Cambridge IGCSE Economics: The role of government and macroeconomic aims (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 4.1 and 4.2 (the role of government, the macroeconomic aims and the conflicts between them) of the Cambridge IGCSE Economics (0455) syllabus for examination in 2026. The syllabus is not tiered. Every figure below is invented. Learn the ideas first from the study guide, and see the course page and the printable checklist.

Questions

1. Identify three macroeconomic aims of government. [3]

2. Define redistribution of income. [2]

3. In Country C, 7,400,000 people are employed and 600,000 are unemployed.

(a) Calculate the unemployment rate. [2] (b) The government’s criterion is an unemployment rate of 5%. Calculate how many fewer people must be unemployed to meet it, assuming the labour force stays the same. [2]

4. Country D’s nominal GDP rises from 1,500 to 1,620 (invented units) between year 1 and year 2. The price index rises from 100 to 108.

(a) Calculate real GDP in year 2. [2] (b) Calculate real economic growth. [1] (c) Explain why a growth criterion is set in real rather than nominal terms. [2]

5. Explain one role of government at each of the following levels.

(a) Local [2] (b) National [2] (c) International [2]

6. Explain two reasons why a government might choose low unemployment as a macroeconomic aim. [4]

7. Explain how a government’s efforts to reduce unemployment could conflict with its aim of stable prices. [6]

8. The table shows the performance of Country A’s economy over three years (invented data). The government’s criteria are real GDP growth of at least 3%, unemployment of no more than 6%, inflation between 1% and 3%, and a current account balance within 2% of GDP, deficit or surplus.

	Year 1	Year 2	Year 3
Real GDP growth (%)	1.0	3.5	5.0
Unemployment rate (%)	9.0	7.0	5.5
Inflation rate (%)	1.5	3.5	6.0
Current account (% of GDP)	+0.5	-1.0	-3.5

(a) Identify the first year in which the unemployment criterion was met. [1] (b) Calculate the rise in the inflation rate between year 1 and year 3, in percentage points. [1] (c) State how many of the four criteria were met in year 2. [1] (d) Explain, using the data, one conflict between aims shown in the table. [4] (e) Discuss whether the government should be satisfied with the economy’s performance in year 3. [5]

9. In Country G, GDP rises from 800 to 840 (invented units). Imports are 30% of GDP and exports stay at 250.

(a) Calculate the percentage rise in GDP. [1] (b) Calculate imports before and after the rise. [2] (c) Calculate the balance of exports minus imports before and after. [2] (d) Explain why this shows a possible conflict between economic growth and balance of payments stability. [3]

10. Discuss whether a government that reduces unemployment must worsen its balance of payments. [8]

11. Country H taxes income at 0% on the first 10,000, 15% on income from 10,001 to 30,000, and 35% on income above 30,000 (invented system).

(a) Calculate the tax paid by a person earning 25,000. [2] (b) Calculate the tax paid by a person earning 70,000. [2] (c) Calculate the average tax rate for each person. [2] (d) Explain how this tax system helps to redistribute income. [2]

12. Country J is a low-income economy with high unemployment and rising prices. Discuss whether low inflation should be its most important macroeconomic aim. [8]

Answers

1. Any three of: economic growth; full employment/low unemployment; stable prices/low inflation; balance of payments stability; redistribution of income [1] [1] [1]. [3] Examiner insight: Name each aim exactly as the syllabus does; answers tend to lose credit when an aim is described vaguely, for example “good economy”.

2. Reducing the gap between high and low incomes, or moving income from higher to lower earners [1], using government measures such as taxes and benefits [1]. [2] Examiner insight: A definition earns credit for the idea of narrowing the income gap plus a means; saying only “making things fair” is too vague.

3. (a) Labour force = 7,400,000 + 600,000 = 8,000,000 [1]. Rate = 600,000 / 8,000,000 x 100 = 7.5% [1]. [2] (b) Unemployed at 5% = 0.05 x 8,000,000 = 400,000 [1]. Fall = 600,000 - 400,000 = 200,000 [1]. [2] Examiner insight: The most common error is dividing by the number employed. Show the labour force line so your working is clear.

4. (a) Real GDP = 1,620 / 1.08 [1] = 1,500 [1]. [2] (b) (1,500 - 1,500) / 1,500 x 100 = 0% [1]. [1] (c) Nominal GDP includes the effect of price rises [1]; a rise in nominal GDP therefore does not show that more goods and services are produced, so living standards may not have risen [1]. [2] Examiner insight: Nominal GDP rose by 8% here while real output was unchanged; quoting this contrast supports the explanation.

5. (a) Local: for example, a council collects waste and maintains local roads [1], because the service is used by the local community [1]. [2] (b) National: for example, taxing incomes and using the revenue to fund schools and hospitals [1], giving all citizens access to education and health care [1]. [2] (c) International: for example, governments agree a treaty cutting cross-border pollution [1], because no single country can solve a problem that crosses its borders [1]. [2] Examiner insight: Each part needs a role and a developed reason, with an example that fits the level.

6. First reason: unemployment wastes resources, because workers who could produce goods and services are idle [1], so output and living standards are lower than they could be [1]. Second reason: unemployed people have lower incomes and may suffer hardship [1], and the government loses tax revenue and pays more in benefits [1]. [4] Examiner insight: Two separate reasons are needed, each developed; the same point reworded is likely to be credited once.

