EDEXCEL: Paper 2 Economics Test
Questions with Assured Answers
what is GDP an indicator of? - ANSthe standard of living in a country
what is the standard measure of economic growth? - ANSrate of change of GDP
what is the difference between total and per capita GDP? - ANStotal is the overall GDP for a country
and per capita is total GDP/population
when does GDP per capita grow? - ANSwhen national output grows faster than the opoulation
what is the difference between real and nominal GDP? - ANSreal GDP takes into account inflation but
nominal doesn't
what is the difference between volume and value? - ANSvolume is adjusted for inflation
value is monetary value at prices of the day = volume x price
what is gross national income? - ANSGDP and net overseas interest and dividends
- starting to be used more due to remittances and aid
what is gross national product? - ANSGDP by any citizens or property of a country anywher e in the
world
how is growth used to compare over time (2)? - ANS- put figures into context
- make judgements about welfare
what must you use when comparing countries' GDPs and why? - ANSreal GDP per capita as
population growth varies and inflation would effect it
,what must you consider when making comparisons in GDP between countries? - ANSmust use per
capita as total doesn't show living standards and could just increase due to increase in prices
what is PPP and how is it measured? - ANSthis is an exchange rate which compares how much a
typical basket of goods costs in one country
why is PPP useful for comparing countries? - ANStakes into account cost of living
what is an example of PPP index? - ANSthe big mac index
what are the limitations to using GDP to compare standard of living (6)? - ANS- inaccuracy of data:
inefficient collecting/calculation, black market, home produced services, errors in inflation
calculation, no transfer payments
- inequalities: increase in GDP may only benefit wealthy
- quality of g+s: improvement over time not reflected
- comparing currency: converted to US but ppl say u should use PPP instead
- spending: some doesn't improve living standard but does GDP e.g. defence
- other factors: like education
how is national happiness measured? - ANSusing the measuring national wellbeing report
what are the key questions in the national wellbeing report? - ANSlife satisfaction, anxiety, happiness
and worthwhileness
how are real incomes and subjective happiness related? - ANSthey are positively related at low
incomes but higher levels of income aren't correlated
what is the name for the term suggesting that those on higher incomes aren't happier when their
incomes increase? - ANSeasterlin paradox
what else does income and happiness depend on other than each other? - ANSthe people around
you - you are happier if you have a higher income than those around you - linked to social status
,what is the difference between inflation, deflation and disinflation? - ANSinflation: general increase
of prices in economy
deflation: fall of prices
disinflation: reduction in rate of inflation
what are the most well-known indices for calculating rate of inflation and which is used most? -
ANSconsumer price index and retail price index, CPI is used
how is the CPI calculated ? - ANSliving costs and food survey is used
weighted basket of goods
measures average price change of goods
update annually
what are the limitations of CPI (4)? - ANS- doesn't represent every good
- people spend differently
- doesn't include housing
- difficult to make comparisons with past as it is new
what is the difference between RPI and CPI? - ANSRPI includes:
- housing: mortgage and interest payments
- CPI takes into account that people switch products when prices change
- RPI excludes top 4% of incomes and low income pensioners
what are the three types of inflation? - ANScost push
demand pull
growth in money supply
what is demand pull inflation? - ANSincrease in AD
what is cost push inflation? - ANSdecrease in AS - businesses put up prices when costs rise to
maintain profit margin
, what are the effects of inflation on consumers (3)? - ANS- if incomes don't rise they spend less and
SoL falls
- those in debt have cheaper payments and savers lose out
- psychological effects of feeling less wealthy
what are the effects of inflation on firms (4)? - ANS- if inflation high then less competitive abroad
- deflation means investment postponed, less demand = less profit = long term less invest
- difficult to predict so can't plan
- menu pricing costs
what are the effects of inflation on the government (1)? - ANSif they don't change excise taxes then
real revenue will fall
what are the effects of inflation on workers (2)? - ANS- if they don't have a pay rise then living
standards decrease
- deflation could cause job loss due to lack of demand
how can inflation be anticipated? - ANSindexation - wages or taxes increased in line with inflation
what is an example of indexation? - ANSworkers negotiating with employers for wage rises in line
with predicted CPI or RPI
what is an evaluation for indexation? - ANScould increase inflation because wage increases will
reflect past increases - if inflation decreases wages are still rising
what are the two measures of unemployment? - ANSclaimant count and UK labour force survey (ILO)
what is the difference between labour force survey and claimant count? - ANSclaimant is the number
of people receiving benefits and survey is a sample of people used
how can results of claimant count and LFS differ (3)? - ANS- some may not be in LFS: hidden economy
or fraudulent claiming of benefits
- some aren't eligible for benefits (LFS tends to be higher)
