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P2

Paper 2: data response

Assessment · SL and HL

Paper 2 gives you news-style extracts and data about a country and asks seven questions that climb from definitions and calculations to diagram-based explanations and a 15-mark evaluation. It is the same paper at SL and HL. This page explains what each part wants and how it is marked, then gives a complete practice question on a fictional economy, written in the style of recent papers, with a full markscheme.

🎯What this page covers

  • The structure and timing of Paper 2, part by part.
  • How to earn full marks on definitions, calculations and the 4-mark diagram questions.
  • How the 15-mark part (g) is marked, and how to use the text and data.
  • A full practice question with markscheme.

📚The paper

Format
1 hour 45 minutes plus 5 minutes’ reading. Answer one of two questions. 40 marks. Calculator allowed.
Weighting
SL 40%; HL 30%. The texts and questions may be the same at both levels, but HL questions can use HL-only content.
(a)(i), (a)(ii)
define two terms from the text. 2 + 2 marks.
(b)
calculations from the data. 5 marks in total, split across sub-parts.
(c)–(f)
“Using a … diagram, explain …”, each linked to a part of the text. 4 marks each.
(g)
“Using information from the text/data and your knowledge of economics, evaluate/discuss …”. 15 marks.

Timing: about 15 minutes to read and annotate the texts, 5 minutes for (a), 10 for (b), 8–9 minutes each for (c)–(f), and 35–40 minutes for (g).

Parts (a) and (b): definitions and calculations

  • Definitions (2 marks): a precise definition in your own words earns 2; a vague or partial one earns 1. Learn definitions for every key term in the syllabus. Do not define by repeating the word (“inflation is when prices inflate”), and do not give examples instead of a definition.
  • Calculations: show your working (a correct answer without working may not get full marks; working can earn marks even if the final answer is wrong); include units (K$ billion, %), and the sign where it matters (a deficit is negative; PED is negative).

Parts (c) to (f): the 4-mark diagram questions

Each is typically marked 2 for the diagram and 2 for the explanation:

  • Diagram (2): the correct diagram, fully and accurately labelled (axes, curves, the shift, the original and new equilibrium values on the axes). An error in labelling usually costs one mark.
  • Explanation (2): a clear causal chain that refers to the text (“Text B, paragraph 2 states that…”) and refers to the diagram (“AD shifts from AD1 to AD2, reducing real GDP from Y1 to Y2”).
  • Answer exactly the question asked: if it asks about the effect on farmers, talk about producers’ price, output and revenue, not consumers.

Part (g): the 15-mark evaluation

Marked with a markband like Paper 1 part (b), except that the real-world examples are replaced by use of the text/data. For the top band, information from the text must be “used to formulate a reasoned argument”: quote figures and link them to theory. Answers that ignore the text cannot get beyond the bottom bands, however good the theory. A good (g) answer:

  1. defines the key terms and identifies the policies or issues in the text;
  2. explains the theory behind each, with one or two diagrams (you may reuse and refer back to diagrams from (c)–(f));
  3. uses specific evidence from the texts and tables for every point;
  4. evaluates: short versus long run, stakeholders, side effects, trade-offs between objectives, constraints mentioned in the text;
  5. ends with a judgment specific to the country in the text.

✏️Practice question: Kalindra

Kalindra is a fictional country. The texts and data are invented for practice, written in the style of recent Paper 2 questions. Allow 1 hour 45 minutes.

Text A — Growth slows as the central bank fights inflation

[1] Kalindra, a lower-middle-income island economy, grew by 5.1% in 2024, but growth slowed to 3.4% in 2025. Consumer price inflation rose to 6.2%, well above the central bank’s target of 3% ± 1%, driven by higher food and fuel prices and strong consumer spending.

[2] To bring inflation down, the central bank raised its policy interest rate from 4.0% to 5.5% over twelve months. Commercial banks increased their lending rates, and sales of cars and new houses fell.

[3] Rising interest rates in the United States led investors to move funds out of Kalindra, and the Kalindran dollar (K$) depreciated by 9% against the US dollar. Import prices, especially of fuel and wheat, rose.

Text B — Rice: price controls and protection

[1] Rice is the staple food of Kalindra. After a poor harvest, the government set a maximum price for medium-quality rice below the market price. Shoppers reported empty shelves in some supermarkets, and traders were accused of selling rice above the legal price.

