OCR GCSE Economics Paper 2

• What is economic growth?

  Growth in GDP (value of output) over time.
• Gross Domestic Product (GDP)

  The total value added of goods and services produced in the country in a year
• GDP per capita


  GDP divided by the population. represents the average income of each person in the country.
• Boom

  A period of high economic growth and high levels of employment
• Recession


  "A period when the country's GDP falls for two (or more) consecutive quarters."
• What are the causes of economic growth

  Investment Changes in technology Education and training Labour productivity The size of the workforceNatural resourcesGovernment policies
• Explain how investment can affect economic growth

  Spending on capital goods (business premises, machinery and equipment) means that the economy has the ability to produce more goods and services
• Explain how changes in technology can affect economic growth

  Technological progress means the quality of capital goods improves, and a given quantity of capital can now produce more output than before.
• Explain how education and training can cause economic growth

  The more literate, educated, trained and skilled the workers, the higher the output of a country is likely to be
• What are the benefits of economic growth

  A rise in material living standards A reduction in poverty A rise in the welfare of the populationn A rise in employment and a fall in unemployment
• What are the costs of economic growth

  Environmental costs Air pollution Global warming Congestion Loss of non-renewable sourcesA lower quality of life Inequalities of income and wealthInflation
• Explain how economic growth can cause a lower quality of life.

  People may move to cities where life is busier and more stressful. They may move to better-paid but boring lives. People may exercise less and become unhealthy; they may become obese.
• Explain how economic growth can cause inflation

  A period of economic growth may lead to the price level rising. This happens when the total demand is rising but total supply is rising at a slower rate than demand, and so leads to demand-pull inflation
• Inflation


  A sustained rise in the general price level over time.
• Cost of living


  The price level of goods and services bought (by the average family)
• Price stability


  When the general level of prices stays constant over time, or grows at an acceptably low rate
• Rate of inflation

  The percentage rise in the general price level over time.
• What are nominal values


  Value of something in money terms e.g. a workers nominal wage is £400 a week
• What are real values


  takes inflation into account. refers to the goods and services that can be bought with that wage
• How is inflation measured

  Consumer price index - gov. undertakes a survey to determine goods and services average UK families spend money on and records prices of these goods and services every month
• What are the two causes of inflation

  Demand-pull inflation and cost-push inflation
• Demand-pull inflation


  Caused when the aggregate demand in the economy rises and the supply of goods does not increase to match the increase in demand, so the price is pulled up.
• Cost-push inflation


  Caused by higher costs of production, which then lead to a rise in the price level. Costs of production include wages, materials, fuel, rent etc.
• The wage-price spiral


  rise in general price level workers demand higer wages to compensate wages paid to workers ise costs of production to firms rise firms put up the prices of goods/services general price level rises further
• Consequences of inflation for consumers

  Loss of consumer confidence Shoe leather costsReal incomes may fallIncome redistribution problems Consumers who are debtors gain
• Consequences of inflation for producers

  More flexibilityMenu costs Labour market conflicts Unemployment Producers lose as creditors Producers lack business confidence
• Consequences of inflation for savers

  Inflation makes the purchasing power of money fall over time. Therefore, savings wil lose value in real terms in times of inflation.
• Consequences of inflation for the government

  Government gains as a debtor Government spends more as a provider of benefits Government spends more as a major employer (NHS)The government receives more in tax Government policy needs to combat inflation
• Goverment spending

  The total amount of money spent by the government in a given period of time
• What are the top 3 areas of government spending

  Social protection (benefits)Health Education
• Name a few other spending areas

  Defence Debt interest Housing and environment Public order and safteyPersonal social services Transport
• Government revenue

  The source of finance for government spending
• Direct tax


  A tax on income or wealth
• Indirect tax


  A tax on spending, often defined as a tax on goods and services
• Name a few direct taxes

  Income tax - tax on your income National insurance contributions - paid by employees and employer Corporation tax - tax on profits of companiesInheritance tax - tax on transfer of wealthCapital gains tax - a tax on profit when an asset is sold for more than it was bought
• Name a few indirect taxes

  VAT - tax on wide range of goods/services Excise duties - tax on specific range e.g. petrol, tobaccoInsurance premium taxAir passenger duty Gambling duties
• Fiscal Policy


  A policy that uses government spending and taxation to affect the economy as a whole
• What can fiscal policy be used for

  Economic growth Low unemployment Price stability A balance in balance of payments
• Budget deficit


  When government spending is greater than tax revenue
• Budget surplus


  When tax revenue is greater than government spending