OCR GCSE Economics Unit A592 Notes

Here you will find my notes on OCR GCSE Economics Unit A592 (Unit 2): How the Economy Works. I have taken extracts from the specification of what we need to know and then made detailed notes underneath on what the specification is asking for.

I have also made a document like this for Unit A591: How the Market Works, Unit A593: The UK Economy and Globalisation and AQA GCSE Computer Science.

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Page 1

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OCRGCSEEconomicsUnitA592Notes

understandtheobjectivesofgovernmentpolicies
· Maintainingfullemployment
· Ensuringpricestability
· Achievinghigheconomicgrowth
· Balancingexportsandimports

understandthatacombinationofpoliciescanbeusedtoachieveanobjective
· Fiscalpolicy
· Monetarypolicy
· Supply-sidepolicies

understandwhatismeantbyeconomicgrowth
· Economicgrowthisagrowthintheoutputoftheeconomyovertime.

showhoweconomicgrowthcanbemeasuredwithreferencetoGDP
· EconomicgrowthisagrowthinrealGDPovertime.

distinguishbetweenGDPandGDPpercapita
· GDPisthetotalvalueofgoodsandservicesproducedinacountryina
year.
· GDPpercapitaisGDPdividedbythepopulationthereforeGDPper
person.

identify,explainandevaluatethecausesofeconomicgrowth
· Investment
· Changesintechnology
· Largerworkforce
· Educationandtraining
· Naturalresources
· Governmentpolicies

identify,explainandevaluatethecostsandbenefitsofeconomicgrowth
Costsofeconomicgrowth Benefitsofeconomicgrowth
· Environmentalcosts · Ariseinmartialliving…

Page 2

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OCRGCSEEconomicsUnitA592Notes

understandwhatismeantbyemploymentandunemployment
· Fullemploymentiswhenthoseableandwillingtoworkareinpaid
employmentatthecurrentwagerate.
· Unemploymentiswhenworkerswhoareableandwillingtoworkare
unabletofindemployment(atcurrentwagerates).

explainhowunemploymentcanbemeasured
· Theclaimantcountisameasureofunemploymentaccordingtothe
numberofpeoplereceivingunemployment-relatedbenefits(e.g.
Jobseekers'Allowance).
· TheLabourForceSurveyisasurveyofasampleofhouseholds,counting
peopleasunemployediftheyareactivelyseekingworkbutdonothavea
job(intheweekofthesurvey).

identifythetypesofunemploymentandexplainthecausesofthese
· Structuralunemployment
· Cyclicalunemployment
· Frictionalunemployment
· Seasonalunemployment
· Technologicalunemployment
· Voluntaryunemployment

explainandevaluatetheconsequencesofunemployment
· Labourresourcesarewasted
· Lowerlivingstandards
· Excludedworkers
· Coststotaxpayers
· Abudgetdeficit
· Regionalproblems
· Socialproblems

explainandevaluatepoliciesthatagovernmentcanusetoreduce
unemployment
· FiscalpolicyàBudgetdeficitàMoreoutputàMoreemploymentto
supply…

Page 3

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OCRGCSEEconomicsUnitA592Notes

understandhowtherateofinflationcanbemeasuredwithregardtothe
ConsumerPriceIndex(CPI)
· IntheConsumerPriceIndex,thegovernmentfindsoutthespending
patternofaveragefamiliesinthecountry.Itrecordsthepricesof
everythingfamiliesbuyeachmonth.

identifyandexplainthecausesofinflation,includingcost-pushanddemand-pull
inflation
· Demand-pullinflationiscausedbyexcesstotal(aggregate)demandinthe
economyexceedingtotal(aggregate)supply.Higherwagesareofferedto
obtainmoreworkerstoproducegoodsandservices.
· Cost-pushinflationiscausedwhenthecostsofproductionriseinthe
economy.Thiscanleadtoawage-pricespiral.

