Topic 1: The global economy

What does Gross World Product measure?

In a hypothetical world (invented figures, constant prices), Gross World Product rises from 120 trillion dollars to 126 trillion dollars in a year. Over the same year the output of one region, the Eastern bloc, rises from 30 trillion dollars to 33.6 trillion dollars. What percentage of the growth in Gross World Product came from the Eastern bloc?

In a hypothetical world (invented figures), real Gross World Product rises from 150 trillion dollars in one year to 154.5 trillion dollars in the next. What is the rate of growth of real Gross World Product, to one decimal place?

Velto, a hypothetical phone company, designs its phones at its head office in Hartland, buys chips from a supplier in Norland and pays an independent factory in Sudara, where wages are low, to assemble them. It owns no plants outside Hartland. Which feature of globalisation does this show most directly?

Lakeland, a hypothetical economy, sells a third of its exports to Hartland. Hartland enters a recession. Other things equal, through which channel is Lakeland most directly affected in the short term?

Which of the following best describes a transnational corporation?

Which of these invented transactions is an example of foreign direct investment into Lakeland?

A hypothetical Lakeland insurer moves its claims processing to an office in Sudara, where staff check claims online and reply to Lakeland customers by phone and email. Which feature of globalisation does this show most directly?

Marrow, a hypothetical emerging economy with a floating exchange rate, has banks that borrow heavily short term in a major foreign currency. After a financial crisis in another region, foreign investors sell their Marrow assets and take their funds home. Other things equal, which outcome in Marrow is most likely?

Which statement about the international business cycle is correct?

In a day, a worker in Arland can make 12 shirts or 4 radios, and a worker in Belmont can make 6 shirts or 3 radios (invented figures). Which statement is correct?

In a day, a worker in Arland can make 12 shirts or 4 radios, and a worker in Belmont can make 6 shirts or 3 radios (invented figures). Arland specialises in shirts and Belmont in radios, and they trade. At which rate of exchange would both economies gain from the trade?

Corra and Dalby each have 100 workers (invented figures). A Corra worker can make 10 units of wheat or 5 units of cloth; a Dalby worker can make 4 units of wheat or 4 units of cloth. Before trade, each economy puts half its workers on each good. Dalby then specialises fully in cloth, and Corra makes just enough cloth to keep the two economies' combined cloth output at its level before trade. By how much does combined wheat output rise?

Lakeland, a hypothetical economy, removes its tariffs on imported clothing. Other things equal, which cost is most likely in Lakeland in the short term?

Which of the following is a role of the World Trade Organization?

Marrow, a hypothetical economy, is running out of foreign currency reserves and can no longer pay for essential imports. Which international organisation is most likely to lend to it, and on what terms?

Which of the following best describes the OECD?

During a hypothetical global recession, the leaders of a group of large advanced and emerging economies agree that each will use expansionary fiscal policy at the same time. Which statement best explains why acting together is more effective than each economy acting alone?

A group of hypothetical economies removes all tariffs on trade between its members and also sets one common tariff on imports from non-members. Which type of agreement is this?

Lakeland, a hypothetical economy, imports cars from Hartland, the world's lowest-cost producer at 20 thousand dollars a car, and charges a 20% tariff on them. Lakeland then forms a free trade area with Norland, whose cars cost 22 thousand dollars, and buyers switch to Norland's cars. Taking buyers and the government together, what is the effect on Lakeland for each car that was already being imported?

Which of the following is a bilateral trade agreement?

What is the main source of the gains from free trade?

Which is a disadvantage for a hypothetical economy of joining a monetary union?

Hartvale, a hypothetical small economy, imports kettles at a world price of 5 dollars. Its domestic demand is Q = 200 − 10P, where P is the price in dollars that buyers pay, and its domestic supply is Q = 10P - 20, where P is the price in dollars that producers receive; Q is thousands of kettles (invented figures). In place of a tariff, the government pays its producers a subsidy of 2 dollars on every kettle they make. What does the subsidy cost the government?

A hypothetical small economy pays its domestic producers of bicycles a subsidy for each bicycle they make, in place of a tariff. The world price of bicycles does not change. Which outcome is most likely?

