A-Level H2 Economics 2 — Questions and Answers
Question 1: What does GDP measure?
- The total wealth of a country
- The total value of all final goods and services produced within a country in a given period (Correct answer)
- The total income of all citizens of a country worldwide
- The government's budget balance
Correct answer: The total value of all final goods and services produced within a country in a given period
GDP (Gross Domestic Product) measures the total monetary value of all final goods and services produced within a country's borders in a specific time period.
Question 2: What is the multiplier effect in macroeconomics?
- When money supply increases proportionally
- When an initial injection of spending leads to a larger final increase in national income (Correct answer)
- When prices multiply due to inflation
- When exports multiply due to currency depreciation
Correct answer: When an initial injection of spending leads to a larger final increase in national income
The Keynesian multiplier: an initial injection (e.g., government spending) leads to a larger total increase in national income, as income is spent and re-spent throughout the economy.
Question 3: What is Singapore's main approach to controlling inflation?
- Raising interest rates
- Adjusting the Singapore dollar exchange rate through MAS monetary policy (Correct answer)
- Reducing government spending
- Increasing income tax
Correct answer: Adjusting the Singapore dollar exchange rate through MAS monetary policy
Singapore uses exchange rate policy managed by the MAS (Monetary Authority of Singapore) as its primary monetary policy tool to manage inflation, given its small, open economy heavily reliant on imports.
Question 4: What is the difference between unemployment and underemployment?
- They are the same
- Unemployment means having no job; underemployment means working less than desired or in a job below one's skill level (Correct answer)
- Underemployment means having no job
- Unemployment means working part-time
Correct answer: Unemployment means having no job; underemployment means working less than desired or in a job below one's skill level
Unemployment refers to people without jobs who are actively seeking work. Underemployment includes those working fewer hours than they want or those overqualified for their current jobs.
Question 5: What is the concept of 'comparative advantage'?
- Producing more of every good than other countries
- Producing a good at a lower opportunity cost than other countries, as the basis for trade (Correct answer)
- Having the best technology in the world
- Having the most natural resources
Correct answer: Producing a good at a lower opportunity cost than other countries, as the basis for trade
Comparative advantage is the ability to produce a good at a lower opportunity cost than other countries. It underpins international trade theory — countries specialise in goods they produce most efficiently relative to alternatives.
Question 6: What is a 'negative externality'?
- A cost imposed on third parties not involved in a transaction (Correct answer)
- A benefit received by third parties
- A government tax on pollution
- A reduction in supply
Correct answer: A cost imposed on third parties not involved in a transaction
A negative externality is a cost imposed on third parties (outside the market transaction) — for example, pollution from a factory harming nearby residents. It leads to market failure and overproduction.
A-Level H2 Economics 2
What does GDP measure?