used in your calculation.
Using the information in Table 3, calculate the price elasticity of demand (PED) for Guatemalan coffee when the price rises from US$120 to US$130 per 50 kg bag.
Using the information in Table 3, calculate the price elasticity of supply (PES) for Guatemalan coffee when the price increases from US$140 to US$150 per 50 kg bag.
Define the term “progressive tax.”
Using an AD/AS diagram, explain how an increase in government spending might increase real GDP and reduce unemployment in Guatemala.
Using the data in Table 3, calculate the approximate equilibrium price for Guatemalan coffee. Show your working.
Using information from Table 2, explain two ways in which high income inequality might hamper economic development in Guatemala.
Using the text/data provided and knowledge of economics, recommend a policy that the government of Guatemala could implement to reduce income inequality. Justify the recommendation.
Italy is the third-largest economy in the Eurozone, with one of the highest levels of public debt in the world (approximately 150 % of GDP in 2021). Despite having a diversified manufacturing sector and being one of the world’s largest wine exporters, Italy has faced persistent challenges, including relatively low growth, high structural unemployment, and regional disparities between the more industrialized North and the agricultural South.
According to the World Bank, Italy’s real GDP grew by 3.9 % in 2022, following a rebound in economic activity after significant pandemic-related contractions. Tourism accounts for about 13 % of GDP, while wine exports, led by regions such as Veneto and Tuscany, play a significant role in the country’s trade balance. However, youth unemployment remains high, and income inequality, measured by the Gini coefficient, remains a concern for policymakers.
Tble 1: Selected Macroeconomic Indicators of Italy (2019–2022)
| Year | Real GDP (billion €) | Real GDP Growth (%) | Unemployment Rate (%) | Gini Coefficient | Public Debt (% of GDP) |
|---|---|---|---|---|---|
| 2019 | 1,770 | 0.3 | 10.0 | 0.33 | 135 |
| 2020 | 1,650 | -8.9 | 11.4 | 0.34 | 155 |
| 2021 | 1,740 | 6.6 | 10.2 | 0.34 | 151 |
| 2022 | 1,808 | 3.9 | 9.5 | 0.35 | 150 |
Table 2: Distribution of Income in Italy by Quintile (estimates for 2022)
| Quintile | Percentage of Total Income |
|---|---|
| Top 20 % | 35 |
| Second 20 % | 22 |
| Third 20 % | 18 |
| Fourth 20 % | 15 |
| Bottom 20 % | 10 |
Italy’s fiscal policy is characterized by a progressive income tax system, where the tax rate increases with higher incomes. Meanwhile, corporations face an average of 24 % corporate tax. The government has struggled to foster high-growth rates due to constrained public finances and the need to manage its large debt burden.
Table 3: Market for Italian Wine Exports (2022)
| Price per Bottle (€) | Quantity Demanded (million bottles) |
|---|---|
| 5 | 200 |
| 6 | 180 |
Producers of Italian wine benefit from strong demand in foreign markets. However, increasing global concerns about inflation and supply chain disruptions have impacted production costs, especially for small wineries. The table above shows data for two different price points in the export market for Italian wine.
Using the information in Table 1, calculate Italy’s real GDP growth rate from 2021 to 2022 in € terms.
Using the data in Table 2, calculate the combined share of total income earned by the top 40% of income earners in 2022.
Using the information in Table 3, calculate the price elasticity of demand (PED) for Italian wine when the price increases from €5 to €6 per bottle (use the midpoint formula).
Assume producers’ total revenue changes correspondingly with the price change from €5 to €6. Using the information in Table 3, calculate the percentage change in total revenue.
Define the term “Keynesian multiplier.”
Using an AD/AS diagram, explain how a decrease in consumer confidence might affect real output in Italy.
Using the information in Table 1, calculate the average annual real GDP growth rate in Italy between 2020 and 2022.
Using the information in Table 1 and the text above, explain two reasons why high public debt might hamper long-term economic growth in Italy.
