As 2019

Question 1

Define the term ‘injection in this context’. (1 mark)

Answer 1

Injection is money flowing into the circular flow of income/economy

Question 2

Calculate the value of the multiplier based on the data given. You are advised to show your working. (2 marks)

Answer 2

• £44.1 bn : £9.3 bn
• 44.1 / 9.3 = 4.74

Question 3

Explain what is meant by spare capacity in an economy. (2 marks)

Answer 3

• Equilibrium level of output can occur below the full employment level of output/economy is not operating at full employment
• There is a negative output gap in the economy

Question 4

Which one of the following is most likely to cause a movement along the AS curve? (1 mark)

Answer 4

D - the level of aggregate demand

Question 5

With referene to the chart above, explain one likely economic effect of the change in the UK employment rate between 2012 and 2018. (3 marks)

Answer 5

K/U:
* Increased tax revenue

App:
* Unemployment rate has fallen

Ana:
* Budget deficit would decrease

Question 6

Which one of the following policies is most likely to reduce the unemployment rate in the UK? (1 mark)

Answer 6

A - A decrease in direct taxes on company profits

Question 7

Define the term ‘price level’. (1 mark)

Answer 7

Price level is the average of the current prices of goods and services in the economy

Question 8

Annotate the diagram above to show the likely impact of government policy to promote business competition on the equilibrium level of real output and price level. (2 marks)

Question 9

Which one of the following is an interventionist supply-side policy? (1 mark)

Answer 9

A - An improvement in infrastructure

Question 10

Which one of the following is the most likely impact of an increase in average UK house prices on exisiting homeowners? (1 mark)

Answer 10

A - Greater confidence

Question 11

Define the term ‘index number’. (1 mark)

Answer 11

An economic data figure that reflects price/quantity compared with the base year

Question 12

With refernce to the first paragraph of Extract A and Figure 1, explain how the changes in the exchange rate of the pound has ‘contributed to rising inflation’ (Extract A, line 4). (4 marks)

Answer 12

K/U:
* Imports more expensive, leading to cost push inflation

App:
* Fall in exchange rate/value of the pound weaker
* UK is an importer of food that has inelastic demand

Question 13

With reference to Extract A, explain two likely economic effects of the highest rate of UK inflation. (6 marks)

Answer 13

K/U:
* Real value of debt falls
* Worsening of current account

App:
* Increase in size of debts as consumers use credit cards and taking out short-term loan

Ana:
* Borrowers benefit as the real value of their loan reduces over time
* Increases the cost of borrowing, consumption falls

Question 14

With reference to the last paragraph of Extract A and Figure 2, explain one reason why it is necessary to regularly update the CPI basket of goods and services. (5 marks)

Answer 14

K/U:
* To ensure that CPI basket is accurately measured

App:
* Inclusion of non-dairy milk
* Exclusion of cigarettes

Ana:
* Consumer taste changes but CPI basket is updated annually

Question 15

With reference to Figure 3, assess the likely impact of the change in the value of exports, since mid-2016, on the economic growth of the UK. Use an aggregate demand and aggregate supply diagram in your answer. (10 marks)

KAA para

Answer 15

• Injection into the circular flow of income
• Multiplier
• Exports is a component of AD
• AD will increase

Question 16

With reference to Figure 3, assess the likely impact of the change in the value of exports, since mid-2016, on the economic growth of the UK. Use an aggregate demand and aggregate supply diagram in your answer. (10 marks)

EV para

Answer 16

• Investment is more significant as it is 15% of AD
• Depends on other factors (e.g. imports)

Question 17

With reference to Figure 4, Extract B and your own knowledge, discuss the limitations of using GDP data to compare living standards between the UK and developing countries. (15 marks)

KAA para

Answer 17

Limitations:
* % changes are misleading without total GDP
* Quality of life issues (e.g. spending on health/education) difficult to measure
* Population growth account for most GDP growth

Question 18

With reference to Figure 4, Extract B and your own knowledge, discuss the limitations of using GDP data to compare living standards between the UK and developing countries. (15 marks)

EV para

Answer 18

• Ease of using GDP data for comparison over time

Question 19

Evauate the potential conflicts between the objectives of economic growth and two other UK macroeconomic objectives. (20 marks)

KAA para

Answer 19

Conflicts:
* Inflation rises and full capacity
* Balance of payments may deteriorate as incomes rise, more import demand
* Growth leads to higher living standards

Question 20

Evauate the potential conflicts between the objectives of economic growth and two other UK macroeconomic objectives. (20 marks)

Ev para

Answer 20

• Fiscal position should not conflict with economic growth
• Balance of payments may improve if export-led growth