Lakeland, a hypothetical small economy, limits sugar imports with a quota set below the amount it imported under free trade. The import licences are given free to existing importers. Other things equal, which outcome is most likely?

Which of the following is a local content rule?

Lakeland, a hypothetical large wheat exporter, pays its farmers a subsidy for every tonne of wheat they export. Other things equal, what is the most likely effect on wheat farmers in other exporting countries?

Which of these invented cases is an example of dumping?

Lakeland's government places a tariff on imported solar panels. It says its new panel makers need a few years to grow large enough to match foreign producers' costs. Which reason for protection is this, and what is its main risk?

Lakeland, a hypothetical economy, places a tariff on imported furniture to protect jobs in its furniture industry. Which is the strongest economic criticism of this employment argument?

A hypothetical government protects its shipbuilding industry with subsidies so that it can build naval ships in a war, even though imported ships are cheaper. Which reason for protection is this?

Two large hypothetical economies, Hartland and Norland, each raise tariffs on the other's goods in turn over several years. Other things equal, what is the most likely effect on the global economy?

Which statement best distinguishes economic development from economic growth?

Which three dimensions does the Human Development Index combine?

The table gives invented figures for four hypothetical economies. Which economy has the highest GDP per capita?

In Sorrel, a hypothetical economy, real GDP rises from 300 billion dollars to 309 billion dollars in a year, while its population rises from 20.0 million to 20.2 million (invented figures). What is the growth rate of real GDP per capita, to one decimal place?

The graph shows Lorenz curves for two hypothetical economies, Tarn and Ully (invented data). What share of Tarn's total income goes to its richest 20% of households?

On a Lorenz diagram drawn with both axes running from 0 to 1, the area between the line of equality and a hypothetical economy's Lorenz curve is 0.15. What is its Gini coefficient?

Which description best fits an emerging economy?

Two hypothetical economies, Arvo and Belo, had similar incomes per person fifty years ago. Since then Arvo has spent heavily on schooling and kept stable courts and property rights, while Belo has suffered repeated civil conflict. Which best explains why Arvo's income per person is now much higher?

Sudara, a hypothetical developing economy, removes limits on foreign investment. Transnational corporations open assembly plants in its two coastal cities, paying more than local farm work. Other things equal, which combination of effects is most likely over the next decade?

Why is a global environmental problem such as climate change hard for any one country to solve on its own?

The table gives invented figures for two hypothetical economies. Quorn ranks above Pell on the Human Development Index although its income per person is lower. Which statement best explains this?

In a hypothetical world, the poorest large economies grow much faster than the advanced economies for two decades, while within each of them most of the gains go to the richest 10% of households. Which outcome is most likely?

Over a decade, real GDP per capita in Varn, a hypothetical oil exporter, doubles. Life expectancy, school enrolment and access to clean water barely change, because most of the new income goes to a small group. What does this show?

The table shows the hours of labour needed to make one unit of each good in two hypothetical economies (invented figures). Which pattern of specialisation lets both economies gain from trade?

Lakeland, a hypothetical small economy, can import kettles at a world price of 5 dollars. Its domestic demand is Q = 200 − 10P and its domestic supply is Q = 10P - 20, where Q is thousands of kettles and P is in dollars (invented figures). It sets an import quota of 60 thousand kettles and gives the import licences free to importers. What is the domestic price, and who gains on the imported kettles?

A recession in Hartland cuts its spending on Lakeland's exports by 4 billion dollars a year. In Lakeland, a hypothetical economy, the marginal propensity to save is 0.2, the marginal propensity to tax is 0.15 and the marginal propensity to import is 0.15. Other things equal, by how much will Lakeland's national income fall?

Why is Gross World Product usually measured with purchasing power parity exchange rates, not market exchange rates?

Over ten years, a hypothetical economy's Gini coefficient for income rises from 0.32 to 0.41. Which statement is correct?

Lakeland, a hypothetical economy, places a tariff on imported steel. Other things equal, which pair of groups in Lakeland is most likely to gain and to lose?

Gross World Product is often found by converting each economy's output into one currency, the world dollar, at market exchange rates. In Lakeland, a hypothetical economy, output at constant prices rises from 500 billion to 515 billion Lakeland dollars over a year, while the market exchange rate falls from 0.80 to 0.72 world dollars per Lakeland dollar (invented figures). How does Lakeland's output change when measured in world dollars at market exchange rates, to one decimal place?

