Cambridge O Level Economics: Living standards (2281) – 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 section 5.1 (5.1.1 and 5.1.2, Living standards) of the Cambridge O Level Economics (2281) syllabus for examination in 2026, version 2. There are no tiers. All figures are invented and illustrative. Revise first with the study guide and the revision notes. Other links: the Cambridge O Level Economics hub, the printable checklist and the free diagnostics.

Questions

1. Explain what is meant by real GDP per head. [2]

2. Country B (illustrative) has nominal GDP of 360 billion in 2025, the base year (price index 100), and 441 billion in 2027, when the price index is 105. Its population is 9.0 million in 2025 and 9.45 million in 2027.

(a) Calculate real GDP in 2027. [2] (b) Calculate real GDP per head in 2025 and in 2027. [3] (c) Find by what percentage real GDP per head changed between the two years. [2]

3. State the three components of the Human Development Index. [3]

4. The table shows component scores and the HDI for three countries (illustrative).

Country	Health	Education	Income	HDI
X	0.80	0.60	0.50	0.621
Y	0.65	0.65	0.65	0.650
Z	0.70	0.75	0.95	0.793

(a) Rank the countries from highest to lowest HDI. [2] (b) Explain why Country X has the highest health score but the lowest HDI. [2] (c) A student says Country Z has the best living standards. Give two reasons to be cautious. [2]

5. Country C has real GDP of 270 billion and a population of 3 million. Country D has real GDP of 900 billion and a population of 15 million (both illustrative).

(a) Calculate real GDP per head in each country. [2] (b) Explain why Country C may have a higher standard of living on this measure even though its economy is smaller. [2] (c) Explain two reasons why real GDP per head may not show the living standards of a typical person in Country C. [4]

6. Explain two disadvantages of using real GDP per head as an indicator of living standards. [4]

7. Country T (illustrative) has average income of 25,000 per person. The richest fifth of the population receive 56% of total income and the poorest fifth receive 4%.

(a) Calculate the average income of a person in the poorest fifth and in the richest fifth. [3] (b) Divide the richest fifth’s share by the poorest fifth’s share to find the ratio between them. [1] (c) After reforms the poorest fifth’s share rises to 6% and the richest fifth’s falls to 49%. Average income is unchanged. Calculate the new average income of the poorest fifth and the new ratio of the richest share to the poorest share. [3] (d) Explain one policy that could have caused this change. [2]

8. In Country H (illustrative), recorded GDP is 400 and unrecorded activity such as subsistence farming and informal trade is worth 60.

(a) Calculate the unrecorded activity as a percentage of recorded GDP. [2] (b) Explain how this affects the use of GDP per head to compare Country H with a country with a small informal sector. [2]

9. Explain two reasons why incomes differ between workers within the same country. [4]

10. Explain how higher spending on education could raise a country’s real GDP per head. [4]

11. The government of Country F (illustrative) wants real GDP per head to rise by 3% while its population rises by 1.5%.

(a) Calculate the percentage growth in real GDP needed. [3] (b) Explain why faster population growth makes the target harder to reach. [2]

12. The table gives data for two countries (illustrative).

	Country P	Country Q
Real GDP per head	52,000	34,000
HDI	0.655	0.781
Share of income of richest fifth	55%	38%
Share of income of poorest fifth	5%	9%

Evaluate whether people in Country P have higher living standards than people in Country Q. [8]

Answers

1. It is a country’s output valued at constant prices, so inflation is removed [1], shared out across each member of the population [1]. [2] Examiner insight: “Real” and “per head” each need their own idea. Writing only “GDP divided by population” leaves out the price adjustment and fits nominal GDP as well.

2. (a) Real GDP = 441 ÷ 105 × 100 [1] = 420 billion [1]. [2] (b) 2025: 360 billion ÷ 9.0 million [1] = 40,000 [1]. 2027: 420 billion ÷ 9.45 million = 44,444 (to the nearest whole number) [1]. [3] (c) (44,444 − 40,000) ÷ 40,000 × 100 [1] = 11.1% (to one decimal place) [1]. [2] Examiner insight: Dividing the nominal figure by population in 2027 mixes price changes with output. Show the formula and each figure, so a slip in one line does not hide good method in the next.

3. Health (life expectancy) [1], education (schooling) [1], income (per head) [1]. [3] Examiner insight: Name each component separately. Writing “GDP” or “standard of living” does not name a component.

4. (a) Z (0.793), then Y (0.650), then X (0.621) [2]. [2] (b) Its education score (0.60) and income score (0.50) are low [1], and the HDI combines all three components, so strong health cannot make up for weak education and income [1]. [2] (c) Two from: the HDI is an average and hides how income is shared; it leaves out freedom, safety, pollution and leisure; it uses only three components [2]. [2] Examiner insight: Use the numbers in the table when asked to explain. A statement such as “X has low scores” gains more when you quote 0.60 and 0.50 and link them to the total.