[2] At the same time, the government kept a 20% tariff on imported rice, saying it protects the incomes of 3 million small-scale rice farmers.

Text C — Coal and a proposed carbon tax

[1] Two-thirds of Kalindra’s electricity comes from coal-fired power stations. Air pollution in the capital regularly exceeds World Health Organization guidelines. The government has proposed a carbon tax of K$10 per tonne of CO2, rising each year, with part of the revenue used for cash transfers to low-income households.

Table 1: National accounts, 2025
(K$ billion)
Consumption 620
Investment 180
Government spending 150
Exports 230
Imports 210
Net income from abroad −25
Table 2: One household
Monthly income: K$4000 in 2024, K$4320 in 2025
Packs of instant noodles bought per month: 50 in 2024, 49 in 2025

(a) (i) Define the term inflation (Text A, paragraph 1). [2]
    (ii) Define the term maximum price (Text B, paragraph 1). [2]
(b) (i) Using Table 1, calculate Kalindra’s GDP in 2025. [2]
    (ii) Using Table 1, calculate Kalindra’s GNI in 2025. [1]
    (iii) Using Table 2, calculate the household’s income elasticity of demand for instant noodles. [2]
(c) Using an AD/AS diagram, explain the likely effect of higher interest rates on Kalindra’s real GDP (Text A, paragraph 2). [4]
(d) Using a demand and supply diagram, explain why the maximum price led to “empty shelves” (Text B, paragraph 1). [4]
(e) Using an international trade diagram, explain how the tariff on imported rice affects Kalindran rice farmers (Text B, paragraph 2). [4]
(f) Using an externalities diagram, explain how the carbon tax could move electricity output closer to the socially optimal level (Text C). [4]
(g) Using information from the text/data and your knowledge of economics, evaluate the policies used by the Kalindran government and central bank to reduce inflation and protect households. [15]

Markscheme

(a)(i) A sustained increase in the general (average) price level in an economy over a period of time [1 + 1]. (“Prices going up” alone: 1.)

(a)(ii) A price set by the government, below the equilibrium price, above which the good may not legally be sold [1 + 1].

(b)(i) GDP = C + I + G + (X − M) = 620 + 180 + 150 + (230 − 210) [1] = K$970 billion [1].

(b)(ii) GNI = 970 + (−25) = K$945 billion [1].

(b)(iii) %ΔQ = (49 − 50) ÷ 50 × 100 = −2%; %ΔY = (4320 − 4000) ÷ 4000 × 100 = +8% [1]; YED = −2 ÷ 8 = −0.25 [1] (instant noodles are an inferior good for this household).

(c) Diagram [2]: AD/AS with correct axes (price level, real GDP), AD shifting left from AD1 to AD2, real GDP falling from Y1 to Y2 and the price level falling (or rising more slowly). Explanation [2]: higher policy rate → higher lending rates (Text A, [2]) → borrowing for cars and houses falls, so consumption and investment fall → AD shifts left → real GDP falls, consistent with growth slowing to 3.4%.

(d) Diagram [2]: rice market with D, S, equilibrium Pe, a maximum price below Pe, Qs and Qd at Pmax, and the shortage labelled. Explanation [2]: at the maximum price quantity demanded rises and quantity supplied falls, so Qd > Qs: excess demand; the price cannot rise to ration rice, so shelves empty and some traders sell illegally above Pmax (parallel market), as reported in Text B.

(e) Diagram [2]: domestic D and S, world price Pw, Pw + tariff above it; domestic supply rising from Q1 to Q2. Explanation [2]: the tariff raises the domestic price of rice to Pw + tariff; Kalindran farmers receive a higher price and extend output (Q1 to Q2), so their revenue and producer surplus rise, protecting the incomes of the 3 million farmers (Text B, [2]).

(f) Diagram [2]: negative production externality: D = MPB = MSB, S = MPC, MSC above MPC; Qm > Qopt; welfare loss shown; the tax shifting MPC up towards MSC. Explanation [2]: coal-fired generation creates external costs (air pollution, Text C); the carbon tax raises producers’ costs, shifting supply (MPC) up; output falls from Qm towards Qopt, reducing overallocation and the welfare loss; ideally the tax equals the marginal external cost.

