Past Paper

Question 1

One likely reason for the change in total household savings from q 1 2020 to q2 2020 (2)

Answer 1

Reduction in consumer confidence due to covid consumers were unable to spend

Question 2

Explain one likely effec of the fall in investment (4)

Answer 2

Reduction in economic growth
Less money going round the circular flow of income
GDP rises slower
+ data from the text

Question 3

Explain what is meant by ‘market rigging’ (4)

Answer 3

Form of market failure in financial markets
It involves unfairly manipulating the price up or down.
Collusion
Fined more than 1bn

Question 4

Explain the likely impact of this tariff on the steel market in the us (4)

Answer 4

Increase in price rises of steel
US steel firms gain extra producer surplus as they can now sell at a higher price
Higher growth
25% tariff on steel imports

Question 5

Explain the distinction between a progressive tax and a regressive tax (5)

Answer 5

Regressive tax disproportionately affects people on a low income, progressive tax affects those with a high income.
Progressive tax would reduce income inequality while regressive would increase income inequality
It encourages people to work harder
Progressive income tax is people earning less than 12570 don’t pay income tax
Regressive tax - sugar tax

Question 6

Examine the likely impact of the ‘freeze in income tax thresholds’ on aggregate demand (8)

Answer 6

Slow down in consumption and economic growth
Higher tax will mean consumers will have less money to spend
Lower initiative to work
Threshold fail to rise in line with salaries
However if government spend extra tax revenues that could create more employment

Question 7

Assess whether a fiscal deficit or national debt should be a cause for concern for the uk government (10)

Answer 7

For fiscal deficit gov will have to borrow more money to finance it increasing the size of national debt reduce govs spending power
However depends of the size of fiscal deficit

National debt may reduce business confidence as it as lead to future tax rises
However borrowing to fund gov spending on eduction etc should pay off in the future

Question 8

Discuss the use of quantitative easing in preventing deflation (12)

Answer 8

Deflation is the average price level falling could affect confidence, growth and investment
Bank of England purchasing 200bn bonds will increase availability of credit - borrowing by firms
Quantitative easing may lead to increased consumption via borrowing, increased AD, and price level
QE can cause positive wealth effect through asset price inflation
Qe can lower cost of gov borrowing and may enable gov spending
Lack of consumer confidences may mean consumers do not react to QE by increasing consumption
Commercial banks lack confidence that they’ll be able to pay back loans
Rise in asset price is likely to cause inequality

Question 9

Discuss the supply side policies the uk government could introduce to stimulate economic growth (15)

Answer 9

Increased spending on education training healthcare to increase productivity of workforce leading to deficient work, innovation and higher output leads to long term economic growth however monetary policy can lower IR encourage borrowing + investment meaning higher spending on capital goods nd infrastructure boosting economic growth

Reduce tax income tax or corporation
More money for individuals to spend on goods and services increases consumer demand drives you growth. Businesses retain more profits, reinvested , innovation or increase wages. However, short term immediate boosts but long term depends on how businesses and individuals react - save extra income may not fully materialise Can result in budget deficits if gov don’t change there spending allowance

Deregulation- reducing unnecessary or burdensome regulations can lower the costs for businesses stimulate entrepreneurship + attract domestic and foreign investment + increase competition. However can lead to market failures, exploitation.