Economic growth, consumption, investment, aggregate
demand and measuring quality of life (HL and SL)
IB Examination style paper 2
Markscheme answers
a. (i) Define the term consumption spending. (Paragraph 3) [2]
Consumption spending is spending by households on final goods and services.
(ii) Outline the impact a fall in consumer confidence in France might have on French consumption
expenditure. (Paragraph 2) [2]
A fall in consumer confidence means French consumers are less certain about their future economic
prospects and will reduce their consumption expenditure.
(iii) Using an aggregate demand and supply diagram, explain the effect a fall in consumer
expenditure might have and France’s real GDP. (Paragraph 3) [4]
A fall in French consumption expenditure
leads to a call in France’s aggregate
demand which shifts from AD to AD1 in
the diagram. This leads to a fall in France’s
real GDP and average price level.
b. (i) Define the term investment. (Paragraph 1) [2]
Investment is business spending on capital such as buildings, machinery and equipment.
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(ii) Explain two factors that might increase the level of investment in the French economy.
(Paragraph 5) [4]
Two factors that might affect investment in the French economy might be:
• An increase in business confidence amongst French managers could increase investment.
• A decrease in interest rates might increase investment by French businesses because the
cost of borrowing to fund investment will fall.
(iii) Explain the effect a fall in investment in France might have on its economic growth in the long
run. [4]
If investment falls in France, then this will reduce the country’s growth in the long run because
improvements in economic efficiency and potential output will not be as great as if new capital is
available for businesses to use in production. France's real GDP might increase in the long run but
the rate of increase will not be as great with a fall in investment.
c. (i) Outline what the real GNI per capita shows. (Paragraph 2) [2]
• GNI = GDP + net property (factor) income from abroad.
• Real GNI means there is an allowance for inflation.
• Real GNI per capita= real GNI / population.
(ii) State what has happened to living standards in France based on the country’s HDI data. (Table
2) [1]
France’s HDI has increased which means French living standards have improved based on this
measure.
(iii) Explain two factors that could have led to a rise in France's HDI. (Table 2) [4]
Two factors that could lead to an increase in France's HDI could be:
• An increase in real GNI per capita.
• An increase in mean years in school (those over 25) and expected years in education (those
in school).
• An increase in life expectancy in years.
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d. Using the text and your knowledge of Economics, evaluate the view that rising GNI per capita
shows the quality of life in France is improving. [15]
Answers might include:
• Definition of quality of life, real GNI per capita.
• An explanation that rising real GNI per
capita can lead to a rising quality of life in
France as real incomes rise and there is
increasing employment. This is shown by
the circular flow of income diagram that
represents the French economy where
more income is paid to households and
more workers are employed. (France's GNI
per capita has increased
from $38,320(2017) to $42,330(2019).)
• An explanation that rising real GNI per
capita means the French government might collect more tax revenue which can be used to
fund improved public services such as health, education and infrastructure.
• An explanation that rising real GNI per capita contributes to an increase in France’s HDI
which suggests a rising quality of life. (France's HDI has increased from 0.897(2017) to
0.901(2019).)
• An explanation that rising Real GNI per capita contributes to an increase in France’s World
Happiness Index. (France's WHR index has increased from 6.489(2017) to 6.664(2019).
• Evaluation might include a discussion of the weaknesses of using real GNI per capita to
measure living standards such as rising income inequality ('half of the French people now
live on an income of no more than €20,820 per year - a 0.4% rise compared to 2019)', some
output of the French economy might add little to living standards (demerit goods), rising real
GNI per capita has environmental costs and there is no allowance for non-monetary factors
('quality of life data does, however, hides wider concerns about issues such as climate
change, national identity and mental health') that affect the quality of life in France. There
could also be a discussion of alternative measures of the quality of life in France such as the
HDI and the World Happiness Index.
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Mark
Marking Criteria for the 15 mark final question
There is no answer to the question but some limited: 1-3
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is a vague answer to the question with limited: 4-6
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is an answer to the question with satisfactory: 7-9
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is a clear answer to the question with good: 10-12
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
There is a clear answer to the question with excellent: 13-15
• Application of economic theory
• Evaluation
• Use of information from the case example to support the answer
Total [40]
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