Economics paper 2

change in GDP/original GDP x 100

Total GDP/total population

Size of workforce, natural resources, investment, changes in technology, education and training, government policy

Decreased prices, increased employment, more tax revenue, falling government spending, improved budget balance

Pollution can harm quality of life, congestion, depletion of resources, workplace stress, inflation, international competitiveness, inequality

Above 16

Pensioners, full time students, people who are sick, people looking after family

Some people will always be moving between jobs

Jobseeker’s Allowance (JSA) and universal credit (UC)

Number of unemployed/workforce x 100

Cyclical, frictional, structural and seasonal

Easier to recruit, dynamic economy, international competitiveness, low inflation

Lower standard of living, lower income, excluded workers, tax increases

Waste of scarce resources, budget deficit, costs linked to social problems, cycle of unemployment

Regional standard of living decreases

Profit, wages, interest, rent, benefits

Work

Use of land

Saving or lending

Enterprise

Not a reward for use of a factor of production

Factors of production distributed unevenly, wage differences, benefit reliance, age, gender

Inheritance, savings, property, enterprise

Poverty and poor living standards, poor-quality housing, health problems, education poverty cycle, social unrest, lower economic growth

Incentives, trickle-down effect

100

Inflation has risen

Original price/100 x inflation rate

Original price x (1+ inflation rate/100)

Demand-pull, cost push

Lack of consumer confidence, time and effort spent comparing prices, fall in real income, income inequality due to trade unions, real value of debt falls

Increased production costs, menu costs, labour market disputes, lower exports, real value of loans falls, real value of debt falls, loss of business confidence

Labour market disputes, increased government spending, increased tax revenue, real value of national debt can fall

Social protection, education, healthcare, defence and debt interest

Income tax, national insurance contributions, capital gains tax, inheritance tax and corporation tax

VAT, excise duties and customs duties

Council tax and business rates

Economic growth, lower unemployment, price stability, improved balance of payments and fair distribution of income

Budget deficit, taxation reduced, spending increased

Budget deficit, taxation reduced, spending increased

Budget surplus, taxation increased, spending reduced

Budget surplus, taxation increased, spending reduced

Budget deficit, taxation increased, spending increased

Fall in supply in the labour market, lower demand for goods and services

Firms invest more, better quality goods/inventions, demand increases, labour market expands

Increased economic growth, increased employment, increased inflation and possibly a worse balance of payments

Consumers may save, extra money spent on imports, inflation may rise, opportunity cost of government spending

Reduced unemployment, economic growth increase, faster acting

Reduced inequalities of income, more services accessible, people may not seek work, reduced incentives, people leave the country, lack of investment, lower savings, tax avoidance/evasion

Monetary Policy Committee (MPC)

2%

Interest rates reduced, increased spending, output and employment

Interest rates reduced, increased spending, output and employment

Interest rates increased, reduced spending

Interest rates increased, reduced spending on imports

Spending and borrowing by consumers increases, borrowing for investment increases, UK exchange rate falls

Higher demand for UK goods, more spending on capital goods, investment leads to growth of firms, exchange rate falls increasing demand for UK goods

Borrowing is cheaper so more disposable income, lower opportunity cost of spending than saving, borrowing of firms increases so more goods can be produced, demand increases

Falls, consumers spend more and save less

If the fall is large then spending will increase and savings fall but if small there may be little effect

Retired people who rely on income from savings have their incomes fall

More disposable income so can spend more

Loans and retained profits

Expected return from invest, state of the economy, competitors and taxation on profits

Education and training, competition policy, reducing trade union power, reducing direct taxes, cutting corporation tax, privatisation and improved transport facilities

Time lags, monetary cost, opportunity cost, opposition to policies, equity, unintended effects

Targets specific markets, reduced inflation, increased employment, increased economic growth, improved balance of payments

External benefit

External cost

Taxation, subsidies, state provision, legislation and regulation, and information provision

Indirect taxes can be added to goods/services with negative externalities, indirect taxes can be reduced to encourage supply of goods with positive externalities

Tax may be regressive, costs to administer and enforce

Reduction in negative externalities, raises tax revenue

Encourages production so that more is consumed, consumers may switch from goods with negative externalities to goods with positive externalities

Opportunity cost for government, opportunity cost for taxpayers

Encourages production and consumption of goods with positive externalities, more jobs created in the market subsidised

Provides goods/services with positive externalities to the public so that everyone can benefit from them

Opportunity cost for government, opportunity cost for taxpayers, shortages

Improved standard of living, increased benefits for society

Targets specific aspects of markets to correct externalities

Opportunity cost of policing black markets, opportunity cost of monitoring regulations

Tries to change the behaviour of economic agents by providing information about goods and services

Opportunity cost of delivering the information

Costs less than other government interventions

Different allocation of resources, specialisation, ongoing trade negotiations can improve political relationships, fewer scarce resources used globally

Lower prices, producers invest in research and development, wide range of goods

More consumers, lower average costs, greater efficiency

Measures governments take to give domestic producers an advantage over imports

Tariffs and quotas

Trade in goods, trade in services, income flows and transfers

Trade in goods

Trade in services

Earnings on investments abroad

Movement of money or goods/services without any requirement of payment

If it: is caused by problems in the economy, is due to a factor that will take long to change, is large in size

If it: is only temporary, reduces inflation within the domestic economy, leads to a fall in the exchange rate, is a small percentage of GDP

If it: reflects total demand for domestic goods, decreases the debt of a country

If it: causes rising inflation within the domestic economy, it hides the causes that have a negative impact on global economic growth, it leads to a rise in the exchange rate

Products are high quality and sold at a low price, lack of growth in the domestic economy, fall in the exchange rate, net inflow of investment income

Poor quality goods that are no longer in demand, falling incomes overseas, rising incomes in the domestic country, rise in the exchange rate, net outflow of investment income