Memorsing content can only take you so far, so use exam questions effectively to prepare yourself for the actual exam. This document will help you do so, it contains exam questions for this spec point. [A Level Economics Edexcel A, Exam Questions]
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Question 1
Which one of the following would be most likely to solve a negative output gap problem in a domestic economy?
An increase in
A. government funding to the World Bank
B. government spending on foreign aid
C. government spending on public transport
D. income tax
[1 mark]
Question 2
Extract D
The productivity puzzle in the UK
Since the onset of the 2007–2008 financial crisis, labour productivity growth in the UK has been exceptionally weak.
Despite some modest improvements in 2013, whole-economy output per hour remains around 16% below the level implied
by its pre-crisis trend. Even taking into account possible measurement issues and changes in the size of the service sector,
this shortfall is large and is often referred to as the ‘productivity puzzle’.
Measures of productivity can be used to inform estimates of an economy’s ability to grow without generating excessive
inflationary pressure, which makes understanding recent movements important for the conduct of monetary policy. During
the initial phases of the recession, companies appear to have acted flexibly by holding on to labour and lowering levels of
capacity utilisation in response to weak demand conditions. But the protracted weakness in productivity and the strength in
employment growth over the past two years suggest that other factors are likely to be having a more persistent impact on
the level of productivity. These factors are reduced investment in both physical and intangible capital, such as innovation
and training, and failings in the labour market such as immobility of labour and under-employment of skilled workers. Some
economists explain this by using the concept of an output gap.
(Source: adapted from http://www.bankofengland.co.uk/publications/ Documents/quarterlybulletin/2014/qb14q201.pdf)
With reference to Extract D (line 18), explain the meaning of the term ‘output gap’. Use an aggregate demand and aggregate
supply diagram in your answer.
[5 marks]
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