5. (a) C: 270 billion ÷ 3 million = 90,000 [1]. D: 900 billion ÷ 15 million = 60,000 [1]. [2] (b) Real GDP per head divides output by population [1]. C has far fewer people, so its output per person is higher even though total output is 270 billion against 900 billion [1]. [2] (c) Two reasons, each with a consequence, from: it is an average, so a few very rich households could raise it while most people receive less and the typical person is worse off; it excludes unrecorded output such as subsistence farming, so living standards may be understated; it says nothing about health or education, which affect the quality of life [4]. [4] Examiner insight: A reason needs its consequence. “It is an average” is a start; say who is affected and how.

6. Two disadvantages, each with a developed explanation [4], from: it is an average and hides inequality, so most people may have much less than the figure; it ignores unrecorded and unpaid output, so living standards may be understated; it ignores health, education, pollution and leisure; prices differ between countries, so equal incomes may buy different amounts. [4] Examiner insight: Two different disadvantages are needed, so “it is an average” and “it hides rich and poor” together are one idea.

7. (a) Poorest fifth: 4% × 25,000 ÷ 20% [1] = 5,000 [1]. Richest fifth: 56% × 25,000 ÷ 20% = 70,000 [1]. [3] (b) 56 ÷ 4 = 14 times [1]. [1] (c) New poorest fifth: 6% × 25,000 ÷ 20% = 7,500 [1]. New ratio: 49 ÷ 6 [1] = 8.2 (8.17 to two decimal places) [1]. [3] (d) A progressive income tax (higher earners pay a larger share) [1] raises revenue that pays benefits to low-income households, so the poorest fifth gain and the richest fifth lose [1]. A minimum wage or better education for the poor would also earn credit if linked. [2] Examiner insight: A fifth’s average income is share ÷ 20% of the average, not the share alone. The ratio of the two incomes equals the ratio of the shares, which gives a check.

8. (a) 60 ÷ 400 × 100 [1] = 15% [1]. [2] (b) H’s recorded GDP understates its true output [1], so its GDP per head looks lower than its real income, and the comparison understates H’s living standards relative to the other country [1]. [2] Examiner insight: Divide by the recorded figure when the question asks for a percentage of recorded GDP. Dividing by total output (460) gives a different result.

9. Two reasons, each explained [4], from: skills and qualifications, because skilled workers are more productive and are paid more; ownership of assets, because owners receive profit, rent and interest as well as wages; unemployment, illness or age, because these reduce hours worked or earnings; region, because cities may have more jobs and higher pay than rural areas; taxes and benefits, because progressive taxes and benefits narrow gaps. [4] Examiner insight: “Some people earn more than others” repeats the question. Name the cause and say why it changes income.

10. Education gives workers more skills [1]. Each hour of their work then yields more output, so productivity rises [1]. Higher output per worker raises real GDP [1], and if output rises faster than population, real GDP per head rises [1]. [4] Examiner insight: Build the chain in order: cause, productivity, output, then per head. A statement such as “education makes the country richer” skips the steps that earn credit.

11. (a) Needed: (1.03 × 1.015) − 1 [1] = 1.04545 − 1 [1] = 4.5% (4.54% to two decimal places) [1]. [3] (b) More people share the same output, so real GDP per head falls unless output grows as quickly [1], so the economy must grow faster to raise the output of each person [1]. [2] Examiner insight: Adding 3% and 1.5% gives 4.5%, which is close here but not exact. Multiplying the growth factors is the safer method.

12. Credit the following. P has higher real GDP per head (52,000 against 34,000) [1]. Q has a higher HDI (0.781 against 0.655), so health and education are likely better [1]. In P the richest fifth receive 55% of income and the poorest 5%, while in Q the figures are 38% and 9% [1]. Average income of P’s poorest fifth is 5% × 52,000 ÷ 20% = 13,000; in Q it is 9% × 34,000 ÷ 20% = 15,300, so the poorest in Q have more [1]. P’s richest fifth average 143,000 against 64,600 in Q [1]. Averages hide this spread, and the HDI leaves out inequality and the environment [1]. Judgement: the typical person in Q probably has the higher standard of living because Q’s poorest do better, income is shared more evenly and human development is higher [1], but conclusions depend on housing, freedom and pollution, which the data do not show [1]. [8] Examiner insight: Use figures from both indicators, calculate something from the distribution data and give a judgement that follows. Describing each statistic in turn without comparing them stays descriptive.

Where marks are usually lost

• Ignoring the price index that the question supplies.
• Dividing by the wrong year’s population.
• Writing “GDP” instead of income per head for the HDI income component.
• Quoting a share as an income: share ÷ 20% is needed for a fifth’s average.
• Listing reasons for differences with no link to income or living standards.
• Judging a country on one indicator only.
• Leaving out units or the phrase per head.

Next steps

• Recap with the revision notes and re-read the study guide.
• Go to the Cambridge O Level Economics hub and tick off topics on the printable checklist.
• Take one of the free 10-minute diagnostics to find weak spots.
• Book a free trial class for help with any question you could not answer.

Official syllabus

Cambridge O Level Economics (2281) syllabus for examination in 2026, version 2, published by Cambridge University Press & Assessment (Cambridge International Education). The content follows section 5.1, Living standards.