(g) Marked with the part (g) markband (0–15). Points that could be included:

  • Monetary policy (Text A): the rate rise from 4.0% to 5.5% reduces C and I (diagram from (c)), which addresses the demand-pull part of 6.2% inflation. But much inflation is cost-push (food, fuel, and import prices after the 9% depreciation), which higher rates do not address; growth has already slowed from 5.1% to 3.4%, raising cyclical unemployment risk; time lags. A higher rate may slow capital outflows and support the K$, reducing imported inflation.
  • Maximum price on rice (Text B): protects low-income households, who spend a large share of income on rice (equity), but causes shortages, a parallel market and lower supply next season (diagram from (d)); a targeted subsidy or direct food aid might achieve the same goal with fewer side effects.
  • Tariff on rice: supports farmers’ incomes and food security, but raises the domestic price of rice, working against the anti-inflation goal and against the maximum price; consumers, especially poor households, lose; welfare loss. The policies conflict.
  • Carbon tax (Text C): corrects a market failure and funds cash transfers to poor households, but raises electricity prices in the short run, adding to cost-push inflation (SRAS shifts left); the transfers reduce the regressive burden.
  • Judgment: for example, monetary tightening is appropriate for the demand-side part of inflation, but the government’s microeconomic policies pull in different directions (the tariff raises food prices while the ceiling tries to cap them); cash transfers to vulnerable households, temporarily cutting the rice tariff and phasing in the carbon tax would protect households more coherently.
Check your (g). Did every paragraph quote the text or data (6.2%, 4.0% to 5.5%, 9%, 3.4%, 3 million farmers, K$10 per tonne)? Did you evaluate each policy and the interaction between them? Did you finish with a judgment about Kalindra?
Treating (g) as a Paper 1 essay. Real-world examples from other countries are not needed; evidence from the text is. Generic evaluation (“there are time lags”) is only worth marks when linked to the case (“growth has already slowed to 3.4%, so further tightening risks…”).

📝Quick drills

Short tasks in the style of parts (a)–(f). The topic pages have many more.

1. [2 marks] Define the term current account deficit.
When the total value of debits on the current account (imports of goods and services, income paid abroad, transfers out) exceeds credits (exports, income received, transfers in) over a period.
2. [2 marks] The price of a good rises from K$25 to K$30 and quantity demanded falls from 400 to 360. Calculate the PED.
%ΔQ = −10%; %ΔP = +20%; PED = −0.5.
3. [2 marks] A CPI rises from 118.0 to 123.9. Calculate the inflation rate.
(123.9 − 118.0) ÷ 118.0 × 100 = 5.0%.
4. [3 marks] A good costs US$40. The exchange rate changes from US$1 = K$12.50 to US$1 = K$13.75. Calculate the change in the good’s price in K$ and the percentage depreciation of the K$ against the US$.
Before: 40 × 12.50 = K$500; after: 40 × 13.75 = K$550: +K$50. The value of K$1 in US$ falls from 1/12.50 = 0.080 to 1/13.75 = 0.0727: a 9.1% depreciation of the K$ (the US$ has appreciated by 10%).
5. [4 marks] Using an exchange rate diagram, explain how capital outflows cause a currency to depreciate.
Investors selling domestic assets exchange the domestic currency for foreign currency: the supply of the currency increases (S1 to S2) [and demand from foreign investors falls]. At the original rate there is excess supply, so the exchange rate falls from ER1 to ER2. Diagram with correct axes (price of the currency in terms of another, quantity of the currency).
6. [4 marks] Using a PPC diagram, explain the effect of a severe recession on an economy.
Resources become unemployed: output moves from a point on the PPC to a point inside it; the curve itself does not shift (resources and technology unchanged). Output of both goods can fall; there is no opportunity cost of returning to the curve. Diagram: PPC with a movement from A on the curve to U inside.

🔗Go deeper — other people’s work

These are external resources, not mine. If one stops working, tell me and everything above it on this page still stands.

  • Your school’s IB coordinator — official Paper 2 past papers and markschemes.
  • Reuters, the Jakarta Post and the Financial Times — practise reading real economic news the way Paper 2 texts are written.
  • IMF country reports (Article IV) — real data and policy discussions for practising part (g)-style evaluation.