Cambridge IGCSE Economics: Causes, consequences and policies of economic growth (0455) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover sections 4.6.4 to 4.6.6 of the Cambridge IGCSE Economics 0455 syllabus for examination in 2026: causes of growth, costs and benefits of growth, and policies to promote growth. Economics 0455 is not tiered. The countries and figures are made up for practice. Learn the methods first from the study guide. The course home is the Cambridge IGCSE Economics hub.

Questions

1. Country E (invented) could produce 720 units of real output if all its resources were fully used. Actual output is 540 units. Total demand then rises and actual output increases to 612 units.

(a) Calculate the percentage of resources in use before the rise in demand. [1] (b) Calculate the percentage increase in actual output, to one decimal place. [2] (c) Explain why output could rise without any increase in the quantity of resources. [2]

2. State whether each event is a movement toward the production possibility curve (PPC) or a shift of the PPC to the right. (i) Firms receive more orders and put idle machines back to work. [1] (ii) New software lets each worker produce more. [1] (iii) A large new mineral deposit is found. [1] (iv) Higher export sales allow unemployed workers to find jobs. [1]

3. In Country H the capital stock is 2,400 units. Gross investment is 300 units and depreciation is 180 units. (a) Calculate net investment. [1] (b) Calculate the new capital stock and the percentage increase, to one decimal place. [2] (c) Explain why gross investment of 180 units would not raise the capital stock. [2]

4. Country J has 30 million workers and real output of 900 units at full employment. Training raises output per worker by 8% and the labour force grows by 2%. (a) Calculate output per worker before the change. [1] (b) Calculate the new potential output and the percentage growth, to one decimal place. [3] (c) State one way a government could raise output per worker. [1]

5. Country C produces wheat and machines. Its PPC passes through these points (wheat, machines): (0, 60), (30, 50), (50, 30), (60, 0). Investment and new technology then raise its capacity by 20% in every direction. (a) State the new maximum output of wheat. [1] (b) State the new combination of wheat and machines that replaces the point (30, 50). [1] (c) Explain how new technology can shift a PPC to the right. [2]

6. Explain two benefits and one cost of economic growth for a low-income country whose main activity is small-scale farming. [6]

7. In Country A (invented) total income is 800 units. Total income rises by 5%. The poorest group, which started with 40 units, gains 2%. The richest group, which started with 400 units, gains 9%. (a) Calculate the new income of each of these two groups. [2] (b) Calculate the share of total income going to the poorest group before and after, to one decimal place. [2] (c) Comment on what your answer shows about the benefits of growth. [1]

8. Country G is rich in minerals. Its real GDP is 800 units and grows by 5% a year, almost all from mining exports. The government collects tax equal to 30% of the extra output. (a) Calculate the extra tax revenue. [2] (b) Evaluate whether this growth will benefit the people of Country G. [6]

9. A government can build a road for 120 units, adding 18 units to output each year, or a port for 80 units, adding 14 units each year. (a) Calculate the annual percentage return on each project. [2] (b) Calculate the payback period for each, to one decimal place. [2] (c) Explain one factor other than return that the government should consider. [2]

10. Country K has spending of 90 units, tax revenue of 75 units and GDP of 500 units. It plans a tax cut of 6 units to encourage growth. (a) Calculate the budget deficit as a percentage of GDP. [2] (b) Calculate the deficit as a percentage of GDP after the tax cut, assuming spending and GDP are unchanged. [2] (c) Explain why the tax cut may not raise growth. [2]

11. A firm plans to borrow 150 units to buy new machinery. The central bank cuts the interest rate on such loans from 9% to 6%. (a) Calculate the fall in the firm’s yearly interest cost. [2] (b) Evaluate whether lowering interest rates is the best way for a government to promote economic growth. [7]

Answers

1. (a) Utilisation = 540 ÷ 720 × 100 = 75% [1] [1] (b) Increase = 612 − 540 = 72 [1]; 72 ÷ 540 × 100 = 13.3% [1] [2] (c) Before the rise, resources such as workers and machines were idle [1]. Higher demand brought them into use, so the economy moved toward its PPC with no new resources [1]. [2] Examiner insight: In part (c), saying “demand rose so output rose” restates the question. The explanation needs the idle resources.

2. (i) Movement toward the PPC [1]. (ii) Shift of the PPC to the right [1]. (iii) Shift to the right [1]. (iv) Movement toward the PPC [1]. [4] Examiner insight: Ask whether capacity has changed. Fuller use of the same resources is a movement; more or better resources is a shift.

3. (a) 300 − 180 = 120 units [1] [1] (b) 2,400 + 120 = 2,520 [1]; 120 ÷ 2,400 × 100 = 5.0% [1] [2] (c) Depreciation of 180 uses up as much capital as is replaced [1], so net investment is zero and capacity is unchanged [1]. [2] Examiner insight: Use the word depreciation and the idea of capital wearing out. Writing “investment always raises capital” would ignore the wear.

4. (a) 900 ÷ 30 = 30 units per worker [1] [1] (b) New output per worker = 30 × 1.08 = 32.4 [1]; new workforce = 30 × 1.02 = 30.6 million [1]; potential output = 32.4 × 30.6 = 991.44, so about 991.4 units, which is growth of (991.44 − 900) ÷ 900 × 100 = 10.2% [1] [3] (c) Any one of: provide more education and training, improve health care, or encourage investment in better machines [1]. [1] Examiner insight: Adding 8% and 2% to get 10% is close but not the correct method, because the changes compound. Show the multiplication.

