Paper 2 - IGCSE Economics (Edexcel)

What is the definition of economic growth?

• Decrease in poverty

• Increase in gross domestic product (GDP)

• Increase in unemployment

• Decrease in inflation

Answer explanation

Economic growth is defined as an increase in gross domestic product (GDP), which measures the total value of goods and services produced in a country. This indicates a healthier economy, unlike the other options.

Which of the following is a limitation of GDP as a measure of growth?

• It measures only economic activity

• It includes environmental costs

• It accounts for income inequality

• It reflects the quality of life

Answer explanation

GDP measures only economic activity, ignoring social and environmental factors. This limitation means it doesn't fully capture the overall well-being or quality of life, making it an incomplete measure of growth.

What does CPI stand for in the context of measuring inflation?

• Central Price Indicator

• Cost Price Index

• Consumer Price Index

• Consumer Purchasing Index

Answer explanation

CPI stands for Consumer Price Index, which measures the average change over time in the prices paid by consumers for goods and services. It is a key indicator of inflation.

What type of inflation is caused by increased demand?

• Hyperinflation

• Stagflation

• Demand pull

• Cost push

Answer explanation

Demand-pull inflation occurs when demand for goods and services exceeds supply, leading to higher prices. This type of inflation is directly linked to increased consumer spending and economic growth.

What is the definition of unemployment?

• People who are underemployed

• People who are self-employed

• People who are retired

• People without jobs

Answer explanation

Unemployment refers to people without jobs who are actively seeking work. This definition excludes those who are underemployed, self-employed, or retired, making 'people without jobs' the correct choice.

Which measure is used to calculate unemployment?

• International Labour Organization

• National Income

• Consumer Price Index

• Gross Domestic Product

Answer explanation

The International Labour Organization (ILO) provides standardized measures to calculate unemployment rates globally, making it the correct choice. Other options like National Income and GDP do not specifically measure unemployment.

What is a current account deficit?

• When government spending exceeds revenue

• When savings exceed investments

• When exports exceed imports

• When imports exceed exports

Answer explanation

A current account deficit occurs when a country imports more goods and services than it exports. This means that the value of imports exceeds that of exports, leading to a negative balance in the current account.

What is one way businesses damage the environment?

• Creating jobs

• Visual pollution

• Increasing productivity

• Reducing costs

Answer explanation

Visual pollution occurs when businesses create unattractive sights, such as billboards or industrial waste, which can harm the environment and reduce the aesthetic value of an area. This is a direct way businesses can damage the environment.

What is progressive taxation?

• Tax rates increase as income increases

• Flat tax rate for all

• Tax rates decrease as income increases

• Tax on consumption

Answer explanation

Progressive taxation means that tax rates increase as income increases, ensuring that higher earners pay a larger percentage of their income in taxes compared to lower earners. This promotes equity in the tax system.

What is fiscal policy focused on?

• Supply-side policies

• Monetary supply

• Government revenue and expenditure

• Interest rates

Answer explanation

Fiscal policy primarily focuses on government revenue and expenditure, which includes taxation and spending decisions to influence the economy. This distinguishes it from monetary policy, which deals with money supply and interest rates.