Look inside the OCR A-Level Economics guide (H460)

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Look inside the OCR A-Level Economics guide

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OCR · A-Level · H460
Economics
Active Recall Guide
1,226 questions
EconomicsContents
Contents
12 topics, 105 subtopics
  1. Introduction to Microeconomics70
  2. Microeconomics: the Role of Markets257
  3. Microeconomics: Business Objectives72
  4. Microeconomics: Market Structures113
  5. Microeconomics: the Labour Market75
  6. Macroeconomics: Aggregate Demand and Aggregate Supply111
  7. Macroeconomics: Economic Policy Objectives202
  8. Macroeconomics: Implementing Policy97
  9. Macroeconomics: the Global Context102
  10. Macroeconomics: the Financial Sector75
  11. Quantitative Skills for Economics26
  12. Themes in Economics: Synoptic Application26
ii
Microeconomics: the Role of MarketsQuestions
Microeconomics: the Role of Markets
Specialisation, the division of labour and barter
  1. Define specialisation.
  2. What is the division of labour?
  3. What three advantages does the division of labour bring a firm?
  4. Why does the division of labour reduce average costs?
  5. State three drawbacks of the division of labour for workers.
  6. Why does specialisation make an economy more vulnerable to shocks?
  7. What is structural unemployment, and how is it linked to specialisation?
  8. What is a barter system?
  9. What is meant by the double coincidence of wants?
12
Microeconomics: the Role of MarketsAnswers
Answers
Specialisation, the division of labour and barter
  1. The concentration of a worker, firm, region or country on producing a narrow range of goods, services or tasks.
  2. Breaking a production process down into separate tasks, each carried out by a different worker.
  3. Workers become faster through repetition, no time is lost switching between tasks, and each worker can be matched to the job they do best.
  4. Higher output per worker spreads fixed costs over more units and makes specialised machinery worth installing.
  5. Repetitive tasks become boring, skills become so narrow that workers are hard to redeploy, and falling motivation can reduce quality.
  6. Specialists depend on trade for everything they do not produce, so a break in the supply chain or a collapse in demand for the specialism causes widespread disruption.
  7. It is unemployment caused by a mismatch between workers' skills and the jobs available, and heavily specialised workers cannot easily move when their industry declines.
  8. Exchange in which goods and services are traded directly for other goods and services without the use of money.
  9. For barter to work each party must have exactly what the other wants and want what the other has, at the same moment.
13
Microeconomics: the Labour MarketQuestions
Microeconomics: the Labour Market
Labour productivity, unit labour costs and marginal revenue product
  1. Define labour productivity.
  2. Define unit labour cost.
  3. A factory has an annual wage bill of £600,000 and produces 30,000 units. Calculate its unit labour cost.
  4. Better working methods raise that factory's output to 40,000 units with the wage bill unchanged at £600,000. Calculate the new unit labour cost and the percentage fall.
  5. Why can a substantial pay rise leave unit labour costs completely unchanged?
  6. Why do rising unit labour costs damage a country's international competitiveness?
  7. Define the marginal physical product of labour.
  8. State the marginal revenue product of labour and how it is calculated.
  9. A worker adds 12 units of output a day and each unit sells for £15 in a competitive market. Calculate the worker's marginal revenue product.
34
Microeconomics: the Labour MarketAnswers
Answers
Labour productivity, unit labour costs and marginal revenue product
  1. Labour productivity is output per worker, or output per worker-hour, over a given period.
  2. Unit labour cost is the labour cost of producing one unit of output, found by dividing total labour costs by total output.
  3. Unit labour cost is £600,000 ÷ 30,000 = £20 per unit.
  4. Unit labour cost becomes £600,000 ÷ 40,000 = £15 per unit, a fall of £5, which is 25% of the original £20.
  5. If output per worker rises in the same proportion as pay, the extra wage cost is spread over proportionately more units, so cost per unit is unchanged.
  6. Domestic goods become dearer relative to foreign rivals, so exports fall and imports rise sharply.
  7. It is the extra output produced when one more worker is employed, with all other factors of production held constant.
  8. Marginal revenue product is the extra revenue a firm gains from employing one more worker, calculated as marginal physical product multiplied by marginal revenue, which equals the product price in a competitive product market.
  9. Marginal revenue product is 12 × £15 = £180 per day.
35
Macroeconomics: the Financial SectorQuestions
Macroeconomics: the Financial Sector
Functions of money, credit creation and narrow and broad money
  1. Name the four functions an asset must perform if it is to serve as money.
  2. Why does an economy that relies on barter trade far less than one that uses money?
  3. Name four characteristics that make an asset suitable for use as money.
  4. Why must the supply of an asset be limited if it is to work as money?
  5. Which function of money breaks down first during hyperinflation, and why?
  6. How does a commercial bank create money when it grants a loan?
  7. How does credit creation work in a banking system that holds fractional reserves?
  8. A bank receives £500 million of new reserves and the banking system keeps a reserve ratio of 12.5%. Calculate the maximum total deposits this can support and the credit created.
  9. Which three factors stop banks creating as much money as the credit multiplier suggests?
56
Macroeconomics: the Financial SectorAnswers
Answers
Functions of money, credit creation and narrow and broad money
  1. It must act as a medium of exchange, a store of value, a unit of account and a standard of deferred payment.
  2. Barter needs a double coincidence of wants, so every trade requires each side to want what the other offers; money removes that requirement and cuts the transaction costs of exchange.
  3. It should be durable, portable, divisible and difficult to counterfeit.
  4. If it can be produced freely its purchasing power collapses, so it stops being a reliable store of value and people stop accepting it.
  5. The store of value function, because purchasing power falls so quickly that holding money for even a short time destroys wealth, which is why people switch to goods or a foreign currency.
  6. It credits the borrower's account with a new deposit rather than handing over someone else's savings, so the act of lending itself adds to the money supply.
  7. A bank keeps only a fraction of deposits as reserves and lends the rest; that lending is spent and redeposited elsewhere, is partly lent again, and the repeated cycle multiplies an initial injection of reserves into a much larger stock of deposits.
  8. The credit multiplier is 1 ÷ 0.125 = 8, so maximum deposits are £500 million × 8 = £4,000 million, of which £3,500 million is newly created credit.
  9. Capital and liquidity regulations, a shortage of creditworthy borrowers wanting loans, and banks' own choice to hold reserves above the required minimum.
57
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1,226 questions
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