5. (a) 60 × 1.2 = 72 [1] [1] (b) Wheat 30 × 1.2 = 36 and machines 50 × 1.2 = 60, so (36, 60) [1] [1] (c) Technology gives more output from the same inputs [1], so the maximum output of both goods rises and the whole curve moves out [1]. [2] Examiner insight: A clear link from the cause (technology) to the result (more output from given resources) shows understanding; repeating “it shifts the curve” does not.

6. Benefit 1: higher incomes can raise farmers’ living standards and reduce poverty [1], because they can afford more food, clothing and housing [1]. Benefit 2: greater tax revenue can fund schools and health services [1] which improve the quality of labour for further growth [1]. Cost: growth may use up farmland or forests, or raise pollution [1], which can reduce future farm output and harm health [1]. [6] Examiner insight: Each point scores when it is developed into a consequence. Naming “pollution” alone is a statement, not an explanation, and the answer should refer to a low-income farming economy.

7. (a) Poorest: 40 × 1.02 = 40.8; richest: 400 × 1.09 = 436 [2] [2] (b) Before: 40 ÷ 800 × 100 = 5.0% [1]; after: 40.8 ÷ 840 × 100 = 4.9% [1] [2] (c) The poorest group’s share fell, so growth did not benefit everyone equally and inequality widened [1]. [1] Examiner insight: Total income after growth is 800 × 1.05 = 840. Using 800 as the denominator for the after share gives a wrong figure.

8. (a) Extra output = 800 × 5% = 40 [1]; tax = 40 × 30% = 12 units [1] [2] (b) Benefits: extra tax revenue and export income can pay for schools, health and roads [1]. Costs: minerals are finite, so growth cannot last once they run out [1]; the economy depends on one product, so a fall in its price would cut income and jobs [1]; mining may cause pollution and land damage [1]. Judgement: the benefit depends on whether the government invests the revenue in other industries and education [1]; if it does, the growth is more likely to help; if not, gains are short-lived and may reach few people [1]. [6] Examiner insight: A strong evaluation reaches a conclusion and names the condition it depends on, here the use of the revenue.

9. (a) Road: 18 ÷ 120 × 100 = 15% [1]; port: 14 ÷ 80 × 100 = 17.5% [1] [2] (b) Road: 120 ÷ 18 = 6.7 years [1]; port: 80 ÷ 14 = 5.7 years [1] [2] (c) Any one developed factor: the port may serve only exporters while the road helps many firms and households [1], so a lower return may bring wider benefits; or the cost of the project must fit within the budget and may widen the deficit [1]. [2] Examiner insight: Give the working and the unit (percent or years) for each project, so the two can be compared.

10. (a) Deficit = 90 − 75 = 15 [1]; 15 ÷ 500 × 100 = 3.0% [1] [2] (b) New revenue = 75 − 6 = 69, so deficit = 90 − 69 = 21 [1]; 21 ÷ 500 × 100 = 4.2% [1] [2] (c) Households or firms may save the extra money instead of spending or investing it [1]. The larger deficit may need more borrowing, which could push up interest rates and discourage investment [1]. [2] Examiner insight: Use the assumption stated in part (b). Part (c) needs a reason linked to growth, not just “it costs money”.

11. (a) Interest at 9% = 150 × 0.09 = 13.5 [1]; at 6% = 150 × 0.06 = 9.0; fall = 4.5 units [1] [2] (b) For: cheaper borrowing encourages firms to invest, raising capital and capacity [1]; households may borrow and spend more, raising demand [1]. Against: if firms expect weak sales they may not borrow [1]; a rise in spending beyond capacity can cause inflation [1]; the full effect takes months [1]; other policies such as education and training raise the quality of labour, which interest rates cannot [1]. Judgement: a rate cut works best when there is spare capacity and confidence is high; it is one tool, not the best in every case [1]. [7] Examiner insight: Select the points that match the question, then weigh them. Stating “best” or “not best” with a reason, such as spare capacity, earns more than an even list of two sides.

Where marks are usually lost

• Describing a rise in demand as a shift of the PPC rather than a movement toward it.
• Forgetting depreciation when explaining why investment must be net to increase capacity.
• Adding percentage changes when they should be multiplied, or dividing by the wrong base year.
• Using the old total as the base for a new share.
• Giving a list of costs and benefits with no link to the type of economy named in the question.
• Naming a policy without explaining the steps from the policy to higher output.
• Ending an evaluation with “it depends” and no stated condition such as spare capacity, delay or cost.

Next steps

• Review the revision notes and the study guide.
• Tick off topics on the printable checklist and explore the Cambridge IGCSE Economics hub.
• Take one of the free 10-minute diagnostics to find your weakest areas.
• Book a free trial class for help with evaluation answers.

Official syllabus

Aligned to the Cambridge IGCSE Economics 0455 syllabus for examination in 2026, published by Cambridge University Press & Assessment (Cambridge Assessment International Education), sections 4.6.4 to 4.6.6.