As 2016

Question 1

Define the term ‘national income’. (1 mark)

Answer 1

Total spending on goods and services

Question 2

Define the term ‘circular flow of income’. (2 marks)

Answer 2

• Money flows around the economy between consumers/households and firms
• There are injections, such as exports
• There are withdrawals such as imports

Question 3

Define the term ‘purchasing power parities’. (2 marks)

Answer 3

• The rate at which the currency of one country would have to be converted into another country to buy the same amount of goods and services in each country

Question 4

Illustrate actual economic growth on Diagram A. (1 mark)

Question 5

Define the term ‘claimant count’. ( 1 mark)

Answer 5

The number of people unemployed claiming benefits/JSA

Question 6

Calculate the % change in the claimant count from August 2014 to February 2015. (2 marks)

Answer 6

• 858,344 - 961,149 = -102,805
• ( -102,805 / 961,149 ) * 100 = -10.7%

Question 7

Which one of the following is likely to cause a reduction in the claimant count. (1 mark)

Answer 7

B - A compulsory weekly interview for every claimant

Question 8

Explain one likely reason for the reduction in the total UK trade deficit in Janurary 2015. ( 3 marks)

Answer 8

• Depreciation of the exchange rate makes UK exports more competitive
• Foreign countries increase purchasing power parities so demand more UK goods

Question 9

Using the information above, calculate the total increase in national income, resulting from the £15 billion investment. (3 marks)

Answer 9

• Multiplier = 1 / (1-MPC)
• Mutiplier = 1/0.5 = 2
• £15 billion * 2 = £30 billion

Question 10

Which one of the following is most likely to cause a rightward shift in the AS curve? (1 mark)

Answer 10

D - An increase in productivity

Question 11

With reference to Figure 1, explain the term ‘real income’. (4 marks)

Answer 11

K:
* Real income is the money for work received taking into account inflation

App:
* Real income has fallen from £675 in 2008 to £615 in 2013

Question 12

Assess the likely impact of falling real incomes on UK consumers. (10 marks)

Answer 12

KAA:
* Lower incomes = lower consumption
* Consumer confidence falls
* Fall in standard of living
* Fall in demand means lower profits = more unemployment

Ev:
* Other factors (e.g. government spending and exports)
* Short term fall (e.g. increase in 2013)
* As inflation falls, real income rises

Question 13

With reference to Extract A, explain the likely effect of a rise in the value of the pound in AD. (5 marks)

Answer 13

K/U:
* Definition of AD

App:
* AD falls
* less imported food and commodity prices

Ana:
* Imports are cheaper = AD falls
* Exports are expensive = AD falls

Question 14

With reference to the data, explain two likely reasons for the UK’s falling inflation rate. (6 marks)

Answer 14

K:
* Falling energy prices
* Less consumer spending

App:
* Inflation at 0.3% (Extract B)

Ana:
* Fall in oil prices = transport of goods cheaper
* Falliing inflation = disinflation/deflation

Question 15

With reference to Extracts A and B and your own knowledge, discuss whether the MPC should be concerned about the risk of deflation in the UK economy. (15 marks)

Answer 15

KAA:
* Risk of deflationary spiral
* Limited ability of MPC to get out of deflation (e.g. interest rates at 0.5%)
* Hard for MPC to influence supply-side factors (e.g. falling oil prices)

Ev:
* Economic growth and incomes are rising = inflation not affecting demand
* Increase AS due to fall in price, not AD

Question 16

Evaluate whether the MPC has been successful in controlling the UK’s inflation rate since 2011. (20 marks)

Answer 16

KAA: MPC successful in controlling inflation

• In Figure 2, highest inflation as over 5%
• MPC meetings
• Contrast with Japan

Ev: MPC not successful in controlling inflation

• Figure 1 shows inflation outside 2% +/- 1% target
• MPC struggles to respond to supply-side factors (e.g. falling prices)