©THESTAR 2024/2025 ALL RIGHTS RESERVED 10:08PM.
IB Economics Macroeconomics Exam
Questions And Answers 2025 Update.
Five major objectives of macroeconomic policies. - Answer✔•Economic growth: A steady rate
of increase of national output
•Full Employment: A low level of unemployment
•Price stability: A low and stable rate of inflation
•Satisfactory balance of payments
•Equal Income distribution : An equitable distribution of income
Describe, using a diagram,
the circular flow of income
between households and
firms in a closed economy
with no government. - Answer✔See notes
Identify the four factors
of production and their
respective payments and
explain that these constitute
the income flow in the model. - Answer✔•factors of production households provide to firms:
→land
→labour
→capital
→enterprise.
•The firms, in return pay the factors of production:
1
,©THESTAR 2024/2025 ALL RIGHTS RESERVED 10:08PM.
→wages
→rent
→interest
→profit
Relationship between income flow, expenditure flow and output flow. - Answer✔Income
flow=expenditure flow + output flow
Describe, using a diagram,
the circular flow of income
in an open economy with
government and financial
markets, referring to leakages/
withdrawals (savings, taxes
and import expenditure)
and injections (investment,
government expenditure and
export revenue). - Answer✔See notes
Define national income. - Answer✔Measures the monetary value of the flow of output of goods
and services produced in an economy over a period of time.
3 measures of national income. - Answer✔Most commonly used measure of countries national
income is GDP. 3 different methods to calculate this:
1. The output method (measures actual value of goods and services produced)
2. The income method (value of all incomes earned in economy)
3. Expenditure method (measures value of all spending on goods and services)
Distinguish between GDP and GNP/GNI as measures of economic activity. - Answer✔GROSS
DOMESTIC PRODUCT (GDP):
•value of final goods and services produced within a country in a given period
•It is the total of all activities in a country, regardless of who owns the productive asset.
GROSS NATIONAL PRODUCT (GNP/GNI):
•market value of all products and services produced in one year by labour and property
supplied by the residents of a country.
2
, ©THESTAR 2024/2025 ALL RIGHTS RESERVED 10:08PM.
Define and distinguish between gross national product (GNP) and gross domestic product
(GDP). - Answer✔GNP=GDP+net property income from abroad (income earned from assets
overseas)
GDP= C+I+G+(X-M)
Unlike Gross Domestic Product (GDP), which defines production based on the geographical
location of production, GNP allocates production based on ownership. It is the total income
that is earned by a country's factors of production regardless of where the assets are located.
Define and distinguish between gross national product(GNP) and net national product (NNP). -
Answer✔NNP=GNP-Depreciation (capital consumption)
Define and distinguish between nominal GDP and real GDP. - Answer✔Real GDP=Nominal GDP
adjusted for inflation.
Explain the uses of national income statistics. - Answer✔Shows:
•economic growth (is an increase in national income over time)
•develop policies
•develop models of economy to make forecasts
•performance
•identifying changes in consumption, investment
•evaluate living standards
•basis for comparing different countries
Explain the limitations of using national income statistics. - Answer✔•Inaccuracies unrecorded
or under-recorded economic activity
•external costs (resource depletion, pollution)
•other quality of life concerns (people may be earning higher incomes but not enjoy higher
standards of living, not account free activities such as volunteer work)
•composition of outputs (large part of countries output is in goods that do not benefit
consumers such as defence or capital goods)
Evaluating National income statistics. - Answer✔•GDP is a measure of the value of production
in terms of market prices
•indicator of economic activity, not a measure of a nations overall welfare
•unreliable show of an economies health as it:
→excludes nonmarket production (household services of homemakers)
→legal versus illegal activities
3
IB Economics Macroeconomics Exam
Questions And Answers 2025 Update.
Five major objectives of macroeconomic policies. - Answer✔•Economic growth: A steady rate
of increase of national output
•Full Employment: A low level of unemployment
•Price stability: A low and stable rate of inflation
•Satisfactory balance of payments
•Equal Income distribution : An equitable distribution of income
Describe, using a diagram,
the circular flow of income
between households and
firms in a closed economy
with no government. - Answer✔See notes
Identify the four factors
of production and their
respective payments and
explain that these constitute
the income flow in the model. - Answer✔•factors of production households provide to firms:
→land
→labour
→capital
→enterprise.
•The firms, in return pay the factors of production:
1
,©THESTAR 2024/2025 ALL RIGHTS RESERVED 10:08PM.
→wages
→rent
→interest
→profit
Relationship between income flow, expenditure flow and output flow. - Answer✔Income
flow=expenditure flow + output flow
Describe, using a diagram,
the circular flow of income
in an open economy with
government and financial
markets, referring to leakages/
withdrawals (savings, taxes
and import expenditure)
and injections (investment,
government expenditure and
export revenue). - Answer✔See notes
Define national income. - Answer✔Measures the monetary value of the flow of output of goods
and services produced in an economy over a period of time.
3 measures of national income. - Answer✔Most commonly used measure of countries national
income is GDP. 3 different methods to calculate this:
1. The output method (measures actual value of goods and services produced)
2. The income method (value of all incomes earned in economy)
3. Expenditure method (measures value of all spending on goods and services)
Distinguish between GDP and GNP/GNI as measures of economic activity. - Answer✔GROSS
DOMESTIC PRODUCT (GDP):
•value of final goods and services produced within a country in a given period
•It is the total of all activities in a country, regardless of who owns the productive asset.
GROSS NATIONAL PRODUCT (GNP/GNI):
•market value of all products and services produced in one year by labour and property
supplied by the residents of a country.
2
, ©THESTAR 2024/2025 ALL RIGHTS RESERVED 10:08PM.
Define and distinguish between gross national product (GNP) and gross domestic product
(GDP). - Answer✔GNP=GDP+net property income from abroad (income earned from assets
overseas)
GDP= C+I+G+(X-M)
Unlike Gross Domestic Product (GDP), which defines production based on the geographical
location of production, GNP allocates production based on ownership. It is the total income
that is earned by a country's factors of production regardless of where the assets are located.
Define and distinguish between gross national product(GNP) and net national product (NNP). -
Answer✔NNP=GNP-Depreciation (capital consumption)
Define and distinguish between nominal GDP and real GDP. - Answer✔Real GDP=Nominal GDP
adjusted for inflation.
Explain the uses of national income statistics. - Answer✔Shows:
•economic growth (is an increase in national income over time)
•develop policies
•develop models of economy to make forecasts
•performance
•identifying changes in consumption, investment
•evaluate living standards
•basis for comparing different countries
Explain the limitations of using national income statistics. - Answer✔•Inaccuracies unrecorded
or under-recorded economic activity
•external costs (resource depletion, pollution)
•other quality of life concerns (people may be earning higher incomes but not enjoy higher
standards of living, not account free activities such as volunteer work)
•composition of outputs (large part of countries output is in goods that do not benefit
consumers such as defence or capital goods)
Evaluating National income statistics. - Answer✔•GDP is a measure of the value of production
in terms of market prices
•indicator of economic activity, not a measure of a nations overall welfare
•unreliable show of an economies health as it:
→excludes nonmarket production (household services of homemakers)
→legal versus illegal activities
3
