GCSE

Economics
General Certificate of Secondary Education
Unit A592: How the Economy Works

Mark Scheme for June 2011

Oxford Cambridge and RSA Examinations

OCR (Oxford Cambridge and RSA) is a leading UK awarding body, providing a wide range of
qualifications to meet the needs of pupils of all ages and abilities. OCR qualifications include
AS/A Levels, Diplomas, GCSEs, OCR Nationals, Functional Skills, Key Skills, Entry
Level qualifications, NVQs and vocational qualifications in areas such as IT, business,
languages, teaching/training, administration and secretarial skills.

It is also responsible for developing new specifications to meet national requirements and the
needs of students and teachers. OCR is a not-for-profit organisation; any surplus made is
invested back into the establishment to help towards the development of qualifications and
support which keep pace with the changing needs of today’s society.

This mark scheme is published as an aid to teachers and students, to indicate the requirements
of the examination. It shows the basis on which marks were awarded by Examiners. It does not
indicate the details of the discussions which took place at an Examiners’ meeting before marking
commenced.

All Examiners are instructed that alternative correct answers and unexpected approaches in
candidates’ scripts must be given marks that fairly reflect the relevant knowledge and skills
demonstrated.

Mark schemes should be read in conjunction with the published question papers and the Report
on the Examination.

OCR will not enter into any discussion or correspondence in connection with this mark scheme.

© OCR 2011

Any enquiries about publications should be addressed to:

OCR Publications
PO Box 5050
Annesley
NOTTINGHAM
NG15 0DL

Telephone: 0870 770 6622

Facsimile: 01223 552610
E-mail: publications@ocr.org.uk
A592 Mark Scheme June 2011
Question Expected Answer Mark Additional Guidance
1 (a) For the period shown, which quarter showed the greatest rise [2] Both quarter and year must be correct for one
in GDP? mark each
Quarter______ 1 year _____2006 One mark for each correct identification up to a
maximum of two identifications
the greatest fall in real GDP?
Quarter______ 1 year _____2009 No need for a tick, just put a cross (X) for any
incorrect answer.
(b) (i) Explain what is meant by economic growth. [2] One mark if some understanding shown, eg a
reference to output of the country.
Two marks for correct explanation such as a rise in the output (or Annotate with ticks
incomes or GDP) (1) of a country over time (1); or percentage rise
in GDP(1) which is total value of goods and services provided (1)
(ii) To what extent does Fig. 1 show evidence of economic growth [2] One mark for each of the main elements of the
in the UK economy? trend shown ie two distinct periods are identified.
Annotate with ticks
One mark for stating that Fig.1 shows evidence of growth up to Note: One mark for recognising there is both
early 2008; one mark for stating there is no growth or negative positive and negative economic growth (periods
growth rates (not a fall in growth) after this date. ignored) or one mark for there is positive growth
overall.
(c) Explain how both inflation and unemployment could be [6]
affected by the trend shown in Fig. 1.

Level 2: 5–6 marks – candidate explains the effects in context. Up to two marks for a simple statement, e.g.
inflation will rise and unemployment will fall when
Level 1: 1–4 marks – candidate demonstrates understanding of there is economic growth (or vice versa in
the effects of positive and negative economic growth on inflation recession).
and/or unemployment.
For three/four marks, candidate must explain how
the variables are affected.
Indicative content: Inflation may rise and unemployment will fall
Annotate L1 with ticks
as growth takes place. Growth will lead to increased demand and
Candidates must explain and refer to both inflation
possibly demand pull inflation. Also the price of factors of
and unemployment and refer to both relevant
production will be pulled up and there could be cost push effects.
periods of the UK economy in order to reach Level
As output rises, the demand will rise for workers to produce more
2.
goods and services, so unemployment falls. The reverse is likely
Annotate L2
when growth is negative and there is a recession.

1
A592 Mark Scheme June 2011
Question Expected Answer Mark Rationale/Additional Guidance
(d) Other than changing interest rates, explain two policies which [8] Note that interest rate change is specifically
the UK government could use to achieve both economic growth excluded here, as it is examined in Q3. If
and more employment. Discuss how effective each policy is present in answer then annotate as NAQ.
likely to be.
Mark each policy on a 1+2+1 marks basis,
Level 4: 7–8 marks – candidate analyses and evaluates the chosen
policies to achieve more growth and employment. One mark for policy
Two marks for explanation / analysis
Level 3: 5–6 marks – candidate analyses the chosen policies to One mark for evaluation
achieve growth and employment.
e.g. reducing taxes (1), this increases
Level 2: 3–4 marks – candidate names and describes policies to disposable incomes (1) and this will lead to
achieve growth/employment. more spending and thus output and
employment (1) providing the extra income
Level 1: 1–2 marks – candidate identifies one or two policies to is not saved/spent on imports (EE).
achieve growth/employment. May be in the form of a list.
e.g. a supply side policy is education/training
Indicative content: Policies could include fiscal policy budget deficit (1) this make workers more skilled (1) so
or components of it (tax cuts, increased government spending); productivity and output rises (1). However,
supply side policies such as retraining, incentives to new there would be a long time lag before the
industries/firms, increasing incentives to work, e.g. by making benefits of the policy are felt (EE).
benefits less generous; etc.
Accept subsidies as a policy. Annotate using ticks, and EE where present.

