Economics

Higher Level
Model Paper 3 Paper 1
Monday, 4 May, 2015 (afternoon)
1 hour 30 minutes
___________________________________________________________________________
Instructions to candidates:
Use of calculator is not allowed
You will be given 5 minutes of reading time
Diagrams if used, should be fully labelled diagrams
Answer any 1 question form Section A
Answer any 1 question form section B

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Section A
Answer any one question form this section
Microeconomics
1.

a.

Using diagram, explain how governmnet provides price support in labour

market by introducing minimum wages.

b.

[10 marks]

Discuss the consequences of providing price support to labourers under

minimum wages act on an economy.

2.

[15 marks]

a.

Explain how abuse of monopoly power can cause market failure. [10 marks]

b.

Discuss the measures that governmnet can take to correct the market failure
occurs as a result of monopoly power abuse.

[15 marks]

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Section B
Answer any one question form this section
Macroeconomics
3.

a.

Using diagram, differentiate between aggregate supply curve according to

neo-classical model and Keynesian model.

b.

[10 marks]

In contrast to the new classical model, the economy can remain stuck in a
deflationary (recessionary) gap in the Keynesian model for an extended
period of time, comment.

4.

a.

[15 marks]

With the help of diagram explain the significance of Keynesian multiplier.

[10 marks]

b.

Discuss how progressive taxation and unemployment benefits help economy

in achieving stability during short term economic fluctuations.
Or
Discuss the role of automatic stabilizers in an economy.

[15 marks]

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