Free Practice Questions for CAPE Economics Unit 2

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Key Facts: CAPE Economics Unit 2 Exam

45 items

Paper 01 has 45 compulsory multiple-choice items, 15 from each Module

CXC CAPE Economics Syllabus CXC A20/U2/09, Assessment Details

1 hour 30 minutes

Time allowed for CAPE Economics Unit 2 Paper 01

CXC CAPE Economics Syllabus, Paper 01

30%

Paper 01 contribution to the total Unit 2 grade

CXC CAPE Economics Syllabus, Outline of Assessment

3 Modules

Models of the Macroeconomy; Macroeconomic Problems and Policies; Growth, Sustainable Development and Global Relations

CXC CAPE Economics Syllabus, Structure of the Syllabus

80% / 20%

Split between external written examinations and School-Based Assessment (or Paper 032)

CXC CAPE Economics Syllabus, Scheme of Assessment

150 hours

Guided learning hours designed for Unit 2 across its three Modules

CXC CAPE Economics Syllabus / subject page

100

Free original practice questions in this bank

OpenExamPrep

CAPE Economics Unit 2 (Macroeconomics) is administered by the Caribbean Examinations Council across three Modules: Models of the Macroeconomy, Macroeconomic Problems and Policies, and Growth, Sustainable Development and Global Relations. Paper 01 consists of 45 compulsory multiple-choice items (15 per Module) completed in 90 minutes, accounting for 30% of the total Unit grade. Paper 02 provides 50% via extended structured and essay questions, and School-Based Assessment or Paper 032 provides 20%. Results are awarded as Grades I–VII. These independent English-language MCQs are a study adaptation for Unit 2 topics, not an official-format simulation or a substitute for written essays and research practice.

Sample CAPE Economics Unit 2 Practice Questions

Try these sample questions to review concepts for the CAPE Economics Unit 2 exam. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1Gross Domestic Product (GDP) is best defined as the total market value of all:

A.Final goods and services produced within the geographic boundaries of a country during a specified time period

B.Goods and services produced by labour and property supplied by a country's residents, wherever production occurs

C.Intermediate and final outputs transacted across domestic retail and wholesale markets in a fiscal year

D.Consumer goods purchased by households plus government transfer payments during a calendar year

Explanation: Gross Domestic Product (GDP) measures the total monetary value of all final goods and services produced within a country's borders over a given time period (typically one year). It emphasizes domestic geographic location, regardless of whether the producers are domestic citizens or foreign-owned entities.

2The primary conceptual difference between Gross Domestic Product (GDP) and Gross National Product (GNP) is that GNP accounts for:

A.Net factor income from abroad (NFIA)

B.Capital consumption allowance (depreciation)

C.Net indirect business taxes minus subsidies

D.The value of intermediate transactions in the export sector

Explanation: GNP equals GDP plus Net Factor Income from Abroad (NFIA). NFIA is the difference between factor income earned by domestic residents from assets and labour abroad minus factor income earned by foreign residents from assets and labour located within the domestic economy.

3A Caribbean economy records a GDP of $14,000 million. Factor income received by domestic residents from abroad is $1,200 million, while factor income paid to foreign investors and workers located domestically is $1,800 million. What is the country's Gross National Product (GNP)?

A.$13,400 million

B.$14,600 million

C.$15,800 million

D.$12,200 million

Explanation: GNP = GDP + Net Factor Income from Abroad (NFIA). Here, NFIA = Factor income from abroad ($1,200m) - Factor income paid abroad ($1,800m) = -$600 million. Therefore, GNP = $14,000m + (-$600m) = $13,400 million.

4To convert an aggregate measure of national output from market prices to factor cost, an economist must:

A.Deduct indirect taxes and add government subsidies

B.Add indirect taxes and deduct government subsidies

C.Deduct capital consumption allowance and add net exports

D.Add direct personal taxes and deduct corporate income taxes

Explanation: Market prices include indirect taxes (which artificially inflate retail prices paid by consumers) and reflect reductions from government subsidies. Therefore, Output at Factor Cost = Output at Market Prices - Indirect Taxes + Subsidies (or Output at Market Prices - Net Indirect Taxes).

