These are original Marlbridge practice questions, not past exam questions. They use Valdoria, Ardenia, Lorvania and Merrow, fictional countries whose currency is the valda (VD); all data are fictional. The rubrics are a suggested Marlbridge rubric to help you check your work; they are not an official scoring guideline. Assumptions: a four-function calculator is enough; round growth rates to 2 decimal places and money per person to VD 0.01.
Question 1 (multiple choice · foundation)
Which measure is best for judging whether the average standard of living in a country is rising over time?
- (A) The growth rate of nominal GDP
- (B) The growth rate of real GDP
- (C) The growth rate of real GDP per capita
- (D) The growth rate of the number of employed workers
Answer and explanation
Answer: (C). Real GDP per capita removes the effect of inflation and shares output among the whole population, so its growth rate measures growth in average living standards.
- (A) includes price rises, so it can grow even when output does not.
- (B) removes inflation but ignores population growth; total output can rise while output per person falls.
- (D) shows more people working, but output per person can still fall if productivity falls.
Question 2 (multiple choice · core)
Ardenia’s real GDP rises from VD 500 billion to VD 520 billion in a year, while its population rises from 25 million to 26 million. What is the growth rate of real GDP per capita?
- (A) 0.00%
- (B) 3.85%
- (C) 4.00%
- (D) 8.00%
Answer and explanation
Answer: (A). Real GDP per capita is 500 billion ÷ 25 million = VD 20,000 in the first year and 520 billion ÷ 26 million = VD 20,000 in the second. It has not changed. (Shortcut: real GDP and population both grew 4%.)
- (B) divides the VD 20 billion rise in real GDP by the new value, 520, instead of the old value, and still ignores the population.
- (C) is the growth of total real GDP; it ignores the 4% rise in the population.
- (D) adds the two growth rates instead of subtracting population growth.
Question 3 (multiple choice · core)
Other things equal, which of the following is most likely to raise labour productivity in Valdoria?
- (A) Firms install more and better machines for each worker.
- (B) The population and labour force grow, while the stock of machines stays the same.
- (C) Households increase consumption spending, shifting aggregate demand to the right.
- (D) The price level rises, so the money value of output per worker rises.
Answer and explanation
Answer: (A). More physical capital per worker lets each worker produce more output, which is a rise in labour productivity.
- (B) spreads the same machines over more workers, so physical capital per worker falls and productivity tends to fall.
- (C) is a short-run demand change. It can raise output and employment for a time, but it does not make each worker more productive.
- (D) raises nominal values only; productivity is measured with real output.
Question 4 (multiple choice · core)
Which of the following describes economic growth in both the production possibilities model and the AD–AS model?
- (A) A movement from a point inside the PPC to a point on it, and a rightward shift of aggregate demand
- (B) An outward shift of the PPC, and a rightward shift of the long-run aggregate supply curve
- (C) An outward shift of the PPC, and a movement up along the short-run aggregate supply curve
- (D) A movement along the PPC towards more capital goods, and a leftward shift of LRAS
Answer and explanation
Answer: (B). Growth raises full-employment output. The PPC shifts outward and LRAS shifts right; the two shifts show the same increase in capacity.
- (A) describes a recovery that uses idle resources; capacity does not change.
- (C) pairs the right PPC shift with a short-run movement along SRAS, which does not show a change in capacity.
- (D) A movement along the PPC is a change in what is produced, not in capacity, and a leftward LRAS shift would be a fall in capacity.
Question 5 (calculation · core)
Data for Ardenia:
| Year 1 | Year 2 | |
|---|---|---|
| Real GDP (VD billion) | 300 | 315 |
| Employed workers (million) | 10.0 | 10.0 |
| Population (million) | 15.0 | 15.3 |
(a) Calculate labour productivity in each year and its growth rate. (b) Calculate real GDP per capita in each year and its growth rate. (c) Identify the source of Ardenia’s growth in real GDP and name two things that could have caused it.
Worked solution
(a) Year 1: 300 billion ÷ 10.0 million = VD 30,000 per worker. Year 2: 315 billion ÷ 10.0 million = VD 31,500. Growth = (31,500 − 30,000) ÷ 30,000 × 100 = 5.00%.
(b) Year 1: 300 billion ÷ 15.0 million = VD 20,000. Year 2: 315 billion ÷ 15.3 million = VD 20,588.24. Growth = 2.94%. (Shortcut: 5% − 2% = 3%.)
(c) Employment did not change, so all of the 5% rise in real GDP came from higher labour productivity. Possible causes: more physical capital per worker (for example, new machines), more human capital per worker (for example, better training) or better technology. Any two.
