Paragraph 1: With a population of 2000 people, Urbania is the most populated country in the continent of Gondwana and ac

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Paragraph 1: With a population of 2000 people, Urbania is the most populated country in the continent of Gondwana and accounts for 35 % of Gondwana’s population. It is the biggest oil exporter in Gondwana and also has the largest natural gas reserves in the continent.
Paragraph 2: Economic growth is estimated to have been 6 % in 2019, owing to continued strong performance mainly in services, but also industry (apart from oil mining) and agriculture. The oil and gas sector was in decline, although at a slower rate than in the previous year. Revenues from oil and gas were estimated to have declined by 1.3 %, relative to a decline of 13.1 % in 2018. The sharp decline in oil prices since the third quarter of 2019 has posed major challenges to the country’s current account balance and public finances. Oil contributes close to 90 % of export revenues and roughly 75 % of the country’s total budget revenues.
Paragraph 3: Lower oil prices will continue to pose strong challenges for public finance at all levels of government during the year and will also represent a major constraint on the ability of the new government to introduce some of its ambitious programs. It is focusing on anti-corruption, the economy, including jobs and unemployment, and security.
Paragraph 4: The central bank of Urbania raised its base interest rate to 14 % in July 2019. It was the second rate increase in the year. In addition, the inflation rate kept its upward trend and reached 16.5 % in June, the highest since 2010.
Paragraph 5: The major medium-term challenge for the government of Urbania is to accelerate the creation of productive jobs through private sector growth and to make improvements in education (skills). So far, the pace of job creation has been inadequate, leading to increasing frustration among underemployed Urbanian youth.
Table 1:
2019
GDP per capita
$ 4000
GDP
?
Consumption spending
$ 3.5 million
Investment spending
$ 1.5 million
Government spending
?
Export revenue
$ 1.7 million
Import spending
$ 0.5 million
(a) (i) Define the term GDP per capita indicated in bold in Table 1. [2 marks]
(a) (ii) Define the term aggregate demand. [2 marks]
(b) (i) Using information from (Text 1, Paragraph 1) and Table 1, calculate the total GDP of Urbania in 2019. [3 marks]
(b) (ii) Using information from Table 1 and your calculation of GDP in part (b)(ii), calculate the amount of government spending in 2019. [2 marks]
(c) Using a circular flow diagram of the Urbanian economy, explain which injections and leakages will be affected by raising the base interest rate by the Central bank (Text 1, Paragraph 4), and by the decline in oil prices (Text 1, paragraph 2). [4 marks]
(d) Using a business cycle diagram and information from (Text 1, Paragraph 2), explain which phase of the business cycle is the Urbanian economy currently operating at. [4 marks]
(e) Using a monetarist/new classical AD/AS diagram, explain whether the economy of Urbania is currently experiencing an inflationary gap or a recessionary gap (Text 1, Paragraphs 2 and 4). [4 marks]
(f) Using a monetarist/new classical AD/AS diagram, explain how raising the base interest rate by the Central bank (Text 1, Paragraph 4) will affect the aggregate demand and aggregate supply of the Urbanian economy in the short-run and long-run. [4 marks]
(g) Using information from the text/data and your knowledge of economics, discuss whether national income statistics alone (like GDP and GDP per capita) are the most appropriate measure of the economic well-being of the citizens of Urbania. [15 marks]