2018 spec

Question 1

Describe what is meant by ‘full employment’.

Answer 1

Virtually all who are able and willing to work are employed (1).
In economics, it does not actually mean zero unemployment

Question 2

Describe 2 disadvantages of economic growth.

Answer 2

Inflationary pressures are created (1).
Can lead to increased social costs, for example pollution
Is a strain on scarce/finite resources (1).
Could cause a current account deficit (1

Question 3

Compare joint demand and competitive demand.

Answer 3

Joint:
consumers require a combination of 2 or more products for maximum consumer satisfaction
these are complementary goods
for example, smartphones and apps

Competitive demand:
means consumers can derive equal satisfaction from substitute product
these are substitute goods
for example, O2 and Vodafone

Question 4

Explain the ways in which the uk governments target to reduce national debt may impact on the economy

Answer 4

Cuts spending (ID), this reduces injections into the circular flow of income (EXP) (1).

• Reduces capital spending (ID), this may lead to a fall in infrastructure investment (EXP) (1) and may limit productivity in the long-run (DEV) (1).
• Reduces education spending (ID), this may reduce the productive potential of the human resources in an economy (EXP) (1).
• Increases income tax (ID), this decreases disposable income (EXP) (1), leading to lower spending and firms reducing output (DEV) (1) and may increase unemployment (DEV) (1).
• Increases income tax (ID), this may reduce the incentive for individuals to work additional hours/overtime (EXP) (1) and this may reduce potential to increase growth (DEV) (1).

Question 5

Explain the supply-side measures a government could use to decrease inflation

Answer 5

Research and development incentives (ID), to help bring down costs of production
Training allowances/greater education spending (ID), to help firms improve the efficiency/productivity
Labour market reforms/control Trade Union power (ID), to reduce labour costs for firms (EXP) (1)
Subsidies (ID), to help firms lower prices (EXP) (1)

Question 6

Describe what is meant by the multiplier effect.

Answer 6

An increase in an injection leads to a more than proportionate increase in national income (1).
This is because the initial injection will circulate creating additional spending (1). ‘One person’s spending becomes another person’s income’ (1). For example, a £5 m government investment into a new hospital ward requires workmen who are paid an income, who can then spend it on a variety of goods and services, increasing demand for firms’ output
The extent of the multiplier is determined by the MPC or MPS