Suggested mark points (3): 1 for both productivity values and 5%; 1 for both per capita values and 2.94%; 1 for identifying productivity as the source with two valid determinants. Dividing real GDP by employment in (b) loses the second point.
Question 6 (constructed response · core)
Valdoria produces capital goods and consumer goods. It is at full employment at point X on its production possibilities curve. Firms and the government decide to produce more capital goods and fewer consumer goods this year, moving to point Y on the same curve.
(a) Draw a correctly labelled PPC with capital goods on the vertical axis. Show points X and Y. (b) On the same graph, show the likely effect of the choice in (a) on Valdoria’s PPC in the future, labelling the new curve PPC₂. (c) Draw a correctly labelled AD–AS graph showing the long-run aggregate supply curve, and show the change that matches your answer to (b). (d) Using the idea of labour productivity, explain why the choice in (a) leads to the changes in (b) and (c).
Model answer and suggested Marlbridge rubric
(a) A bowed-out PPC with capital goods on the vertical axis and consumer goods on the horizontal axis. Y is on the curve, above and to the left of X (more capital goods, fewer consumer goods).
(b) PPC₂ lies outside the original PPC.
(c) Price level on the vertical axis, real GDP on the horizontal axis. LRAS₁ vertical at Yf₁ and LRAS₂ vertical at a higher Yf₂, to the right.
(d) Producing more capital goods adds to the stock of physical capital, so physical capital per worker rises. Each worker can produce more output, so labour productivity rises. Higher productivity raises full-employment output, which shifts the PPC outward and LRAS to the right.
| Point | What earns it |
|---|---|
| 1 | Correctly labelled PPC with Y on the curve showing more capital goods and fewer consumer goods than X |
| 1 | PPC₂ shifted outward |
| 1 | Correctly labelled AD–AS axes with LRAS shifting right (Yf₂ greater than Yf₁) |
| 1 | More capital goods → more physical capital per worker |
| 1 | → higher labour productivity → higher full-employment output |
Placing Y inside the PPC loses the first point. Shifting AD instead of LRAS in (c) loses the third point.
Question 7 (constructed response · stretch)
Lorvania: nominal GDP rose from VD 600 billion to VD 654 billion. The GDP deflator rose from 100 (Year 1 = base year) to 106. The population rose from 30.0 million to 30.3 million.
Merrow: over the same year, real GDP rose by 4% and the population by 3%.
(a) Calculate Lorvania’s real GDP in Year 2 and its growth rate of real GDP. (b) Calculate Lorvania’s real GDP per capita in each year and its growth rate. (c) Calculate Merrow’s growth rate of real GDP per capita. Which country had faster growth in living standards? (d) Lorvania wants faster growth. Explain how an increase in human capital per worker would raise real GDP per capita, using the aggregate production function.
Model answer and suggested Marlbridge rubric
(a) Real GDP Year 2 = 654 ÷ 106 × 100 = VD 616.98 billion. Growth = (616.98 − 600) ÷ 600 × 100 = 2.83%. (Nominal GDP grew 9%; most of that was inflation.)
(b) Year 1: 600 billion ÷ 30.0 million = VD 20,000. Year 2: 616.98 billion ÷ 30.3 million = VD 20,362.41 (using the unrounded real GDP, 616.981…). Growth = 1.81%.
(c) Merrow: 1.04 ÷ 1.03 = 1.0097, so growth = 0.97%. Lorvania had faster growth in living standards (1.81% against 0.97%), even though Merrow’s total real GDP grew faster (4% against 2.83%).
(d) The aggregate production function shows output per capita rising with human capital per capita. More education, training or better health lets each worker produce more with the same capital and technology, so labour productivity rises. With more output per worker, real GDP per capita rises, and LRAS shifts right.
| Point | What earns it |
|---|---|
| 1 | Real GDP VD 616.98 billion and 2.83% growth |
| 1 | Per capita values and 1.81% growth |
| 1 | Merrow 0.97% and the correct comparison (Lorvania faster) |
| 1 | Human capital raises output per worker (productivity) |
| 1 | Links higher productivity to higher real GDP per capita |
Accept Merrow’s growth as about 1% from the shortcut if it is labelled as an approximation. Using nominal GDP per capita in (b) (7.92%) loses the second point.
How did you do?
- Q1, Q2, Q5(b) or Q7(a)–(c) wrong: re-read “Measuring growth: real GDP per capita” and Worked example 1 in the study guide.
- Q3, Q5(a), Q5(c) or Q7(d) wrong: revisit “Labour productivity”, Figure 1 and Worked example 2.
- Q4 or Q6 wrong: revisit “Showing growth on graphs: the PPC and LRAS” and Figure 2.
Then tick off the topic checklist.