5Net National Product (NNP) at market prices is derived from Gross National Product (GNP) at market prices by subtracting:

A.Depreciation (capital consumption allowance)

B.Net factor income from foreign trade

C.Corporate retained earnings

D.Personal income tax receipts

Explanation: Gross output measures total production before accounting for the wear and tear of existing physical capital. Net National Product (NNP) is obtained by subtracting depreciation (capital consumption allowance) from GNP: NNP = GNP - Depreciation.

6An economy has a Gross National Product (GNP) at market prices of $22,000 million. Capital depreciation is $2,200 million, indirect business taxes equal $1,600 million, and government subsidies to producers are $400 million. What is National Income (NNP at factor cost)?

A.$18,600 million

B.$19,800 million

C.$20,600 million

D.$17,800 million

Explanation: First calculate NNP at market prices: GNP at market prices ($22,000m) - Depreciation ($2,200m) = $19,800 million. Then convert to factor cost: NNP at factor cost = NNP at market prices ($19,800m) - Indirect taxes ($1,600m) + Subsidies ($400m) = $19,800m - $1,200m = $18,600 million.

7Under the output (value added) method of national income accounting, value added at each stage of production is calculated as:

A.Gross value of output minus the cost of intermediate inputs consumed in production

B.Total sales revenue plus changes in inventory values

C.Total payments to labour and capital plus indirect taxes

D.Gross output value divided by the number of workers employed

Explanation: The value-added approach avoids double counting by defining value added at each stage of production as the gross value of an enterprise's output minus the value of intermediate goods and services purchased from other firms and consumed in production.

8A farmer produces wheat and sells it to a miller for $60. The miller grinds the wheat into flour and sells it to a baker for $110. The baker bakes the flour into bread and sells it to consumers for $190. What is the total contribution of these transactions to GDP?

A.$190

B.$360

C.$130

D.$240

Explanation: GDP measures the value of final goods and services. Here, the final product sold to consumers is bread, valued at $190. Alternatively, summing the value added at each stage gives: Farmer ($60) + Miller ($110 - $60 = $50) + Baker ($190 - $110 = $80) = $190. Summing all intermediate sales ($60 + $110 + $190 = $360) would commit double counting.

9When calculating national income using the income method, which of the following is explicitly EXCLUDED?

A.Government unemployment benefits and state old-age pensions

B.Wages and salaries paid to civil service workers

C.Rental income earned by property owners

D.Profits and dividends distributed by private corporations

Explanation: Transfer payments, such as unemployment benefits and old-age pensions, are payments made by the government without any corresponding exchange of current goods or productive services. They represent redistributions of existing income rather than generation of new output, so they are excluded from national income.

10In the expenditure approach to measuring GDP, an increase in business inventories during the year is classified under:

A.Gross private domestic investment (I)

B.Personal consumption expenditures (C)

C.Net factor income adjustments

D.Intermediate business operating expenses

Explanation: In national income accounting, gross private domestic investment consists of fixed capital formation (equipment, machinery, structures) plus changes in business inventories. Unsold goods produced during the current year are treated as inventory investment purchased by the producing firm itself.

About the CAPE Economics Unit 2 Exam

CAPE Economics Unit 2, titled Macroeconomics, is the second of two independent certifiable Units in the Caribbean Examinations Council's Caribbean Advanced Proficiency Examination syllabus for Economics. It comprises three core Modules: Module 1 Models of the Macroeconomy; Module 2 Macroeconomic Problems and Policies; and Module 3 Growth, Sustainable Development and Global Relations. The Unit equips candidates to analyze aggregate economic activity, evaluate monetary and fiscal policy interventions, assess development and environmental challenges, and understand the trade and financial dynamics of Caribbean small open economies. Paper 01 is a compulsory multiple-choice examination of 45 items, 15 drawn from each Module, written in 1 hour 30 minutes and contributing 30% to the overall Unit grade. CAPE Economics is a post-16 course that prepares students for further study in economics and related fields.

