Question 19N.3.HL.TZ0.g
| Date | November 2019 | Marks available | [Maximum mark: 2] | Reference code | 19N.3.HL.TZ0.g |
| Level | HL | Paper | 3 | Time zone | TZ0 |
| Command term | Calculate | Question number | g | Adapted from | N/A |
In the country of Gardia, the currency is the gamma. The exchange rate of the United States dollar (US$) to the gamma is US$ 1 = 6.20 gamma.
Gardia received a loan of US$ 4 million from a foreign bank in 2018 when the exchange rate was US$ 1 = 5.3 gamma. It must pay back US$ 4.2 million (original amount borrowed plus interest) in 2019 when the exchange rate is US$ 1 = 6.2 gamma.
Both the gamma and the US$ are fully convertible currencies, which float freely in foreign exchange markets. The supply and demand for US$ (in billions) are given by the functions
where g is the exchange rate of the US$ in terms of the gamma, is the quantity of US$ supplied per month and is the quantity of US$ demanded per month.
The demand (D) function is represented in Figure 2.
Assume that the monthly supply of US$ changes to the function
Gardia’s investment (in plant and equipment) increased by 11 million gamma in the last month. In the same month, its government spending decreased by 8 million gamma. It has been estimated that the marginal propensity to consume (MPC) on domestic goods and services in Gardia is 0.75.
Calculate the maximum possible increase in real gross domestic product (GDP) in Gardia that could result from the changes in investment and government spending.
[2]
× (11 − 8) = 4 × 3
Any valid working (eg the multiplier being calculated correctly) is sufficient for [1].
= 12 million gamma
An answer of 12 million gamma or 12 without workings is sufficient for [1].
If investment is ignored and so the answer provided is 11 × 4 = 44 then [1] may be awarded.
For full marks to be awarded the response must provide valid working and include correct units.
