Measuring economic growth,
AD and AS, demand and
resource allocation (HL and SL)
IB Examination style paper 2
Spain’s economy hit by the pandemic
All over the world economies have contracted sharply as a result of the Covid 19 pandemic.
World economic growth in 2020 was -4.9%. The Spanish economy did not escape the pain with real
GDP shrinking by 11% in 2020. The fall in output was particularly sharp during the lock-down period
between March and June with real GDP declining sharply by 17.8%. This was the biggest contraction
in Spain’s economy since the Civil War in the 1930s. [Paragraph 1]
Table 1
Year Nominal GDP GDP deflator Real GDP Growth rate
$Bn
2018 1419 96
2019 1471 98
2020 1335 100 1335 -11%
Such a significant fall in Spain’s real GDP has had marked consequences for different stakeholders in
the economy. Household incomes have fallen, and unemployment has increased from 13.2% to
16.9%. Business failures have increased by more than 15% in 2020 and this would have been worse
if not for a government loan scheme. Government finances have also been adversely affected with
tax revenues falling and government expenditure rising. Spain’s budget deficit now stands at 11.3%
of GDP. The damage caused by the current down-turn will depend on its length and the speed of the
recovery. [Paragraph 2]
The National Statistics Institute (INE) says the full force of the pandemic induced slowdown was
borne by the services sector. With household movement restricted due to government lock-down
measures, shops, bars restaurants and hotels were particularly hard hit. But it was Spain’s tourism
industry that was affected more than any other sector of the economy. Tourism accounts for nearly
14% of Spain’s GDP and an 80% fall in international arrivals from 2019 to 2020 dramatically reduced
demand from overseas holiday-makers. [Paragraph 3]
The pandemic has, however, seen some winners in the Spanish economy. The Food delivery
company, Deliveroo is currently experiencing growth of 7.6% in Spain with many restaurants
switching to a takeaway service in place of in-restaurant dining. There has also been a boom in
cycling with many Spanish families taking to the roads as other leisure activities were closed-down.
With a 27% increase in revenues for Spain’s cycling industry, there has also been a growth in
demand for complementary goods. [Paragraph 4]
© Alex Smith
InThinking www.thinkib.net/Economics
One of the most significant economic and social changes during the pandemic has been
technological advance. With many people working from home Spanish employees have been ‘up-
skilling’ in their use of technology such as Zoom and Office 365. The development of technical skills
in the workforce combined with improvements in the technology itself has brought significant
supply side benefits. [Paragraph 5]
Answer the following questions
a. Define the term economic growth. (Paragraph 1) [2]
b. Define the term complementary good. (Paragraph 4) [2]
c. (i) Calculate the real GDP for the Spanish economy for 2018 and 2019. (Table 1) [2]
(ii) Calculate the rate of economic growth in 2019. (Table 1) [2]
(iii) State the phase of the business cycle Spain is in during 2020. (Table 1) [1]
(iv) Using a circular flow of income diagram, explain the effect the 11% decline in Spain’s GDP would
have on household income. (Paragraph 1) [4]
d. Using a demand and supply diagram, explain how an increase in cycling during the pandemic has
increased the revenues of the Spanish cycling industry. (Paragraph 4) [4]
e. Using a PPC diagram, explain the change in the allocation of resources in the Spanish economy as
the restaurant market has changed with the growth of the takeaway food business and the
reduction of in-restaurant dining. (Paragraph 4) [4]
f. Using an AD/AS diagram, explain the impact technological advances during the pandemic might
have on Spain’s potential output. (Paragraph 5) [4]
g. Using information from the text/data and your knowledge of economics, evaluate the view that
recessions are always bad for different stakeholders in an economy. [15]
Total [40]
© Alex Smith
InThinking www.thinkib.net/Economics
