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Question 20N.1.SL.TZ0.3a

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Date November 2020 Marks available [Maximum mark: 10] Reference code 20N.1.SL.TZ0.3a
Level SL Paper 1 Time zone TZ0
Command term Explain Question number a Adapted from N/A
a.
[Maximum mark: 10]
20N.1.SL.TZ0.3a
(a)

Explain how a decrease in business confidence can affect the real GDP of an economy that is producing below the full employment level of output.

[10]

Markscheme

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.

Answers may include:

  • definitions of real GDP, business confidence, full employment level of output
  • diagram to show how a decrease in business confidence will shift AD to the left, resulting in a decrease in real GDP
  • explanation that business confidence is a determinant of investment and a decrease in confidence will lead to a decrease in AD and a decrease in real GDP
  • examples of situations where business confidence has fallen.
Examiners report

This question was well answered by many candidates. The key terms of business confidence, real GDP and full employment were mostly well defined and the impact of a fall in business confidence on real GDP was clearly explained with an effective AD/AS diagram. Weaker answers tended to be imprecise in the explanation of business confidence and needed to be clearer on the meaning of full employment.  

Syllabus sections