Corvex, a hypothetical transnational corporation, makes a component in Hartland at a cost of 60 dollars and sells it to its own subsidiary in Lowland, which spends a further 20 dollars a unit and sells the finished good for 160 dollars. Profits are taxed at 30% in Hartland and 10% in Lowland (invented figures). Corvex lowers the internal price it charges its subsidiary for the component from 100 dollars to 60 dollars, and nothing else changes. How does the total tax Corvex pays on each unit change?

Hartland, a large hypothetical economy, enters a recession. The world prices of the minerals that make up most of Lakeland's exports fall by 20%, while the world prices of Lakeland's imports do not change. Lakeland's terms of trade index was 100 before the fall, and Lakeland has a floating exchange rate (invented figures). Other things equal, which outcome is most likely in Lakeland in the short term?

In a day, a worker in Corvo can make 8 tonnes of wheat or 2 machines, and a worker in Delta can make 3 tonnes of wheat or 1 machine (invented figures). Corvo specialises in wheat and Delta in machines, and they trade at 3.4 tonnes of wheat for each machine. Corvo imports 25 machines. Measured in tonnes of wheat, how much does each economy gain on this trade compared with making the goods itself?

The table shows output per worker per day in two hypothetical economies, before and after new looms double the cloth output of Lakeland's workers (invented figures). Hartland's figures do not change. Which statement is correct after the change?

Lakeland's producers make bicycles at a constant cost of 1100 dollars each, which is also their price. Hartland, the world's lowest-cost producer, sells bicycles for 900 dollars, but Lakeland's 30% tariff makes them dearer than local bicycles, so none are imported. Lakeland then forms a free trade area with Norland, whose bicycles cost 1000 dollars, and buyers switch to them (invented figures). Taking buyers, producers and the government together, what is the effect on Lakeland for each bicycle that used to be made locally?

Rowan, a hypothetical Lakeland firm, exports every machine it makes at a world price of 200 thousand dollars, which it cannot change. Each machine uses steel bought at the world price of 40 thousand dollars and other inputs costing 140 thousand dollars. Lakeland's government then places a 25% tariff on imported steel, and Lakeland's steel makers raise their price to the world price plus the tariff (invented figures). Other things equal, by what percentage does Rowan's profit on each machine fall?

Tarnia, a hypothetical small economy, imports helmets at a world price of 4 dollars. Its domestic demand is Q = 240 − 20P, where P is the price buyers pay, and its domestic supply is Q = 20P - 40, where P is the price producers receive; Q is thousands of helmets (invented figures). The government wants local firms to make 80 thousand helmets and can use either a tariff or a subsidy paid on each helmet made locally. Which statement compares the two correctly?

Lorn, a hypothetical small economy, imports toasters at a world price of 4 dollars. Its domestic demand is Q = 180 − 10P and its domestic supply is Q = 10P - 30, where Q is thousands of toasters and P is in dollars (invented figures). A tariff of 3 dollars a toaster would cut imports to 70 thousand, the same as a quota of 70 thousand. Demand then rises by 20 thousand toasters at every price. What happens under each measure?

The table shows the share of total income received by each fifth of households in Pellam, a hypothetical economy (invented figures). Taking Pellam's Lorenz curve as straight lines joining the points for each fifth, what is its Gini coefficient, to two decimal places?

The table gives invented figures for Sorrel, a hypothetical economy. What is the growth rate of Sorrel's real GDP per capita from year 1 to year 2, to one decimal place?

In a hypothetical world of two economies, income per person is 2000 dollars in Arvo and 30 000 dollars in Belo. Over the next year, income per person grows by 10% in Arvo and by 2% in Belo (invented figures). Which statement about the gap between them is correct?

Over five years, real GDP in Sudara, a hypothetical emerging economy, rises by 25% as transnational corporations open factories there, while its greenhouse gas emissions rise by 10% (invented figures). Which statement about Sudara's emissions is correct?

How many kettles does Lakeland import once the tariff applies?

How much revenue does Lakeland's government collect from the tariff?

What is the deadweight loss to Lakeland caused by the tariff?