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IB Economics: Inflation and Unemployment (Paper 3: challenge)
IB Economics: Inflation and Unemployment (Paper 3: challenge)
IB economics inflation and unemployment paper 3, challenge: compound annual inflation, real interest cost, Okun style gaps and a misleading unemployment rate.
Direct answers Answers in order: 10 percent, 112, 30 percent, about 4,831, about 48,095, one percentage point higher, about 4.15 percent, from 7 percent to about 6.06 percent, about 4.39 percent, and unexpected inflation helps fixed rate borrowers.
01 Paper details (check answers afterwards)
| Item | Detail |
|---|---|
| Questions | 10 |
| Suggested time | 20 |
| Difficulty mix | Foundation 3 · Intermediate 3 · Challenge 3 · Error redo 1 |
| Chapter | Chapter: IB Economics: Inflation and Unemployment |
| Level | IB |
02 Questions (10 items)
- FoundationThe index rises from 100 to 133.1 in three years. What is the average annual inflation rate?
- FoundationThe nominal wage index is 140 and the price index 125. What is the real wage index?
- FoundationThe labour force is 8,000,000 and unemployment rises from 5 percent to 6.5 percent. What is the percentage rise in the number unemployed?
- IntermediateA loan of 200,000 carries a 6 percent nominal rate with 3.5 percent inflation. What is the real interest cost for a year?
- IntermediateA deposit of 50,000 earns 1 percent while inflation is 5 percent. What is its real value after a year?
- IntermediatePotential growth is 3 percent and actual growth 1 percent. With one point of unemployment per two points of gap, how does unemployment move?
- ChallengeThe index rises from 118 to 128 over two years. What is the average annual inflation rate?
- ChallengeThe labour force is 20,000,000 with 1,400,000 unemployed, and 200,000 stop looking for work. How does the unemployment rate change?
- ChallengeNominal output rises 7 percent and real growth is 2.5 percent. How much does the deflator rise?
- Error redoA student says inflation always hurts borrowers. What is wrong?
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | 10 percent | The cube root of 1.331 is 1.1, so the annual rate is 10 percent. |
| 2 | 112 | 140 divided by 1.25 gives 112, a 12 percent real gain over the base year. |
| 3 | 30 percent | It goes from 400,000 to 520,000, so 120,000 over 400,000 applies. |
| 4 | About 4,831 | The real rate is 1.06 over 1.035 minus one, applied to the principal. |
| 5 | About 48,095, a fall of 3.81 percent | 50,000 times 1.01 divided by 1.05 gives about 48,095. |
| 6 | It rises by one percentage point | The two point growth gap divided by two gives one percentage point. |
| 7 | About 4.15 percent | Divide 128 by 118, take the square root and subtract one. |
| 8 | It falls from 7 percent to about 6.06 percent | Unemployment becomes 1,200,000 and the labour force 19,800,000, so the rate falls even though conditions are worse. |
| 9 | About 4.39 percent | 1.07 divided by 1.025 minus one gives 4.39 percent. |
| 10 | Unexpected inflation erodes the real burden of debt, which helps fixed rate borrowers | What matters is whether the inflation was expected, since unexpected inflation transfers real value from lenders to borrowers. |
04 What to do after marking
- After marking, redo only the wrong items and write down which step went wrong (formula, unit, or misread number).
- Repeat the same item two days later; move to the next paper only when both attempts are correct.
- Parents only need the answer and note columns; there is no need to explain every item.
Work out inflation from the change in the consumer price index, convert every real value by division, and remember that the unemployment rate divides by the labour force, not the whole population.Tutor Registration →
Questions and answers are written originally by the TutorZone team and are not taken from any school, publisher or examination authority paper. Every value is checked by computer.