2017 AS paper Flashcards
define deflation
- A decrease in the general level of prices
- Negative change in average prices
- Negative inflation / inflation below zero
causes of deflation
1) fall in AD (e.g. global recession, fiscal austerity, decline in confidence, fall in money supply)
2) rightward shift of AS - lower costs of production (e.g. fall in oil prices, improved technology, appreciation - falling import prices)
explain ‘under-employment’
Knowledge/understanding
definition of under-employment:
When a worker is working fewer hours than they would like to work
When a worker is under-utilised in terms of ability
Application
1 mark for reference to data provided
Has nearly doubled from 76 482 to 142 788
Increased by over 66 000 or 86% (accept 85% -100%)
Unemployment fell to 5.7% but
underemployment increased
Analysis
Reasons for increase:
o Recession/lack of demand in the market
o Increase in zero-hours/part-time/flexible contracts offered by employers
o Increased mechanisation/use of technology in the workplace
Underemployment makes the unemployment figure look better than it is
Comment on impact of lower pay e.g. standard of living
reason for fall in the unemployment rate
increasing consumer spending
define real GDP
1 mark for definition of GDP
Value of the total output
Accept amount of final goods and services
Total income / total expenditure
1 mark for definition of real
Taking inflation into account
Adjusted for changes in the price level
likely impact of an increase in personal allowance on UK’s price level and real output
rightward shift in AD
new equilibrium point showing higher price level and higher real output
define ‘direct tax’
Tax on income / earnings
Tax on business profits
reason for the change in consumer confidence between 2012 and 2015
Knowledge/understanding
Falling unemployment
Rising incomes / economic growth
Lower inflation rates
Application
1 mark for identifying an improvement in consumer confidence or other single use of figures from the chart e.g. a low of -25 in 2012
Analysis
1 mark for linked development of reason e.g. economic growth leads to more predictable job security
explain ‘net trade’
Knowledge/understanding
Exports – imports / X – M (1)
2 marks for e.g.
Difference between total value of a country’s exports and imports (2)
Application 2 marks for e.g. The UK net trade was -2% (1) The UK has a trade deficit (1) China has a trade surplus (1) China’s net trade was 3% (1) e.g. Germany had a trade surplus of 6% = 2 marks
likely causes of the UK’s trade deficit (KAA)
Data reference to figure 1 of -2% for net trade
Strong value of the pound
Rising real income
Slow growth in the world economy
Low productivity in the UK e.g. around 20 percentage points below the G7 average
likely causes of the UK’s trade deficit (Ev)
Export of services has grown
Productivity difficult to measure e.g. especially large service sector
Investment is increasing so productivity may rise in the future
Time period under consideration e.g. the pound is weakening against various currencies
likely influence on UK investment
Knowledge Business confidence Interest rates Access to credit Rise in demand for UK exports
Application
2 marks for relevant references to context or one reference to context plus development, e.g.
5% growth in investment
Output rising at the fastest rate in the G7
GDP growth has remained strong
Unemployment continued to drop
Analysis Linked development (1+1), e.g. Lower interest rates reduces cost of borrowing incentivising firms to invest
likely reasons why the growth of the UK’s nominal GDP per capita at PPPs was slower than that of Germany after 2010
Knowledge/understanding
Identification of two reasons (1+1)
Rising UK population (66m) relative to Germany’s (83m)
Falling productivity in UK
Lack of exports in UK
Increased imports in UK (largely due to increased domestic consumption)
Change in relative cost of living
Different inflation rates in UK and Germany
Changes to PPP method of calculation, e.g. items in basket of goods
Change in value of US Dollar used for PPP calculations
Application
2 marks for two data references from Figure 2 and/or extract A, or application of a diagram (1+1), e.g.