Questions with Assured Answers
what is GDP an indicator of? - ANSthe standard of living in a country
what is the standard measure of economic growth? - ANSrate of change of GDP
what is the difference between total and per capita GDP? - ANStotal is the overall GDP for a country
and per capita is total GDP/population
when does GDP per capita grow? - ANSwhen national output grows faster than the opoulation
what is the difference between real and nominal GDP? - ANSreal GDP takes into account inflation but
nominal doesn't
what is the difference between volume and value? - ANSvolume is adjusted for inflation
value is monetary value at prices of the day = volume x price
what is gross national income? - ANSGDP and net overseas interest and dividends
- starting to be used more due to remittances and aid
what is gross national product? - ANSGDP by any citizens or property of a country anywher e in the
world
how is growth used to compare over time (2)? - ANS- put figures into context
- make judgements about welfare
what must you use when comparing countries' GDPs and why? - ANSreal GDP per capita as
population growth varies and inflation would effect it
,what must you consider when making comparisons in GDP between countries? - ANSmust use per
capita as total doesn't show living standards and could just increase due to increase in prices
what is PPP and how is it measured? - ANSthis is an exchange rate which compares how much a
typical basket of goods costs in one country
why is PPP useful for comparing countries? - ANStakes into account cost of living
what is an example of PPP index? - ANSthe big mac index
what are the limitations to using GDP to compare standard of living (6)? - ANS- inaccuracy of data:
inefficient collecting/calculation, black market, home produced services, errors in inflation
calculation, no transfer payments
- inequalities: increase in GDP may only benefit wealthy
- quality of g+s: improvement over time not reflected
- comparing currency: converted to US but ppl say u should use PPP instead
- spending: some doesn't improve living standard but does GDP e.g. defence
- other factors: like education
how is national happiness measured? - ANSusing the measuring national wellbeing report
what are the key questions in the national wellbeing report? - ANSlife satisfaction, anxiety, happiness
and worthwhileness
how are real incomes and subjective happiness related? - ANSthey are positively related at low
incomes but higher levels of income aren't correlated
what is the name for the term suggesting that those on higher incomes aren't happier when their
incomes increase? - ANSeasterlin paradox
what else does income and happiness depend on other than each other? - ANSthe people around
you - you are happier if you have a higher income than those around you - linked to social status
,what is the difference between inflation, deflation and disinflation? - ANSinflation: general increase
of prices in economy
deflation: fall of prices
disinflation: reduction in rate of inflation
what are the most well-known indices for calculating rate of inflation and which is used most? -
ANSconsumer price index and retail price index, CPI is used
how is the CPI calculated ? - ANSliving costs and food survey is used
weighted basket of goods
measures average price change of goods
update annually
what are the limitations of CPI (4)? - ANS- doesn't represent every good
- people spend differently
- doesn't include housing
- difficult to make comparisons with past as it is new
what is the difference between RPI and CPI? - ANSRPI includes:
- housing: mortgage and interest payments
- CPI takes into account that people switch products when prices change
- RPI excludes top 4% of incomes and low income pensioners
what are the three types of inflation? - ANScost push
demand pull
growth in money supply
what is demand pull inflation? - ANSincrease in AD
what is cost push inflation? - ANSdecrease in AS - businesses put up prices when costs rise to
maintain profit margin
, what are the effects of inflation on consumers (3)? - ANS- if incomes don't rise they spend less and
SoL falls
- those in debt have cheaper payments and savers lose out
- psychological effects of feeling less wealthy
what are the effects of inflation on firms (4)? - ANS- if inflation high then less competitive abroad
- deflation means investment postponed, less demand = less profit = long term less invest
- difficult to predict so can't plan
- menu pricing costs
what are the effects of inflation on the government (1)? - ANSif they don't change excise taxes then
real revenue will fall
what are the effects of inflation on workers (2)? - ANS- if they don't have a pay rise then living
standards decrease
- deflation could cause job loss due to lack of demand
how can inflation be anticipated? - ANSindexation - wages or taxes increased in line with inflation
what is an example of indexation? - ANSworkers negotiating with employers for wage rises in line
with predicted CPI or RPI
what is an evaluation for indexation? - ANScould increase inflation because wage increases will
reflect past increases - if inflation decreases wages are still rising
what are the two measures of unemployment? - ANSclaimant count and UK labour force survey (ILO)
what is the difference between labour force survey and claimant count? - ANSclaimant is the number
of people receiving benefits and survey is a sample of people used
how can results of claimant count and LFS differ (3)? - ANS- some may not be in LFS: hidden economy
or fraudulent claiming of benefits
- some aren't eligible for benefits (LFS tends to be higher)