Using the text/data provided and knowledge of economics, recommend one policy which the government of Italy could implement to reduce the persistently high youth unemployment rate.
Estonia is a small Baltic nation of approximately 1.3 million people and a member of the European Union (EU). Its economy is characterized by a highly developed digital infrastructure, a strong commitment to innovation, and comparatively low public debt. The country has seen notable growth in service sectors such as tourism and information technology (IT). Estonia is also known for its relatively low level of corruption and ease of doing business.
In recent years, Estonia’s GDP growth has fluctuated. Between 2018 and 2019, real GDP grew steadily due to robust exports of IT services and growth in inbound tourism. However, the global economic slowdown in 2020 led to lower tourism revenues, affecting the country’s overall economic performance. Income inequality has been an area of focus for policymakers, given Estonia’s Gini coefficient has been moderate but slowly increasing. The government maintains several forms of taxation (including VAT, personal income tax, and corporate taxation), each contributing differently to government revenue.
Tourism is an important source of income, especially from visitors from Finland, Russia, and other EU countries. Average spending per tourist has tended to rise, but so have accommodation and transportation costs. The price elasticity of demand for inbound tourism is not negligible, as changes in travel costs and exchange rates influence tourist flows.
Estonia’s taxation system includes a flat personal income tax rate of 20%, although there are discussions about introducing progressive elements. VAT rates vary depending on the product category. Meanwhile, the government has contemplated expansionary fiscal measures to offset slower growth periods. Policymakers also debate the efficacy of supply-side policies (such as reducing labor taxes and encouraging business start-ups) to maintain Estonia’s competitiveness in the global digital economy.
Table 1: Selected Macroeconomic Indicators for Estonia (2018–2021)
| Indicator | 2018 | 2019 | 2020 | 2021 |
|---|---|---|---|---|
| Real GDP (billion euros) | 26.0 | 27.2 | 26.5 | 29.0 |
| Real GDP Growth Rate (%) | 4.5 | 4.3 | -2.9 | 8.2 |
| Unemployment Rate (%) | 5.4 | 4.4 | 6.8 | 6.0 |
| Gini Coefficient | 0.31 | 0.32 | 0.33 | 0.34 |
Table 2: Estimated Demand for Inbound Tourism (annual)
| Average Price per Trip (euros) | Quantity of Trips Demanded (thousands) |
|---|---|
| 300 | 325 |
| 330 | 280 |
Table 3: Government Tax Data (2021)
| Type of Tax | Rate | Annual Revenue (million euros) |
|---|---|---|
| Personal Income Tax | 20% (flat) | 1,880 |
| Corporate Tax | 20% on distributed profit | 800 |
| Value-Added Tax (VAT) | Standard rate: 20% | 2,200 |
Table 4: Consumption and Multiplier Data (2021)
| Aggregate Income (Y) (billion euros) | Marginal Propensity to Consume (MPC) |
|---|---|
| 28.0 | 0.75 |
Using information from Table 2, calculate the price elasticity of demand for inbound tourism in Estonia when the average price per trip increases from €300 to €330.
Using the data in Table 1, calculate Estonia’s average annual real GDP growth rate over the period 2018 to 2021. Show all your working.
Using information from Table 1, calculate the percentage change in the Gini coefficient from 2018 to 2021.
Using Table 4, calculate the Keynesian (simple) multiplier for Estonia.
Define the term “progressive tax.”
Using an AD/AS diagram, explain how a significant increase in Estonia’s IT services exports might affect real GDP and the price level in the short run.
Using the data from Table 3, calculate what percentage of Estonia's total tax revenue comes from personal income tax. Show your working.
Using information from the text and Table 1, explain two ways in which Estonia’s rising income inequality could affect its long-term economic development.
Using the text/data provided and your knowledge of economics, recommend a policy that the Estonian government could implement to maintain strong economic growth while addressing rising income inequality.