specimen paper 1

Question 1

1a Define the term ‘economic growth’. (1)

Answer 1

the increase in the real value of goods and services produced as measured by the annual percentage change in real GDP
- an increase in real GDP
- an increase in an economy’s productive capacity

Question 2

1b Calculate the annual UK economic growth rate for 2013. (2)

Answer 2

(1534 - 1506) / 1506 x 100 (1) = 1.9%

Question 3

1(c) Which one of the following can be inferred from the table? (1)
A Real GDP was falling between 2012 and 2013
B The annual UK economic growth rate for 2012 was negative
C Nominal GDP was falling between 2012 and 2013
D The annual UK economic growth rate for 2012 was positive

Answer 3

D The annual UK economic growth rate for 2012 was positive

Question 4

2a Define the term ‘marginal propensity to consume’.
(1)

Answer 4

an increase in consumer spending on the consumption of goods and services rather than save

Question 5

2b Calculate the value of the multiplier for the UK in 2011. You are advised to show your working. (2)

Answer 5

Multiplier = 1/(1-MPC)
Multiplier = 1/0.6 = 1.7 (1)

Question 6

2c Which one of the following is a likely cause of an increase in the value of an economy’s multiplier?(1)
A An increase in the marginal propensity to save
B An increase in the basic rate of income tax in the economy
C A decrease in the marginal propensity to import
D A decrease in investment in the economy

Answer 6

C A decrease in the marginal propensity to import

Question 7

3a Define the term ‘inflation’. (1)

Answer 7

An increase in the general price level of goods and services

Question 8

3b Which one of the following can be inferred from the chart? (1)
A There was deflation in the UK economy between September 2008 and September 2009
B The CPI inflation rate was higher in September 2012 than in September 2009
C From January 2011 to January 2012, the average price level in the UK fell
D From May 2010 to September 2010, the cost of living in the UK fell

Answer 8

B The CPI inflation rate was higher in September 2012 than in September 2009

Question 9

3c Explain one limitation of using the CPI to measure the rate of inflation. (2)

Answer 9

CPI is not fully representative as it is a figure for
the ‘average’ household

• price survey difficult to account for the changing quality of goods and services so inflation may be overestimated

Question 10

4a Which one of the following can be inferred from the charts above? The UK government forecast that for the financial year 2013/2014: (1)
A it would earn five times as much revenue from income tax as from corporation tax
B it would spend more on health, than on education and defence
added together
C more than one quarter of its revenue would come from VAT
D spending on social protection would comprise more than 30% of its total spending

Answer 10

D spending on social protection would comprise more than 30% of its total spending

Question 11

4b Using the data in the two charts, calculate the size of the UK government’s forecast budget deficit for the financial year 2013/2014. (3)

Answer 11

a budget deficit occurs when government spending outpaces revenue or the income drawn from taxes, fees, and investments.
Forecast government spending = £720 bn (1).
Forecast budget deficit = £612bn - £720bn = (-) £108
bn (1).

Question 12

5a Define the term ‘productivity’. (1)

Answer 12

how much output can be produced with a given set of inputs

Question 13

5b Using a classic long-run AS curve, annotate the diagram below to show the effect
of an increase in productivity on the equilibrium level of real national output and
the average price level of the economy.
(2)

Answer 13

• New LRAS curve drawn, showing an
  outwards/rightwards shift
• New equilibria labelled, showing a fall in average
  price level, and an increase in real GDP

Question 14

(c) Which one of the following statements is correct?
(1)
A The Keynesian long-run AS curve implies that an economy may have a negative output gap in the long run
B The Keynesian long-run AS curve is perfectly inelastic at all levels of real national output
C The classic long-run AS curve implies that an economy may have spare capacity in the long run
D The classical long-run AS curve is perfectly elastic at all levels of real national output

Answer 14

A The Keynesian long-run AS curve implies that an economy may have a negative output gap in the long run

Question 15

6a With reference to Figure 1, explain what has happened to real annual business investment since 2008.(4)