Cambridge IGCSE Economics: Supply-side policy, and measuring economic growth and recession (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.

This set tests sections 4.5 and 4.6.1 to 4.6.3 of the Cambridge IGCSE Economics 0455 syllabus for examination in 2026. All names and figures are invented. Teaching is in the study guide and the revision notes. Other links: the Cambridge IGCSE Economics hub, the printable checklist and the free diagnostics.

Questions

1. Define supply-side policy. [2]

2. In Country P, nominal GDP is 2 000 in year 1 (price index 100) and 2 310 in year 2 (price index 110). Figures are in billions.

(a) Calculate real GDP in year 2. [2] (b) Calculate the rate of economic growth between the two years. [2]

3. In Country E, real GDP is 2 000 billion in year 1 and 2 060 billion in year 2. Population is 50 million in year 1 and 52 million in year 2.

(a) Calculate the rate of economic growth. [2] (b) Calculate real GDP per head in each year. [2] (c) Calculate the percentage change in real GDP per head. [2]

4. Explain how government spending on training could raise a country’s rate of economic growth. [4]

5. A worker in Country H is paid 15 an hour for a 40-hour week. Income tax is 20% of gross pay.

(a) Calculate weekly take-home pay. [1] (b) The tax rate is cut to 15%. Calculate the new take-home pay and the percentage rise. [3] (c) Explain why the tax cut might not lead the worker to work more hours. [2]

6. Real GDP in Country G, by quarter, is 400, 396, 392, 394 and 399.

(a) Calculate the percentage change in real GDP in quarters 2 and 3. [2] (b) State whether Country G was in recession, giving a reason. [2] (c) Explain whether output had returned to its level in quarter 1 by quarter 5. [2]

7. Explain how a recession affects an economy’s position relative to its production possibility curve (PPC). [4]

8. Explain two possible causes of a recession. [4]

9. Explain one benefit and one drawback of privatising a state-owned water company. [4]

10. Discuss whether education and training is the best supply-side policy for a country with high unemployment and low productivity. [8]

11. In Country D, nominal GDP is 900 in year 1 (price index 100) and 945 in year 2 (price index 105). Population is 30 million in year 1 and 30.6 million in year 2.

(a) Calculate real GDP in year 2. [2] (b) State the rate of real economic growth. [1] (c) Calculate the percentage change in real GDP per head. [3] (d) Explain two reasons why GDP per head may not accurately show living standards. [2]

12. Explain how supply-side policy might help a government to reduce unemployment and control inflation. [6]

Answers

1. Government action to raise the economy’s productive capacity [1] and the efficiency of its markets, shifting the PPC outwards over time [1]. [2] Examiner insight: Both ideas help: capacity or output potential, and a long-run effect. Saying only “increase supply” gives no sense of the whole economy.

2. (a) Real GDP = 2 310 ÷ 110 × 100 [1] = 2 100 billion [1]. [2] (b) Growth = (2 100 − 2 000) ÷ 2 000 × 100 [1] = 5.0% [1]. [2] Examiner insight: The nominal rise is 15.5%, which is not the answer. A question about economic growth needs real GDP, so show the deflating step.

3. (a) (2 060 − 2 000) ÷ 2 000 × 100 [1] = 3.0% [1]. [2] (b) Year 1: 2 000 billion ÷ 50 million = 40 000 [1]. Year 2: 2 060 billion ÷ 52 million = 39 615 [1]. [2] (c) (39 615 − 40 000) ÷ 40 000 × 100 [1] = −1.0% [1]. [2] Examiner insight: Keep billions and millions consistent. Write the unit change or the working so a slip can be traced.

4. Training raises the skills of workers [1]. Output per worker rises, so the same labour produces more [1]. Skilled workers are more mobile, so fewer are unemployed and more resources are used [1]. Potential output grows, shifting the PPC outwards, so growth in real GDP can rise [1]. [4] Examiner insight: A strong answer runs from the measure to productivity to output to growth. A list of benefits without links earns little.

5. (a) 15 × 40 = 600 gross; 600 × 0.80 = 480 [1]. [1] (b) 600 × 0.85 = 510 [1]. Rise = (510 − 480) ÷ 480 × 100 [1] = 6.25% [1]. [3] (c) The worker can reach the same take-home pay in fewer hours, so may choose more leisure [1]. A worker already at full-time hours may have no extra work available [1]. [2] Examiner insight: State the base of the percentage change (the old take-home pay). For (c), the point is that the worker’s choice is uncertain, not that tax cuts are bad.

