Economics OCR Mock Prep

Topics included: 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 4.1

Economic growth

An increase in an economy’s output of goods and services over time

GDP

Total value of goods and services produced in a country in one year

GDP per capita

GDP divided by population to compare living standards

Determinant of growth

Investment increases capital and productivity

Cost of economic growth

Environmental damage

Benefit of economic growth

Higher employment

Unemployment

People able and willing to work but without a job

Claimant Count

Measures unemployment by counting benefit claimants

Unemployment rate formula

Unemployed ÷ Labour force × 100

Cyclical unemployment

Caused by falling demand during an economic downturn

Government consequence

Higher benefit spending and lower tax revenue

Distribution of income

How total income is shared among individuals or groups

Income

Earnings over time

Wealth

Assets owned

Cause of inequality

Differences in education and skills

Consequence of inequality

Increased poverty and reduced opportunity

Inflation

A sustained rise in the average price level

CPI

Consumer Price Index; measures inflation

Real values

Adjusted for inflation

Nominal values

Not adjusted for inflation

Cost-push inflation

Rising production costs cause prices to rise

Consumer impact

Reduced purchasing power

Fiscal policy

Government spending and taxation to achieve economic objectives

Budget deficit

When government spending exceeds revenue

Direct tax

Tax on income or profits (e.g.

Purpose of government spending

Provide public goods and services

Opportunity cost

The next best alternative forgone

Monetary policy

Use of interest rates and money supply to influence economic activity

Higher interest rates effect

Reduce borrowing and spending to lower inflation

Lower interest rates effect

Increase borrowing and investment to boost growth

Supply-side policies

Measures to increase the economy’s productive potential

Example

Training to improve worker skills

Drawback

Expensive and slow to have an impact

Negative externality

Cost to third parties not included in market prices

Taxation

Policy to reduce negative externalities

Positive externality

Benefit to third parties not paid for by the market

Subsidy

Policy to encourage positive externalities

Reason for trade

Access to goods

Producer benefit

Larger markets and higher sales

Free trade agreement

Agreement to reduce trade barriers like tariffs