Exam sponsor: Caribbean Examinations Council (CXC). The requirements and fees below concern the certification or admission exam, separate from our free practice resources.

Assessment

Paper 01: 45 compulsory multiple-choice items, 15 from each of the three Modules, each worth 2 marks (90 raw marks, 30% of the Unit). Paper 02: three compulsory structured/essay questions, one per Module (2 hours 30 minutes; 50%). School-Based Assessment Paper 031 or private-candidate Paper 032 (20%).

Time Limit

Paper 01 is 1 hour 30 minutes (90 minutes). Paper 02 is 2 hours 30 minutes. Paper 032 (private candidates) is 1 hour 30 minutes; confirm exact sitting arrangements with your centre.

Passing Score

No fixed pass mark. CAPE results are reported as Grades I to VII (Grade I highest), combining external papers (80%) and School-Based Assessment or Paper 032 (20%). Paper 01 alone contributes 30% of the Unit grade.

Exam / Certification Fees

Effective May–June 2026: BBD $69.50 per CAPE Unit plus BBD $48.50 candidate entry in member territories. External-territory rates are BBD $139.00 per Unit plus BBD $97.00 entry. Local registrar charges may apply; confirm payment requirements with your school or Local Registrar.

Exam sponsor website

Fees, eligibility, and exam policies can change. Confirm them with the exam sponsor before applying or paying.

Official sources

Our practice resources: topics covered

We aim to reflect publicly available exam outlines and topic information in our study resources. Coverage, format, and difficulty may differ from the actual exam, and we cannot guarantee that every detail is accurate or current. Confirm exam requirements, fees, and policies with the official exam sponsor.

33%

Module 1: Models of the Macroeconomy

Paper 01 draws 15 items here. Topics include national income concepts (GDP, GNP, NNP, NI at market prices and factor cost); measurement methods (output/value-added, income, and expenditure); nominal vs real GDP and the GDP deflator; per capita income and welfare limitations; circular flow of income, injections, leakages, and equilibrium; Classical macroeconomic principles (Say's law, wage-price flexibility, Quantity Theory of Money); Keynesian aggregate expenditure model (consumption and saving functions, MPC, MPS, autonomous spending, equilibrium output); the investment multiplier; and the accelerator principle.

33%

Module 2: Macroeconomic Problems and Policies

Paper 01 draws 15 items here. Topics include unemployment (definitions, labor force participation, measurement, frictional, structural, cyclical, seasonal, and real-wage types, economic and social costs, remedies); inflation (definition, CPI measurement, demand-pull, cost-push, imported inflation, costs of inflation, deflation, stagflation); the Phillips curve (short-run trade-off vs long-run vertical curve); monetary theory and policy (money functions and definitions, liquidity preference theory, commercial bank credit creation, central bank tools, transmission mechanism); fiscal policy (budgets, national debt, automatic stabilizers, discretionary stimulus, crowding out); and supply-side policies.

34%

Module 3: Growth, Sustainable Development and Global Relations

Paper 01 draws 15 items here. Topics include economic growth vs development (definitions, growth determinants, Human Development Index, Gini coefficient); sustainable development (environmental constraints, natural capital, Caribbean environmental vulnerabilities); international trade theory (absolute and comparative advantage, gains from trade, terms of trade); trade protectionism (tariffs, quotas, subsidies, embargoes); balance of payments (current, capital, and financial accounts, disequilibrium causes and correction); exchange rate regimes (fixed, floating, managed float, devaluation/revaluation, Marshall-Lerner condition, J-curve); and regional integration and Caribbean small open economies (CARICOM, CSME, vulnerability to external shocks, narrow export bases, and public debt).

