2021 Section A

Question 1

Define a fiscal deficit

Answer 1

Where government spending exceeds taxation revenue

Question 2

Using the classical long-run aggregate supply curve, explain what will happen in the long run to real output if aggregate demand increases. [2 marks]

Answer 2

There will be no change in real output (1)
Since classical economists believe the economy will be at full employment in the long run (1)

Question 3

Explain the likely impact on aggregate demand of a fall in average house prices. [2 marks]

Answer 3

Aggregate demand will fall/decrease (1)
Negative wealth effect / reduction in consumer confidence and consumption (1)

Question 4

Explain one likely impact of HS2 on aggregate supply in the UK. [4 marks]

Answer 4

Aggregate supply will increase (1)
Improvement in UK capital // Increase in productivity/efficiency of UK economy (1)

Reduce journey times by up to 50% (1)

Faster journey times means people can get to work more quickly, increasing their productivity // moving freight more quickly increases efficiency for firms (1)

Question 5

Explain one reason why Purchasing Power Parities are used. [2 marks]

Answer 5

To improve accuracy when comparing data between countries (1)
PPP compares cost of living/buying power between different countries // PPP is calculated by comparing the price of a basket of comparable goods and services in different countries (1)