1 → (b) · 2 → (d) · 3 → (c) (1 ÷ (1 − 0.75) = 4) · 4 → (b) · 5 → (c) · 6 → (b).
Section A — answers
1 → (b) · 2 → (d) · 3 → (c) (1 ÷ (1 − 0.75) = 4) · 4 → (b) · 5 → (c) · 6 → (b).
Section B — indicative content
Key terms
What examiners are looking for
1. (2) Disinflation = a fall in the rate of inflation; prices are still rising, just more slowly. 2. (4) Real GDP is adjusted for inflation; nominal GDP is measured at current prices. Real GDP is the valid measure of growth (1 mark each, + development). 3. (4) MPW = 0.1 + 0.2 + 0.1 = 0.4; multiplier = 1 ÷ 0.4 = 2.5; ΔY = 2.5 × £4bn = £10bn. (Method marks for each step.) 4. (6) Depreciation → exports cheaper abroad and imports dearer → net trade (X−M) rises → AD shifts right (accurate diagram earns analysis marks). 5. (4) One benefit (e.g. lower unemployment / higher living standards) and one cost (e.g. environmental damage / inflation), each developed.
Section C — guidance
(a, 6): Identify cost-push inflation from the energy-price surge (SRAS shifts left) — and possibly some demand-pull given solid growth and low unemployment. Reference the data (6%, energy prices). Credit for a diagram.
(b, 10): Higher rates → costlier borrowing → lower consumption and investment → AD shifts left → eases inflation. Evaluate: time lags; risk to growth and jobs; with only 4% unemployment there is some room; but since the inflation is largely cost-push (energy), monetary policy is a blunt tool — judgement should hinge on the cause of the inflation.
Section D — essay plans
Evaluation
Top-band ingredients
Essay 1 (demand-side & unemployment): explain reflationary fiscal/monetary policy raising AD (diagram) → demand-deficient unemployment falls. Evaluate: only works for cyclical unemployment, not structural; time lags; risk of inflation/crowding out; depends on spare capacity. Conclude that demand-side policy suits a recession but supply-side is needed for structural unemployment.
Essay 2 (supply-side & growth): explain supply-side policies shifting LRAS right (diagram) → sustainable, non-inflationary growth. Evaluate: long time lags, high cost, uncertain success, possible inequality; demand-side may be quicker in a slump. Conclude with "it depends on the time horizon and the economy's starting position".
Exam tip
Final reminder
In every 20-marker: define → analyse with a labelled diagram → evaluate with MICE → justified conclusion. The conclusion must decide, not sit on the fence.
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