Preparing for the CAPE Economics Unit 2 Exam

What You Need to Know

Passing score: No fixed pass mark. CAPE results are reported as Grades I to VII (Grade I highest), combining external papers (80%) and School-Based Assessment or Paper 032 (20%). Paper 01 alone contributes 30% of the Unit grade.
Assessment: Paper 01: 45 compulsory multiple-choice items, 15 from each of the three Modules, each worth 2 marks (90 raw marks, 30% of the Unit). Paper 02: three compulsory structured/essay questions, one per Module (2 hours 30 minutes; 50%). School-Based Assessment Paper 031 or private-candidate Paper 032 (20%).
Time limit: Paper 01 is 1 hour 30 minutes (90 minutes). Paper 02 is 2 hours 30 minutes. Paper 032 (private candidates) is 1 hour 30 minutes; confirm exact sitting arrangements with your centre.
Exam / certification fees: Effective May–June 2026: BBD $69.50 per CAPE Unit plus BBD $48.50 candidate entry in member territories. External-territory rates are BBD $139.00 per Unit plus BBD $97.00 entry. Local registrar charges may apply; confirm payment requirements with your school or Local Registrar. Official sources

Using Our Practice Resources

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CAPE Economics Unit 2: Suggested Study Strategy

1Distribute study time evenly across all three Modules, as Paper 01 draws exactly 15 compulsory questions from each Module.

2In Module 1, practice multi-step national income accounting calculations: converting GDP at market prices to Net National Income at factor cost, real GDP using the deflator, and equilibrium income using consumption and saving functions.

3Master the multiplier and accelerator formulas: understand both the closed-economy formula 1/(1 - MPC) and the open-economy formula 1/(MPS + MPT + MPM), and be ready to calculate changes in equilibrium national income.

4In Module 2, understand the exact differences between demand-pull, cost-push, and imported inflation, and master the fractional-reserve deposit creation formula (1 / cash reserve ratio).

5In Module 3, be proficient in comparative advantage opportunity cost tables, terms of trade calculations, and the components of the Balance of Payments current, capital, and financial accounts.

6Understand Caribbean exchange-rate arrangements: Barbados and the ECCU maintain fixed US-dollar pegs; Jamaica uses a floating rate with central bank intervention. Relate these arrangements to external shocks and CSME free movement provisions.

Frequently Asked Questions

How many questions are on CAPE Economics Unit 2 Paper 01?

Paper 01 has 45 compulsory multiple-choice items, with exactly 15 questions drawn from each of the three Modules. Each item is worth 2 marks, totaling 90 marks (30% of the overall Unit grade).

How long is CAPE Economics Unit 2 Paper 01?

Paper 01 is 1 hour 30 minutes (90 minutes) long. Paper 02 is a separate 2-hour-and-30-minute structured essay paper.

What is the difference between CAPE Economics Unit 1 and Unit 2?

Unit 1 focuses on Microeconomics (methodology, demand and supply, market structures, market failure, government intervention, and factor distribution theory). Unit 2 focuses on Macroeconomics (national income models, unemployment, inflation, monetary and fiscal policies, international trade, balance of payments, and Caribbean economic challenges).

How is CAPE Economics Unit 2 graded?

CAPE examinations use a seven-point grading scale from Grade I (highest / excellent) to Grade VII (unsatisfactory). Grades I through V represent recognized passing standards. External written papers account for 80% (Paper 01 is 30%, Paper 02 is 50%) and School-Based Assessment (or Paper 032 for private candidates) accounts for 20%.

Can I use a calculator on CAPE Economics Unit 2 Paper 01?

Yes. Candidates are permitted to bring a silent, non-programmable electronic calculator into the examination room for computational items such as national income, multiplier, elasticity, terms of trade, and CPI calculations.

Are these official CXC past paper questions?

No. These independent English-language MCQs are a study adaptation by OpenExamPrep, not official CXC questions, an official-format simulation, or a substitute for essay writing and research practice. Official examination materials can be obtained from CXC or the CXC Store.