DP Economics

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Question 21M.3.HL.TZ0.b.iii

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Date May 2021 Marks available [Maximum mark: 4] Reference code 21M.3.HL.TZ0.b.iii
Level HL Paper 3 Time zone TZ0
Command term Explain Question number b.iii Adapted from N/A
b.iii.
[Maximum mark: 4]
21M.3.HL.TZ0.b.iii

Table 2 provides information relating to the country of Averna in 2019.

Table 2

In 2019, the population of Averna is 213 600, while the GDP deflator is 125.

Explain two reasons why an increase in real GDP per capita may not lead to an improvement in living standards.

[4]

Markscheme

Reasons may include:

  • The distribution of income may become uneven, so that the benefits of increasing real GDP may not be enjoyed by some.
  • Due to structural changes, employment opportunities decrease for some groups, who will not benefit from higher real GDP.
  • More accurate recording of self-provided goods may account for the increase in real GDP without a corresponding increase in output/income.
  • An increase in real GDP may lead to negative environmental effects, such as poor air quality, meaning that living standards do not improve.
  • The composition of output may have changed. An increase in real GDP that results from an increase in military spending (or without an increase in spending on health and education) may not improve living standards.
  • GNP could be lower than GDP due to profit repatriation by MNCs or to income remittances overseas by immigrant workers.
  • An increase in real GDP might be accompanied by reduced leisure time/freedom.
  • Any other reasonable response.
Examiners report

Candidates were generally able to identify the relevant concepts needed to answer the question such as the distribution of income, the composition of output, the creation of externalities of the amount of leisure time available. However, many neglected to focus on the possible impact of an increase in real GDP, and simply wrote that "GDP does not measure health/education/happiness". Stronger responses explained clearly the possible reasons why an increase in real GDP may not lead to more spending on health, education or other merit goods. 

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