TEST YEAR 11
1. Define the term inflation (3)
Inflation means the increase of prices for goods and services. Therefore when inflation happens all
the prices for goods and services will increase, therefore businesses will have an increase in profit,
and the country will have an increase in GPP/economic growth. However, inflation is only good up to
a point, if inflation keeps rising, it will cause the economic growth to decrease as a lot of people
aren’t able to afford the needs. Therefore this will cause the demand for goods and services to
decrease.
2. Define the term balance of payments (3)
Balance of payments means the export and import of goods. So when the exports are more than the
imports it is known as surplus. But when the exports are less than the imports it is known as deficit.
3. The inflation rate in Country A is 8 % p.a. The Government would like to reduce or
curb the inflation. Explain how the fiscal policy may work. (6)
There are two ways to reduce or curb inflation in fiscal policy. One way is by increasing/decreasing
taxes or the second way is by increasing or decreasing government spending.
According to Country A their inflation rate is 8%, which is considered very high, therefore to curb
inflation the government will have to increase tax. When the government increases tax, individuals
will have less disposable income, therefore individuals tend to spend less money since they can’t
afford it. Hence, the demand for goods and services will decrease, so the seller has no choice but to
bring down the prices for all the goods and services. This will help to curb inflation.
If the government decides to reduce or curb inflation by using government spending it is also
possible. When the government reduces the government spending, the government will stop
building schools, hospitals, and so on. Therefore the expenses and capital goods of raw materials will
decrease. This will lead to a decrease for the demand for goods and services of raw materials. Hence,
this will help to curb the inflation.
4. Explain how the Government can boost the economy and increase the prices using monetary
policies. (4)
Monetary policies are by increasing or decreasing the interest rates.
When the government decreases the interest rates, individuals will have more disposable income, as
the borrowing and saving interest rates will decrease too. Therefore individuals tend to spend more
money. Hence, the demand for goods and services will increase, so the seller finds this opportunity
to increase the prices for all the goods and services. This will help to boost the economy and increase
the prices.
5. Discuss the impact of unemployment on a country (3)
The impacts of unemployment on a country are that the government will have to look after them
and give them money as they don’t work therefore no salaries.
6. What are the 3 methods that can be used for supply side policies ? (3)
Privisatation is when the government sells it to an individual company and makes it a private limited
company, therefore this way they can earn more profits and this will lead to more taxes.
Training as in a company to have good quality and efficiency they will need to send their employees
for training.
Increase competition
