Economic Growth and/or Economic Development Strategies · Paper 2 — Free Economics HL Practice Questions

Country Y, a high-income oil-exporting nation, has experienced a decline in its real GDP growth rate from $4.2\%$ to $1.1\%$ over the past three years due to falling global oil prices. The government holds a large budget surplus from past oil revenues. To revive growth, the government introduces the following package: - Policy 1: A $15\%$ corporate income tax cut for all firms, with a particular focus on non-oil sectors such as technology and tourism. - Policy 2: Deregulation of the labour market, making it easier for firms to hire and fire workers, and reducing minimum wage levels.

Country X has experienced an average real GDP growth rate of $1.2\%$ per year over the last decade, while its inflation rate has remained stable at around $2\%$. The government is considering two policy options to stimulate growth: - Option A: An expansionary fiscal policy — increasing government spending on infrastructure by USD 5 billion, financed by borrowing. - Option B: An expansionary monetary policy — reducing the central bank's policy interest rate from $3.5\%$ to $2.0\%$.