evaluatetheconsequencesofinflation,includingthecostsofinflationandthe
benefitsofpricestability/alowrateofinflation
Costsofinflation Benefitsofpricestability/alowrate
ofinflation
· Shoeleathercosts · Flexibilityintheeconomy
· Menucosts · Workersmightacceptawage
· Incomeredistribution riseevenifitissmallerthan
· Labourmarketproblems inflation
· Balanceofpaymentsproblems · Businesseshaveanincentiveto
· Unemployment invest
· Dangerofhyperinflation · Debtorsgainastherealvalueof
debtdecreases
· Themonetaryvalueofassets
increases…

Page 4

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OCRGCSEEconomicsUnitA592Notes

identifythemainsourcesofUKgovernmentrevenue
· Incometax
· NationalInsurance
· VAT
· Exciseduties
· Loans

distinguishbetweendirectandindirecttaxes
· Adirecttaxisataxonincomeorwealthe.g.incometax,NICs,inheritance
tax.
· Anindirecttaxisataxonspendingi.e.ataxongoodsandservicese.g.
VAT,exciseduties.

understandthefeaturesofdirectandindirecttaxes,andexplainandevaluatethe
economiceffectsofchangesindirectandindirecttaxes
Changesindirecttaxes Changesinindirecttaxes
· Harmstheworkers'incentives · Demandforproductswillshift
· Somepeoplepayalarger · Lessspendingonitemswitha
percentagetothegovernment highertax
thanothers · Theexternalcostsofdemerit
· Candeterpeoplefromworking goodswillbecompensated
atall · Illegalactivity
· Canreduceinflation
· Slowergrowth

understandwhatismeantbythedistributionandredistributionofincome
· Thedistributionofincomeishowtheincomesaresharedoutamongthe
peopleofthecountry.…

Page 5

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OCRGCSEEconomicsUnitA592Notes

explainhowredistributionofincomeandwealthcanbeachievedthrough
taxationandgovernmentspending,includingtransferpayments
· Governmenttakesahighproportionoftaxfromhighincomegroups
· Governmentspendsusingthistaxrevenueonlowerincomegroups
· Transferpaymentsarethebenefitsthatsomepeoplereceivefromthe
governmente.g.statebenefits,jobseekers'allowance,childbenefits,
EducationMaintenanceAllowance.

evaluatetheconsequencesofredistributionmeasures
· Fairersociety
· Higherstandardsoflivingforthelowestinsociety
· Adverseeffectsonincentives
· Disincentivetoworkifpeoplecanlivewellenoughonbenefits
· Peoplemaymoveabroadtoescapethetax
· Disincentiveforbusinessestoinvestandindividualstosave
· Adverseeffectsonthesupplysideoftheeconomy

understandthatproductionandconsumptioncanleadtonegativeexternalities
· Externalitiesareexternaleffectsofproductionandconsumptiononthird
parties
· Productionexternalities-pollution
· Consumptionexternalities-pollution,healthandsafetyrisks,congestion

explainandevaluatepoliciestocorrectmarketfailure,withparticularregardto
positiveandnegativeexternalities
· Governmentcanusetaxesandchargestoreducenegativeexternalities.
o Highertaxonfuel,congestioncharge,tollroadsàreduces
congestion
· Governmentcanuselawsandregulationtoreducenegativeexternalities.
o Agerestrictionforbuyingcigarettesàreducessmoking
· Governmentcanusesubsidiestoencouragepeopletoalterbehaviour.
o Subsidyonpublictransportàfewercarsàreducescongestion
·…

