Evaluate whether natural resource wealth helps or hinders economic development.
4.3.2
Helps (Norway)- GNI per head $97,310 (2025); HDI rank 2nd.
- Fund worth NOK 22.7 trn saves wealth for future generations.
- Revenue pays for welfare and low inequality.
Hinders (the curse)- Dutch disease: strong currency hurts other exporters.
- Price volatility: growth slowed sharply after 2014.
- Elsewhere: corruption and conflict (compare Nigeria).
ChainOil revenue saved in a fund abroad → less foreign currency converted into krone → smaller appreciation → non-oil exporters stay competitive → diversified, stable growth.
JudgmentResources help when institutions are strong before the windfall arrives. Norway shows the curse is not inevitable, but its conditions (democracy, low corruption, high skills) are rare among new producers.
Evaluate a sovereign wealth fund as a way to manage revenue from natural resources.
4.5 · 4.3.3
Benefits- Saves temporary revenue for when oil runs out.
- Investing abroad limits Dutch disease and overheating.
- The 3% rule smooths spending through oil-price swings.
Costs- Money not spent today could fund investment at home.
- Value falls with share prices (72% in equities).
- Budget now relies on the fund for about a fifth of spending.
ChainRevenue paid into the fund → invested in foreign shares and bonds → returns grow the fund → government spends about 3% a year → stable public spending regardless of this year's oil price.
JudgmentBest suited to a rich country with good public services already. A poor country with large infrastructure gaps may gain more from investing some revenue at home, as Botswana did.
Assess how a resource boom can harm other sectors of an economy (Dutch disease).
4.1.8 · 4.1.9
Harm- Oil exports raise demand for the krone; currency appreciates.
- High wages spread from oil to the whole economy.
- Small mainland manufacturing sector; high cost level.
Limited in Norway- The fund invests abroad, so less money is converted to krone.
- Wage bargaining led by export sectors restrains pay.
- Seafood and metals still compete using cheap resources.
ChainOil exports ↑ → demand for the krone ↑ → krone appreciates → fish, metals and tourism dearer abroad → non-oil exports ↓ and structural unemployment.
JudgmentDutch disease depends on how much revenue is spent at home and how fast. Norway's rule limits it; countries that spend windfalls quickly suffer more.
Assess the impact of a rise in world oil prices on an oil-exporting economy.
4.1.4 · 2.1.4
Gains- Terms of trade improve: exports buy more imports.
- Record revenue in 2022; current account surplus 14% of GDP (2025).
- Oil investment and jobs rise.
Costs- Stronger krone hurts other exporters (2026).
- Higher fuel prices raise inflation for households.
- Little extra spending allowed under the rule, so fewer short-term gains.
ChainOil price ↑ → export revenue ↑ → terms of trade improve → national income ↑ → fund grows → rule allows slightly higher spending in future.
JudgmentFor Norway the gain mostly goes into the fund, so the effect on today's AD is small. For a country without a fund, the same rise can cause a boom and then a bust.
Evaluate policies a government could use to reduce income inequality.
4.2.2
Norway shows they work- Gini about 0.27, among the lowest in the world.
- Progressive tax, wealth tax, universal services.
- Centralised wage bargaining narrows pay gaps.
Limits- High taxes may cut incentives; some rich people left after 2022.
- Oil revenue funds much of the welfare state.
- Higher spending needs tax over 40% of mainland GDP.
ChainProgressive taxes on high incomes and wealth → revenue funds free health and education → poorer households receive more in kind → disposable incomes converge → Gini ↓.
JudgmentRedistribution plus wage bargaining clearly works. The cost is high taxes, and Norway's oil wealth makes the trade-off easier than it would be in most countries.
Discuss whether GDP per head is a good measure of living standards.
2.1.1 · 4.3.1
Good measure- High income per head goes with HDI rank 2nd.
- Captures the resources available for consumption.
- Easy to compare across countries.
Weak measure- Oil output inflates GDP; it swings with world prices.
- Household consumption only ~43% of GDP.
- Ignores inequality, leisure and depletion of oil.
ChainOil price ↑ → value of petroleum output ↑ → GDP per head ↑ → but most revenue goes into the fund → little change in household living standards this year.
JudgmentUse mainland GDP, GNI, HDI and inequality data together. Norway shows GDP can mislead for resource economies even when living standards are very high.
Evaluate the costs and benefits of joining a trading bloc.
4.1.5
Staying outside the EU- Keeps control of fishing and farming.
- Sets its own trade policy outside the customs union.
- Still has single-market access through the EEA.
Costs- Must adopt EU single-market rules with no vote.
- Pays into EU programmes anyway.
- Border checks on goods as Norway is outside the customs union.
ChainEEA access → few barriers on most goods and services → trade creation with the EU → efficiency gains, while protected farming keeps higher prices at home.
JudgmentNorway gets most of the trade benefits without full membership, but gives up influence. A useful comparison for the UK after Brexit.
Evaluate the effectiveness of monetary policy in a small open economy.
2.6.2 · 4.1.8
Effective- Rate rises strengthen the krone, cutting import prices.
- Households have large, mostly variable-rate mortgages, so rates bite fast.
- House building fell back to 2016 levels as rates rose.
Limits- Inflation above target for five years despite 4–4.5% rates.
- Imported inflation from oil and world prices.
- Krone driven by oil prices as much as by interest rates.
ChainPolicy rate ↑ → mortgage costs ↑ and krone ↑ → C ↓ and import prices ↓ → AD ↓ and cost pressure ↓ → inflation ↓.
JudgmentThe exchange-rate channel is powerful in a small open economy, but it also means outside shocks (oil, world rates) can outweigh domestic policy.
Evaluate the use of taxes and subsidies to reduce negative externalities from transport.
1.3.2 · 1.4
Worked- EVs 95.9% of new car sales in 2025.
- Petrol cars taxed heavily; EVs exempt from VAT and road tolls for years.
- Cheap hydropower makes charging cheap and clean.
Limits- Large cost in lost tax revenue; mostly helped richer buyers.
- Congestion and road wear remain.
- Oil and gas exports cause emissions elsewhere.
ChainTax on petrol cars ↑, subsidy for EVs → relative price of EVs ↓ → demand switches to EVs → less pollution from exhausts → external costs ↓.
JudgmentLarge price incentives can change behaviour quickly when substitutes exist. The cost per tonne of CO₂ saved was high, and Norway could afford it.
To what extent do high taxes reduce economic growth?
4.5.2
They can- Mainland growth weak; productivity growth slow.
- Wealthy people moved abroad after 2022 tax rises.
- OECD calls for lighter burdens on new firms.
Not much- One of the richest countries despite tax over 40% of mainland GDP.
- Taxes fund education and health that raise productivity.
- High employment among women thanks to childcare.
ChainTaxes fund free childcare and education → more people work and gain skills → labour supply and productivity ↑ → LRAS ↑.
JudgmentWhat the tax money is spent on matters as much as the rate. Norway also benefits from oil revenue, so it can keep some taxes lower than its spending would otherwise need.