Note: do not accept fiscal policy per se as a

policy, but as part of a specified budget
deficit, or tax cuts or increased government
spending.
Question Total [20]

2
A592 Mark Scheme June 2011
Question Expected Answer Mark Rationale/Additional Guidance
2 (a) Tick one box in each column to show the original incomes of [2] One mark each.
the poorest and richest households.
More than 1 tick in a column, then no marks
One mark for each correct identification up to a maximum of two for that column.
identifications
No need to tick just cross (X) any incorrect
Poorest fifth = below £10 000. answer

Richest fifth = over £70 000.

(b) Explain, with an example of each, the difference between a [4] One mark for each correct explanation, plus
direct tax and an indirect tax. one mark for an example of each.
Annotate with ticks
One mark for each correct difference explained up to a maximum of
two explanations, plus a further one mark for each of two appropriate Note: accept ‘a tax on individuals etc as
examples definition of direct tax.

A direct tax is a tax on income (or wealth), eg income tax

An indirect tax is a tax on spending/a tax on goods and services, e.g.
VAT.
(c) Explain how the UK tax and benefit system is used to [6] A Level 1 answer may make a basic correct
redistribute incomes. statement, e.g. for 2 marks: the government
will give benefits to poorer people, while
Level 2: 4–6 marks – candidate explains tax and benefit policies to taking taxes from the richer groups.
redistribute incomes.
A top Level 2 answer will address both taxes
Level 1: 1–3 marks – candidate demonstrates some understanding and benefits and contain clear explanation of
of tax and/or benefit measures to redistribute incomes. some of the indicative content.

Indicative content: Progressive direct taxes such as income tax will Use ticks and annotate level.
take a larger percentage of income from higher income groups.
Some direct taxes will only apply to richer groups, eg inheritance tax.
Reward reference to regressive taxes in context. Some benefits are
means-tested, ie they are designed to raise the income of the
poorest, eg family tax credits. Other benefits (universal) also help to
top up low incomes, eg child benefit.

3
A592 Mark Scheme June 2011
Question Expected Answer Mark Rationale/Additional Guidance
*(d) Should the UK government use taxes and government [8] At Level 1, candidate demonstrates an
spending to redistribute incomes? Give reasons for your understanding e.g. that the income gap
answer. between rich and poor is reduced.

Level 4: 7–8 marks – candidate evaluates the impact on the For level 2 taxes and/or benefits can be
economy of redistribution policies. applied to this redistribution, e.g. income tax
Complex ideas have been expressed clearly and fluently using a will take more from the rich so inequalities
style of writing appropriate to the subject matter. There may be few, are reduced. Also the issue could be applied
if any, errors of spelling, punctuation and grammar. to UK by using Fig. 2.

Level 3: 5–6 marks – candidate analyses the effects of Level 3 answers should analyse the effects
redistribution. Relatively straight forward ideas have been of redistribution, e.g. by analysing that
expressed with some clarity and fluency. There may be some inequalities and/or poverty are reduced, or
errors of spelling, punctuation and grammar, but these are unlikely hard workers are penalised by the tax
to be obtrusive or obscure meaning. system
Level 2: 3–4 marks – candidate understands some effects of Level 4 evaluation required - other effects
redistribution in the context. There may be reference to Fig. 2. may be discussed especially the effects on
Some simple ideas have been expressed in an appropriate context. incentives of both higher taxes and higher
There are likely to be some errors of spelling, punctuation and benefits. Accept opportunity costs of
grammar, which may be noticeable and obtrusive. spending on benefits.
Level 1: 1–2 marks – candidate shows understanding of the effect For Level 4 arguments both for and against
of redistribution. May be in the form of a list. Some simple ideas should be present and for 8 marks a
have been expressed. There will be some errors of spelling, judgement should be made.
punctuation and grammar, of which some may be noticeable and
obtrusive. Note: when deciding the mark within the
level, does that level refer to both taxes and
Indicative content: Redistribution will reduce inequalities of govt spending?
income. The effects are shown in Fig. 2. It can be argued that this
is fairer. Poverty is reduced and total spending / AD in the Use ticks and EE where present.
economy could rise. A counter argument is that it is not fair to those
who have earned their higher incomes. There could be serious
disincentive effects of both benefits and high rate or direct taxation
(specific taxes could be discussed). Benefit fraud may occur.
Question Total [20]

