Economics P2 Jan 2026

IAL_ECONOMICS_2026_Jan_U2_QP.pdf

IAL_ECONOMICS_2026_Jan_U2_MS.pdf

#Section A - 3 minutes 20 secounds (56:40) (time starts at an hour to make it easier to write then after this hour finishes a 45 minute timer starts)

1. B

2. A

3. B

4. C

5. D

6. D

#Section B

1. A negative output gap is when a country in the short run produces below the maximum capacity/lfe at LRAS1, this is either due to AD or SRAS operating at ad2 or sras 2 instead of ad1 and sras1 which intersect and reach equilbirum at yfe on lras1. A disadvantage of a negative output gaep to mexxico is that is is not producing as much as it should and operating under the economic potential and how well their eocnomy is going which is caused by the manufacturing sector, this therefore means people in the manufacturing sector are not paid as well and some of them are unemployed meaning they do not earn an income therefore have to rely on unemployment benefits or savings and therfore do not consume as much and shift their spending on neceesstities and therfreo this further decreases AD as consumption is part of ad and it worsnes their living standards as they cannot afford as much wellbeing maximising goods such as a gym membership or healthcare or nutrious foods. - 4 mins 52:00

8 ) AD shifting to the right resulting in an incrreased price leevel from pl1 to pl2 and economic fgrwth from y1 to y2. - award full marks for the diagram pl on the y axis and real gdp on the x axis and a sras curve drawn as well. - 1minute - 51:00

1. 1/1-0.9 = 10 therefore a 10 x multipler therefore the final increase in gdp would be 39 billion dollars $ - 1 minute 50:00

2. A trade deficit is when a country imports more than it exports resulting in more money flowing out of the economy through trade such as hungary in 2022 where they had a trade defifict of 13.46 billion us dollars $ On the other hand a trade surplus is when an economy exports more then it imports resulting in more money comming into the economy through trade such as hungary in 2023 where they had a trade surplus of 4.48 billion us dollars $. - 2 minutes 48:20

One limitation of using GNI per capita comparing countries is that the real purchasing power/ppp of diffferent countries is different take in norway with a real gni per capita of 11860 dollars, a loaf of bread may cost lets say 8 dollars wheras in a country like india with a GNI per capita of 8230 may a loaf of bread may cost 1 dollar therefore though the income of noeway may be higher however the ammount of things you can buy with that money in norway may equat to the same as india and and therefore does not accuarately showcase living standards inbewteen countries as they can buy the same nutrious food and healthcare and housing for cheaper due to purchasing power parities. -45:20 - 3 minutes

#Section C - start at 45 minutes + 45 minutes = 90 minutes

Define the term ‘fiscal policy’ (Extract C). (2) - 1 minute - 89:00 Fiscal policy is government policy on whwat to spend their money on such as increasing government spending and decreasing taxes in order to stimulate the economy,

(b) With reference to Extract A, line 7, explain the term ‘net investment’. (4)

(c) With reference to Extract A, analyse the likely impact of the increase in oil production on Guyana’s balance of trade. (6)

(d) With reference to Figure 1 and Extract B, examine two effects of the rise in real GDP per capita on the economy of Guyana. (8)

(e) With reference to Extract C and your own knowledge, discuss the likely effects of the increased spending on infrastructure on the economy of Guyana. (14)

#Section D

1. In Ireland real GDP decreased by 1.9% in the second quarter and decreased by 0.7% in the third quarter of 2023. Evaluate the disadvantages of a recession on the macroeconomy of a country.

2. In March 2024 the Central Bank of Egypt increased its base rate of interest from 21.25% to 27.25%. Evaluate the use of monetary policy as a means of controlling inflation. Refer to a country of your choice in your answer.