CIE A Level Topical Past Paper 2

9.1 The circular flow of income

9708/41/O/N/22

A government’s decision to increase its budget deficit as a proportion of the economy’s GDP will depend significantly upon whether the economy’s output gap is positive or negative.

With the help of a diagram explain and evaluate this statement. [25]

9708/41/O/N/21

a) Explain what economists mean by the marginal propensity to consume and consider the importance of this concept in relation to government macroeconomic policy. [12]

b) Discuss what determines the level of savings in an economy and assess the impact of an increase in the level of savings upon economic growth and employment. [13]