UK current account deficit 6% of GDP in third quarter 2014 (1)
Identify difference in growth of GDP per capita in Figure 2 e.g. 7 percentage points between 2010 and 2013 for the UK (1)
Analysis
Linked development of reasons (1+1). e.g.
falling UK productivity increases average cost of UK exports, making them more expensive relative to Germany’s
evaluate policies the gov could use to increase the UK’s productivity (KAA)
Policies may include:
Improved education/training to increase skill level of workforce
Increase in provision and quality of apprenticeships
Improved healthcare to ensure workers take less time off/are healthier at work
Improved infrastructure, e.g. roads, railways, ports, airports, to reduce delays in transporting goods around the country / abroad
Improved telecommunications infrastructure (e.g. faster broadband internet) so businesses can work quicker, communicate with foreign firms better, etc.
Relaxing the planning system to improve house-building and efficiency in construction industry; improve labour mobility
NB For a Level 3 response, answers must make clear links to increases in productivity rather than production or output
evaluate policies the gov could use to increase the UK’s productivity (Ev)
Many of these policies will have quite a long time lag
e.g. nursery school vouchers will have short term and long term impacts on different stakeholders
Magnitude of the impact of the policies e.g. Crossrail just affects London
Opportunity cost of the policies
Conflicts between objectives e.g. impact on the environment
Conflicts between policies e.g. increased spending on
apprenticeships may have fiscal implications
evaluate the benefits of economic growth to the UK given that ‘a number of concerns remain’ in the UK economy (KAA) BENEFITS
Explicit or implicit understanding of economic growth – a measure
of the increase in either real GDP or real GDP per head or potential GDP
Relevant diagram e.g. AD/AS diagram showing rightward shift in AD and/or AS curve
Increased tax revenues for the government which may be used to improve public services or redistribute incomes
Higher profits for companies which may be used to improve quality products or to produce new products
Consumers’ living standards improve e.g. can afford to buy more goods and services and/or have more leisure time
More employment opportunities/lower unemployment
If there is export–led growth, then the current account of the Balance of Payments would improve
Real economic growth increases LRAS and could
lower inflation
An increase in business confidence which may lead to
increase in investment
Investment in sustainable technology can have
environmental benefits
evaluate the benefits of economic growth to the UK given that ‘a number of concerns remain’ in the UK economy (KAA) “A NUMBER OF CONCERNS”
current account deficit decline in rate of return on UK investments low export growth growth lower than target struggling goods industries output falling in construction/manufacturing growing household debt imbalance of consumer driven growth low productivity skills shortage house shortages burdens on UK manufacturers
evaluate the benefits of economic growth to the UK given that ‘a number of concerns remain’ in the UK economy (Ev)
Demand pull inflation – may be shown by a rightward/upward shift in AD curve
Greater inequality e.g. companies may not invest but distribute profits to shareholders
Growth might involve depletion of natural resources
External costs of growth
Lack of sustainability
Short run/long run effects e.g. technological unemployment
Growth could cause a deterioration in the Balance of
payments since Britain has a high marginal propensity to import
Growth from supply side improvements may reduce
inflationary pressure
Social impact of increased economic activity e.g.
work-life balance
evaluate the view that another recession is ‘inevitable’ in the UK (KAA)
High percentage of consumption in UK’s aggregate demand in contrast to other countries in Figure 1
Lack of export-led growth, resulting from the state of the global economy so the UK government’s £1 trillion target is unrealistic
Falling rate of return on investments abroad
Rising consumer indebtedness
Dependence of consumer confidence on rising house
prices which may not be sustainable
Size of UK government budget deficit/national debt
may create problems as interest rates start to rise
Relevant diagram e.g. trade cycle
Fall in real incomes
evaluate the view that another recession is ‘inevitable’ in the UK (Ev)
UK has generally been a very consumer-driven economy
UK has persistently had a current account deficit/trade deficit and the economy has continued to grow
Financial reforms and increased oversight by the Bank of England have made a financial crisis less likely in the future
Falling commodity prices/low inflation generally benefits the UK economy as it is a net importer
Government is committed to a plan to get government debt under control in the long-term. This also increases confidence of UK government’s lenders.
Macro policies, well timed, could prevent recession
Investment increasing 5% could counteract any
recessionary pressures
Impact of Brexit / fall in the pound since 2016
Global growth would have positive impact on UK
especially service sector exports