6. (a) Quarter 2: (396 − 400) ÷ 400 × 100 = −1.0% [1]. Quarter 3: (392 − 396) ÷ 396 × 100 = −1.0% [1]. [2] (b) Yes [1]. Real GDP fell for two consecutive quarters [1]. [2] (c) No: quarter 5 is 399, below 400 in quarter 1 [1], so output was still 0.25% lower, even though growth had resumed [1]. [2] Examiner insight: Use real GDP and consecutive falls. Saying “GDP fell” is weaker than naming two successive quarters.

7. A recession means real GDP falls [1]. Resources such as workers and machines become unemployed or under-used [1]. The economy moves from a point on the PPC to a point inside it [1]. The PPC has not moved, because the quantity and quality of resources have not changed in the short run [1]. [4] Examiner insight: Mention both the move inside the curve and that the curve stays put. Describing a recession as a shift of the PPC is a common slip.

8. Cause 1: a fall in consumer spending, for example from lower confidence [1], so firms sell less and cut output [1]. Cause 2: a fall in export demand when trading partners slow down [1], reducing output in export industries and incomes across the economy [1]. Other sound causes include higher interest rates, cuts in government spending, falling investment. [4] Examiner insight: Two developed causes beat four listed. Each needs the step from cause to lower output.

9. Benefit: the profit motive encourages the owners to cut waste and costs [1], which may lower prices or raise quality [1]. Drawback: a private water firm is likely to be a monopoly, since people cannot choose another supplier [1], so it can raise prices and charge more than a public body would [1]. [4] Examiner insight: A benefit and a drawback must both be explained to earn the full four. Pick a drawback that fits water, a natural monopoly, instead of a general one.

10. Support: training raises output per worker [1]; it improves job matching, cutting structural unemployment [1]; it helps both unemployment and low productivity [1]. Against: payoff is slow and costly [1]; trained workers may leave the country or move to rivals [1]; training needs vacancies, so weak demand limits the effect [1]. Alternatives: lower taxes or labour market reforms may work faster [1]. Judgement that depends on a condition: training is best if skills are the main cause of low productivity, but not if firms lack customers [1]. [8] Examiner insight: A conclusion that names a condition, such as the cause of the unemployment, shows evaluation. Repeating the benefits in the last line does not.

11. (a) 945 ÷ 105 × 100 [1] = 900 billion [1]. [2] (b) (900 − 900) ÷ 900 = 0% [1]. [1] (c) Year 1: 900 000 ÷ 30 = 30 000 [1]. Year 2: 900 000 ÷ 30.6 = 29 412 [1]. Change = −2.0% [1]. [3] (d) It is an average that hides inequality [1]. It leaves out unpaid work or pollution and leisure [1]. [2] Examiner insight: A rise in nominal GDP of 5.0% here is entirely price rises. State that real output is unchanged before moving to per head.

12. Unemployment: training and labour market reforms match skills to jobs [1], reducing structural unemployment [1]. Lower direct taxes and better incentives mean more people accept jobs [1]. Inflation: higher productivity and more competition cut firms’ costs per unit [1], so they can hold prices down [1], and higher output capacity reduces pressure on prices when demand rises [1]. [6] Examiner insight: Cover both aims, with a chain for each. A supply-side effect on inflation works through costs and capacity, not through lower spending.

Where marks are usually lost

• Using nominal GDP when asked for growth.
• Forgetting to multiply by 100 when using the price index.
• Mixing billions and millions in GDP per head.
• Giving the percentage change against the wrong base year.
• Describing a recession as a shift of the PPC.
• Naming a supply-side measure with no chain to the aim.
• Treating lower taxes as having certain results.
• Writing a conclusion that repeats the argument.

Next steps

• Re-read the study guide for any part that cost you marks.
• Revise from the revision notes.
• Check the Cambridge IGCSE Economics hub and tick off the printable checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge IGCSE Economics 0455 syllabus for examination in 2026, version 2, published by Cambridge University Press & Assessment: sections 4.5 Supply-side policy and 4.6 Economic growth (4.6.1 to 4.6.3).