2018 ppqs Flashcards
‘wage stagnation’
Wages are not rising
Explain one possible effect on employment of the government’s decision to lift the pay cap
This will lead to increased unemployment (ID) due to increasing wage costs.
A negative multiplier effect may create even more
unemployment as those made unemployed will
spend less (DEV) (1).
o This is because lifting the pay cap will mean the
market price of labour (wages) will not be prevented from settling at equilibrium price
Explain one reason for government intervention in a market.
Governments provide merit goods (ID) because they are deemed to benefit society (1). Without intervention markets sometimes fail to produce enough of these/these goods are often under-consumed
Describe how the Consumer Price Index (CPI) is calculated
The Living Costs and Food Survey (Family Expenditure Survey), is taken across the UK (1).
This is used to create a basket of several hundred goods and services most commonly bought by consumers (1).
Items are weighted according to the amount typically spent (1).
For example, petrol may carry a higher weighting than beauty treatments (1).
An index starts at 100 in the base year (1).
Prices are sampled at various locations across the UK
(1).
Changes in the prices are expressed as an annual
inflation rate or percentage (1).
Housing costs are not included in the calculation
define deflation
Deflation is a decrease in the general price level of
goods and services
Other than freedom of movement of labour, describe 3 main economic features of the EU.
Free movement of goods (1).
Free movement of services
Membership fees are required from member states
single currency in the Eurozone
central bank for the Eurozone
Explain, using a diagram, the shape of a short run average cost curve.
draw, and explain:
how can supply side policies be used to create economic growth
Grants may be awarded (ID) which could be used to invest in capital improving productivity (1). Increased productivity means more output can be produced without increasing input
Education may be improved (ID) to improve efficiency of workers (1). More efficient workers will reduce wastage/errors
Minimum wage may be increased (ID) to incentivise more people to join the labour force
Subsidies may be offered (ID) to reduce the unit cost of production leading to higher output
Explain the effects of economic growth on unemployment.
Unemployment may decrease (ID) as creating economic growth may have increased demand for labour
More people in work increases consumer
spending/AD
This will stimulate further growth/a positive
multiplier effect
Government investment in eg capital projects
creates jobs (DEV) (1).
o Government may also use increased revenue to fund
increased public sector wages/schemes to improve
employment (DEV) (1).
o This will incentivise more people to enter the labour
market (
Describe the positive and negative effects of high levels of unemployment on an economy.
negative
Reduced income/falling standards of living (1).
- More competition for jobs (1).
- Less tax revenue for government (1) eg less income tax as less people working/less VAT as less disposable
income/spending
- Increased JSA costs for government (1) which may
increase budget deficit
positive
Opportunity for entrepreneurial activity/retraining (1).
- Firms have more choice when hiring employees (1)
allowing them to select better quality staff, improving
efficiency/productivit
factors effecting demand for sterling on foreign exchange markets
The volume of UK exports rise (ID) so foreign consumers need to purchase more sterling (1). For example, if more foreign tourists visit the UK they will need access to sterling to pay for UK goods and services (DEV) (1).
UK interest rates rise (ID) so ‘hot money’ inflows may increase (1). This is because investors will convert more currency to sterling to seek a higher rate of return (DEV) (1).
If speculators anticipate that sterling will rise in the future (ID) the demand for sterling will rise as they seek increased profits/returns
Explain the benefits to a developing economy of hosting a multinational company.
The MNC provides job opportunities (ID) as the demand for labour will increase (1). This will reduce unemployment (DEV) (1).
- Creates additional tax revenue for the developing economy’s government (ID) which can be used to stimulate growth (1).
- increases economic growth (ID) as the MNC increases the developing economy’s output
Explain the impact of rising inflation on the Balance of Trade.
Inflation increases prices (ID) which makes exports less attractive/competitive (1).
The volume of exports/demand for exports will fall (ID) which has a negative effect on the Balance of Trade (1).
In comparison to high UK prices, imports will appear more attractive (ID) so demand for/volume of imports will increase (1). The Balance of Trade will worsen
Other than the Balance of Trade, describe 3 components of the UK Balance
of Payments.
Current Account
Trade in services records the value of services traded between countries (1).
Investment income/net primary income shows the net interest, profits and dividends between the UK and other countries (1).
Current transfers/net secondary income shows government and private transfers between the UK and other countries/items such as overseas development aid (1).
Capital/Financial Account
The transfer of ownership of fixed assets (1).
FDI, eg investment in land, premises and equipment
by UK companies setting up branches overseas and
vice versa (1).
Describe recent trends in the UK Balance of Payments.
Trade on goods deficit widening (1).
Balance of payments deficit is increasing (1).
Increase in exports (due to weak sterling)