4
A592 Mark Scheme June 2011
Question Expected Answer Mark Rationale/Additional Guidance
3 (a) Calculate the change in the Bank Rate of interest between [2] One mark for correct method if answer is
September 2008 and March 2009. Show your working. incorrect e.g. 5% – 0.5% = 3.5%.
Up to two marks Two marks for correct answer without
working.
5% – 0.5% = 4.5% No need to tick just cross (X) next to any
error.
(b) Fig. 3 shows the Bank rate of interest in February 2009 was 1% [4] E.g. borrowers will pay more than savers
per year, but at this time there were many different rates of receive [1] because the banks have to pay
interest in the UK economy. For example, high street banks overheads and make profits [1].
were paying 0.5% per year on some savings accounts while E.g. some loans have a lower rate because
some credit card companies were charging borrowers 18% per they are less risky [1] such as mortgages
year. Explain two reasons why there are different rates of where the house offers security [1].
interest at any one time. E.g. there is competition between banks [1]
so some raise rates to attract savers [1].
One mark for each correct identification up to a maximum of two
identifications, plus a further one mark for each of two explanations Annotate with ticks

Indicative content: (two of the following): whether the money is Note: where candidate supposedly gives two
being saved or borrowed; the degree of risk on loans: competition reasons but it is really just one reason in
between banks, etc ; instant access v notice accounts; total, mark accordingly.
internet/postal/telephone accounts v branch account; current v
savings accounts; minimum deposit required; etc.

5
A592 Mark Scheme June 2011
Question Expected Answer Mark Rationale/Additional Guidance
(c) Explain how a fall in interest rates can affect total spending in [6] At Level 1, annotate using ticks for points
the economy. made and explained up to 4 marks.
E.g. as rates fall, the cost of borrowing falls
Level 2: 5–6 marks – candidate analyses how a fall in interest [1], so consumers will borrow more in order
rates affects total spending in the UK economy. to increase their spending/demand [1].
Saving is less rewarding [1] so people will
Level 1: 1–4 marks – candidate demonstrates understanding of save less and spend more [1].
the effects of falling interest rates, including the fact that total
demand/spending is likely to rise. A Level 2 mark will contain some analysis as
shown in the indicative content, eg analyses
Indicative content: Saving will be less rewarding for consumers so how disposable incomes are affected by a
they may consume more. Borrowing is less expensive for fall in mortgage interest rates; e.g. analyses
consumers. In the UK, consumers finance a lot of spending by that firms’ spending and employment rises
using credit, especially for expensive durable goods such as cars, and therefore demand.
appliances and so on. As credit becomes less expensive they may Annotate level 2.
spend more. Millions of households have mortgages, and have to
pay interest on these loans each month. As the monthly payments Note that candidates are unlikely to include
fall with a fall in interest rates, their disposable incomes and exchange rate effects and this is not
spending rise. Firms borrow to finance investment expenditure. As expected. But reward where present.
this becomes less expensive with lower interest rates, they
increase their investment spending. The £ is likely to fall in value
which makes exports more competitive and more exports are likely
to be sold.

6
A592 Mark Scheme June 2011
Question Expected Answer Mark Rationale/Additional Guidance
(d) To what extent will lower rates of interest benefit the macro- [8] Reward effects on balance of payments and
economic objectives of the UK government? Give reasons for the exchange rate, although these are not
your answer. required.

Level 4: 7-8 marks - candidate evaluates the effects of lower At Level 1, candidate recognised macro-
interest rates. economic objectives, e.g. economic growth
and employment.
Level 3: 5–6 marks – candidate analyses the effects of lower
interest rates. At Level 2 lower interest rates should be
related to the objectives, e.g. the
Level 2: 3–4 marks – candidate understands the effects of lower government aims to have more growth and
interest rates in the context. employment, and lowering interest rates will
help to achieve these aims.
Level 1: 1–2 marks – candidate shows understanding of macro-
economic objectives. May be in the form of a list. At level 3 analysis is required, e.g. multiplier
effect at work. Max. of 5 marks if inflation or
Indicative content: Lower interest rates will affect total demand growth / employment are not both
which in turn will affect variables including economic growth, considered.
employment and inflation. Output will rise leading to more
economic growth and more employment/less unemployment. The At level 4 evaluation required.
extra demand could lead to demand pull inflation. Candidates could explicitly refer to possible
conflicts between objectives (more growth
and employment but possibly more inflation),
or discuss relative importance of objectives,
or extent of change of interest rates.

Use ticks and annotate level and EE where

present
Question Total [20]
Total [60]

7
OCR (Oxford Cambridge and RSA Examinations)
1 Hills Road
Cambridge
CB1 2EU

OCR Customer Contact Centre

14 – 19 Qualifications (General)
Telephone: 01223 553998
Facsimile: 01223 552627
Email: general.qualifications@ocr.org.uk

www.ocr.org.uk

For staff training purposes and as part of our quality assurance

programme your call may be recorded or monitored

Oxford Cambridge and RSA Examinations

is a Company Limited by Guarantee
Registered in England
Registered Office; 1 Hills Road, Cambridge, CB1 2EU
Registered Company Number: 3484466
OCR is an exempt Charity

OCR (Oxford Cambridge and RSA Examinations)

Head office
Telephone: 01223 552552
Facsimile: 01223 552553

© OCR 2011