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IB Economics: Inflation and Unemployment (Paper 4: misconception drill)
IB Economics: Inflation and Unemployment (Paper 4: misconception drill)
IB economics inflation and unemployment paper 4, misconception drill on nominal versus real, annual averages, the Phillips curve and a misleading unemployment rate.
Direct answers Answers in order: 7 percent, about 1.90 percent lower, 5 percent, about 5 percent, about 2.39 percent, 8,640, 6 percent, 20 percent, 75,000 people, and people leaving the labour force also lower the rate.
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 consumer price index rises from 200 to 214. What is the inflation rate?
- FoundationNominal wages rise 3 percent while prices rise 5 percent. How do real wages change?
- FoundationUnemployment is 180,000 and the labour force 3,600,000. What is the unemployment rate?
- IntermediateThe index rises from 100 to 115.76 in three years. What is the average annual inflation rate?
- IntermediateThe nominal rate is 7 percent and inflation 4.5 percent. What is the real rate?
- IntermediateMonthly spending is 8,000 at an index of 100. What is needed for the same basket at 108?
- ChallengeThe Phillips curve is inflation equals 8 minus 0.4 times unemployment. What is inflation at 5 percent unemployment?
- ChallengeOn the same curve, what unemployment rate gives zero inflation?
- ChallengeUnemployment is 9 percent, the natural rate 4 percent and the labour force 1,500,000. How many are cyclically unemployed?
- Error redoA student sees a falling unemployment rate and concludes employment must have risen. What is wrong?
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | 7 percent | Fourteen over 200 gives 0.07, so index points are not percentages. |
| 2 | They fall by about 1.90 percent | 1.03 over 1.05 minus one applies, and simple subtraction gives a wrong positive figure. |
| 3 | 5 percent | 180,000 over 3,600,000 gives 0.05. |
| 4 | About 5 percent | The cube root of 1.1576 is 1.05, so the annual rate is 5 percent. |
| 5 | About 2.39 percent | 1.07 over 1.045 minus one gives 2.39 percent. |
| 6 | 8,640 | 8,000 times 108 over 100 gives 8,640. |
| 7 | 6 percent | Substitution gives 8 minus 2, that is 6 percent, as prices rise faster below the natural rate. |
| 8 | 20 percent | Setting 8 minus 0.4u to zero gives u equal to 20. |
| 9 | 75,000 people | The five point gap times 1,500,000 gives 75,000. |
| 10 | People leaving the labour force also lower the rate, so employment can stay flat or even fall | The denominator shrinks at the same time, so a lower rate is not proof of more jobs; subtracting nominal changes to get real ones is the other common slip. |
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 →
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