1. Identify one government objective. (1)
Any one from:
Sustainable economic growth; full employment; price stability; stable balance of
payments. Accept appropriate alternatives.
2. Explain how economic growth is measured. (3)
GDP (gross domestic product): A measure of the value of all goods and services produced within a
country over a period of time.
Award 1 mark for GDP; award 2–3 marks for an explanation of GDP.
3. Identify and explain the main stages of the business cycle. (4)
Growth; boom; recession; slump.
Award 1 mark per correct stage (accept variations in terms).
4. Identify and explain two strategies a business might use to survive a recession. (4)
Strong brand; develop essential products; reduce products’ price elasticity of demand; open overseas
branches; introduce lead production; ensure continual cost-efficiency.
Award 1 mark per correctly identified strategy (1–2) and 2–3 marks for a suitable explanation.
5. Explain the difference between direct and indirect taxes. (2)
Direct taxes are those charged on income (individual or company profit). Indirect taxes are applied to
the purchase of goods.
Award 1 mark per correct explanation (max 2 marks).
6. Explain how interest rates affect business profits. (2)
Higher interest rates will increase the debt burden (for geared firms) and reduce profits. Lower
interest rates will reduce the debt burden and increase profits. Interest rates also affect consumer
spending and thus affect business profits: higher interest rates may increase saving and increase the
debt burden on consumers, thus reducing their spending; lower interest rates reduce the debt burden
and increase disposable income (discouraging saving).
Award 1–2 marks for a suitable explanation. It is possible to award 2 marks if only one impact is
discussed fully.
Total: 16 marks