Page 6

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OCRGCSEEconomicsUnitA592Notes

explainandevaluatetheeffectsoffiscalpolicyontheeconomy
Positiveeffectsoffiscalpolicy Negativeeffectsoffiscalpolicy
· Cancomplementinterestrate · Unintendedeventsordisasters
policy mayoccur,puttingthepolicyoff
· Reasonablyquicktorespondto course
theeconomicdatacollected · Increasingtaxestocombat
demand-pullinflationmaypush
forwagerises,causingcost-
pushinflation
· Theinformationonwhichthe
governmentmakesdecisions
maybeincompleteoroutof
date
· Takestimetoputintoeffect,
duringwhichtheeconomywill
change
· Notcertainhowfarthepolicies
affectdemand,howmuchmore
peoplewillspendandhowbig
themultipliereffectis
· Peoplemayspendextramoney
onimports,reducingtheeffect
ofthepolicy


understandwhatismeantbymoneyandinterestrates
· Moneyisanythingthatisgenerallyacceptedasamediumofexchange.
· Interestratesareapercentageofaloanwhichneedstobepaidtothe
bank(thecostofborrowing)andapercentageofsavingswhichyoupay
(therewardforsaving).

understandthattherearemanydifferentratesofinterest
· Therearemanydifferentratesofinterest

understandthereasonswhytherearedifferentratesofinterest
· Theinterestratefromsavingwillbelowerthantheinterestratefrom…

Page 7

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OCRGCSEEconomicsUnitA592Notes

understandhowinterestratepolicyworkstoachieveatargetrateofinflation
· Anincreaseininterestrateswillreduceinflationbecause:
o Morepeoplewillsave
o Fewerpeoplewillborrow
o Firmswillcutbackoninvestment
o Peoplehavelessdisposableincome
o Exchangerategoesup
o Overallitdecreasesaggregatedemand

explainandevaluatetheeffectsofinterestratepolicyonaneconomy
Positiveeffectsofinterestrate Negativeeffectsofinterestrate
policy policy
· Quickerthanfiscalpolicy,but · Thereisaconflictbetween
stilltakestimeforfullchanges objectives-betweentryingto
toworkthroughtheeconomy reduceinflationandbalanceof
· Reasonablyquicktorespondto paymentsdeficits,but
theeconomicdatacollected increasingemploymentand
· Enableseventuallythetotal growth
demandtoriseandleadtomore · Canaffecttheexchangerate
employmentandgrowth whichwillhaveanegativeeffect
withouthighinflation onbalanceofpayments

understandwhatismeantbysupplysidepolicies
· Supplysidepoliciesarepoliciesthatincreasetheabilityoftheeconomy
toproducemoregoodsandservices.

giveexamplesofsupplysidepoliciesandexplainhowtheywork
·…

Page 8

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OCRGCSEEconomicsUnitA592Notes

comparefiscal,monetaryandsupplysidepolicies
Positiveeffectsoffiscalpolicy Negativeeffectsoffiscalpolicy
· Cancomplementinterestrate · Unintendedeventsordisasters
policy mayoccur,puttingthepolicyoff
· Reasonablyquicktorespondto course
theeconomicdatacollected · Increasingtaxestocombat
demand-pullinflationmaypush
forwagerises,causingcost-
pushinflation
· Theinformationonwhichthe
governmentmakesdecisions
maybeincompleteoroutof
date
· Takestimetoputintoeffect,
duringwhichtheeconomywill
change
· Notcertainhowfarthepolicies
affectdemand,howmuchmore
peoplewillspendandhowbig
themultipliereffectis
· Peoplemayspendextramoney
onimports,reducingtheeffect
ofthepolicy
Positiveeffectsofinterestrate Negativeeffectsofinterestrate
policy policy
· Quickerthanfiscalpolicy,but · Thereisaconflictbetween
stilltakestimeforfullchanges objectives-betweentryingto
toworkthroughtheeconomy reduceinflationandbalanceof
·…

Page 9

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OCRGCSEEconomicsUnitA592Notes

understandthatmeasurestoachieveonepolicyobjectivemighthaveadverse
effectsonotherpolicyobjectives
· Measurestoachieveonepolicymighthaveadverseeffectsonotherpolicy
objectives.
· Themultipliereffectcanoccurwherebyanoriginalchangeinincome
leadstoalargerchangeofthetotalincomeintheeconomy.










































CreatedbyKeshavThakrar.


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