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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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
· Congestion standards
· Lossofnon-renewable · Ariseinthewelfareofthe
resources population
· Alowerqualityoflife · Ariseinemploymentandafall
· Inequalitiesofincomeand inunemployment
wealth · Areductioninpoverty
· Inflation
identify,explainandevaluatepoliciesthatagovernmentcanusetoachieve
economicgrowth
· FiscalpolicyàBudgetdeficitàIncreaseaggregatedemandàOutput
· MonetarypolicyàLowerinterestratesàIncreasedemandàOutput
· SupplysidepolicyàEducationàWorkforcemoreproductiveàOutput
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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
· MonetarypolicyàLowerinterestratesàMoreoutputàMore
employmenttosupply
· SupplysidepolicyàCutbenefitsàGreaterincentivetoworkàMore
employmenttosupply
understandwhatismeantbypricestability,inflationandtherateofinflation
· Pricestabilityiswherethegenerallevelofpriceiskeptconstantorgrows
atanacceptablerateovertime.
· Inflationisasustainedriseinthegeneralpricelevelovertime.
· Therateofinflationistherateatwhichthegeneralpricelevelchanges
overtime.…read more

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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.…read more

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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.
· Redistributionofincomeisapolicytoreducetheinequalitiesofincome
sothatincomesaredistributedmoreevenly.
understandwhyincomeandwealthisunevenlydistributed
· Wagesaredifferentfordifferentjobs.
· Peoplemayhaveotherincomessuchasbenefits,rent,sharesandsavings.
understandthedifferencebetweenprogressive,proportionalandregressive
taxes
· Progressivetaxestakeagreaterproportionofincomefromhigher
incomesandalowerpercentageofincomefromlowerincomes.
· Proportionaltaxestakethesameproportionofincomefromallincome
levels.
· Regressivetaxestakeagreaterproportionofincomefromlowerincomes
andalowerpercentageofincomefromhigherincomes.…read more

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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
· Governmentcanprovidemeritgoodstogivepositiveexternalities.
o Education,vaccination,healthservicesàpositiveimpacts
understandwhatismeantbyfiscalpolicy
· Fiscalpolicyistheuseofgovernmentspendingandtaxationtoachieve
theobjectivesofthegovernment.
understandhowagovernmentcanachieveabalancedbudget,abudgetsurplus
orabudgetdeficit
· Abalancedbudgetiswhenthegovernmentspendingisequaltotax
revenue.
· Abudgetsurplusiswhenthegovernmentspendingislessthantax
revenue.
· Abudgetdeficitiswhengovernmentspendingisgreaterthantax
revenue.…read more

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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
borrowing.
· Thereiscompetitionbetweenbanksandbuildingsocieties.
· Otherfactorsincludethesizeoftheamountofmoney,thetimethatthe
moneyistiedup,howcommittedthesaveris.
· Forloans,thegreaterthesecurityofferedbytheborrower,thelowerthe
interestrate.
· Loansharkschargedamaginginterestratesof100%ormore.
understandwhatismeantbyinterestratepolicy
· Interestratepolicyistheuseofinterestratestotrytoachievethe
government'seconomicobjectives.…read more

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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
· Spendingoneducation
· Reducingbenefits
· Encouragingnewtechnology
· Reducingtaxes
· Encouragingenterprise
· Reducingmonopolies
explainandevaluatetheeffectsofsupplysidepoliciesontheeconomy
Positiveeffectsofsupplyside Negativeeffectsofsupplyside
policies policies
· Helpsachieveobjectivesinthe · Takesalongtimetoputinto
long-run effect
· Higherqualityofresources · Somepoliciesmayface
shouldmakeUKfirmsmore resistancee.g.…read more

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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
· Reasonablyquicktorespondto paymentsdeficits,but
theeconomicdatacollected increasingemploymentand
· Enableseventuallythetotal growth
demandtoriseandleadtomore · Canaffecttheexchangerate
employmentandgrowth whichwillhaveanegativeeffect
withouthighinflation onbalanceofpayments
Positiveeffectsofsupplyside Negativeeffectsofsupplyside
policies policies
· Helpsachieveobjectivesinthe · Takesalongtimetoputinto
long-run effect
· Higherqualityofresources · Somepoliciesmayface
shouldmakeUKfirmsmore resistancee.g.…read more

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