7. Government spends more or cuts taxes to raise total demand [1]. Firms sell more and hire more workers, so unemployment falls [1]. As jobs become easier to fill, workers can bargain for higher wages [1], which raises firms’ costs [1]. Firms pass these on, and strong demand lets them raise prices [1]. Inflation rises, so the aim of stable prices is harder to achieve while the unemployment aim is being met [1]. [6] Examiner insight: A chain of cause and effect that ends by naming the second aim is the strongest structure; stopping at “prices rise” leaves it incomplete.

8. (a) Year 3 (5.5%, which is below 6%) [1]. [1] (b) 6.0 - 1.5 = 4.5 percentage points [1]. [1] (c) Year 2: growth 3.5 (met), unemployment 7.0 (not met), inflation 3.5 (not met), current account -1.0 (met) = 2 criteria [1]. [1] (d) Conflict: full employment versus stable prices [1]. Data: unemployment falls from 9.0% to 5.5% while inflation rises from 1.5% to 6.0% [1]. Explanation: faster growth and falling unemployment mean strong demand for labour and goods [1], which pushes up wages and prices, so inflation rises [1]. [4] (e) Criteria met: growth (5.0%) and unemployment (5.5%) [1]. Criteria missed: inflation of 6.0% is above the 3% limit and the current account deficit of 3.5% is outside 2% [1]. Inflation erodes purchasing power and a large deficit must be financed [1]. However, the gains in jobs and output are large, and inflation or a deficit caused by a one-off surge might be temporary [1]. Judgement, for example not fully satisfied because two of four criteria are missed and both are moving the wrong way, supported by evidence [1]. [5] Examiner insight: A discuss answer gains from quoting table figures against the criteria and then reaching a judgement; describing the table alone usually earns less.

9. (a) (840 - 800) / 800 x 100 = 5% [1]. [1] (b) Before: 0.30 x 800 = 240 [1]. After: 0.30 x 840 = 252 [1]. [2] (c) Before: 250 - 240 = +10 [1]. After: 250 - 252 = -2 [1]. [2] (d) Growth raises incomes, so people buy more imports [1]. Exports stayed the same, so imports rose faster than exports [1]. The balance moved from a surplus of 10 to a deficit of 2, so growth made balance of payments stability harder [1]. [3] Examiner insight: Give both before and after values and state the direction of change.

10. Reducing unemployment through higher demand raises incomes, so people spend more on imports [1], and imports may rise faster than exports, worsening the current account [1]. Higher demand can also raise domestic prices, making exports dearer abroad, so export sales fall [1]. However, the effect need not occur if the new jobs are in export industries or in firms that replace imports [1], or if unemployment falls because of better skills rather than extra demand [1]. The size of the effect depends on the share of income spent on imports and on spare capacity [1]. Firms may also sell more at home and less abroad [1]. Judgement, for example that it is likely but not certain, depending on how the jobs are created [1]. [8] Examiner insight: Cover why the conflict happens and when it does not, then commit to a judgement; “yes, always” is rarely well supported.

11. (a) Taxable at 15%: 25,000 - 10,000 = 15,000 [1]. Tax = 0.15 x 15,000 = 2,250 [1]. [2] (b) 15% band: 0.15 x 20,000 = 3,000; 35% band: 0.35 x 40,000 = 14,000 [1]. Total = 17,000 [1]. [2] (c) First person: 2,250 / 25,000 x 100 = 9% [1]. Second person: 17,000 / 70,000 x 100 = 24.3% (to one decimal place) [1]. [2] (d) The richer person pays a higher share of income in tax [1], and the revenue can fund benefits and services that help lower earners, narrowing the gap in living standards [1]. [2] Examiner insight: Show the income in each band and the rate applied; applying 35% to the whole income is a common slip.

12. For low inflation: rising prices cut the buying power of low incomes, which hits poorer households hardest [1]; price uncertainty discourages firms from investing [1]. Against making it the top aim: with high unemployment, tightening policy to cut inflation reduces demand, which can make unemployment worse [1], so jobs and poverty may suffer more than from inflation [1]. A low-income economy may need growth and jobs to raise living standards [1], and low, steady inflation may be tolerable [1]. Judgement, for example that low inflation should be one aim among several rather than the top one, because here the greater harm is lost jobs, though if inflation is very high and accelerating it may need priority [2]. [8] Examiner insight: Apply the points to Country J’s circumstances and say what would change the verdict, rather than listing general advantages of low inflation.

Where marks are usually lost

• Listing aims without a reason for choosing them.
• Dividing by the number employed rather than the labour force.
• Using nominal GDP when asked for real growth.
• Giving a percentage change when the question asks for percentage points.
• Describing a conflict without the chain of cause and effect.
• Ending a discuss answer with no reasoned judgement.

Next steps

• Re-read the study guide and the revision notes.
• Check progress on the Cambridge IGCSE Economics course page and the printable checklist.
• Try the free 10-minute diagnostics at /diagnostics/.
• Book a free trial class.

Official syllabus

This page is aligned to the Cambridge IGCSE Economics 0455 syllabus for examination in 2026 (version 2), published by Cambridge University Press & Assessment (Cambridge International), sections 4.1.1, 4.2.1 and 4.2.2.