GCSE ECONOMICS TEST PAPER QUESTIONS AND
SOLUTIONS 2025/2026 GRADED A+
✔✔The benefits of fiscal policy - ✔✔1. Reduced unemployment through reduced taxes/
increased spending
2. Economic growth increase
3. Acts much faster than monetary policy
✔✔The costs of fiscal policy - ✔✔1. Consumers may save rather than spend their extra
income so the economy does not grow as much as expected
2. Firms and consumers might spend the extra money on imports making the current
account on the balance of payments worse
3. Inflation may rise if supply cannot keep up with demand in either the factor or product
markets
✔✔Consequences of redistribution of income (fiscal policy) - ✔✔1. Reduces inequalities
of income
2. More services available to the poor
3. People may not seek work
4. Reduces incentives
5. People leave the country
6. Lack of investment
7. Lower savings
8. Tax evasion
✔✔Effects of lower interest rates (monetary policy) on growth - ✔✔1) Spending and
borrowing by consumers increases because borrowing is cheaper so disposable income
rise. Spending incurs a lower opportunity cost. Rising consumption leads to more
demand for G/S
2) Borrowing for investment by firms increases
3) UK exchange rate falls as lower interest rates leads to a fall in demand for pounds
4) Fall in exchange rate means imports are dearer and exports cheaper so there is a
better balance of payments
✔✔Effects of lower interest rates (monetary policy) on employment - ✔✔1) More
demand leads to more people being employed to provide G/S
2) More spending on capital goods by firms so suppliers employ more people
3)
✔✔Effect of lower interest rates (monetary policy) on price stability - ✔✔1) Borrowing
and spending increases so inflation rises
2) More firm spending leads to demand pull inflation
✔✔Effect of lower interest rates (monetary policy) on consumer spending - ✔✔1) Fall in
the opportunity cost of spending
, 2) An increase in spending
3) Retired people who rely on income from savings may now spend less as their income
falls
4) Those with mortgages pay less interest so have more money to spend elsewhere
✔✔Effect of lower interest rates (monetary policy) on borrowing - ✔✔1) Consumers
borrow more to buy high price or big ticket items
2) If consumers lack confidence in the economy a cut in interest rate may not lead to
more borrowing
3) More people can afford to buy larger or more houses
✔✔Benefits of specialisation for producers - ✔✔- Higher output
- Higher Productivity
- Higher quantity produced
- Economies of scale
✔✔Costs of specialisation for producers - ✔✔- Dependency on certain factors of
production
- Loss of workers
- Diseconomies of scale: As output rises, costs may also rise
✔✔Benefits of specialisation for workers - ✔✔- Increased skills
- Use of natural strengths
- Job satisfaction
- Higher standard of living
✔✔Costs of specialisation for workers - ✔✔- Boredom
- Deskilling
- Unemployment as they are easier to replace with machines
✔✔Benefits of specialisation for regions - ✔✔- Efficiently uses resources
- More employment
✔✔Costs of specialisation for regions - ✔✔- Risk of a fall in demand in that particular
sector
- Resource exhaustion
- Loss of advantage as a another country becomes better
- Negative environmental externalities
✔✔Causes of shifts in demand - ✔✔1) Income
2) Marketing
3) Tastes and fashion
4) Substitutes and complements
5) Population growth
6) Government policies
SOLUTIONS 2025/2026 GRADED A+
✔✔The benefits of fiscal policy - ✔✔1. Reduced unemployment through reduced taxes/
increased spending
2. Economic growth increase
3. Acts much faster than monetary policy
✔✔The costs of fiscal policy - ✔✔1. Consumers may save rather than spend their extra
income so the economy does not grow as much as expected
2. Firms and consumers might spend the extra money on imports making the current
account on the balance of payments worse
3. Inflation may rise if supply cannot keep up with demand in either the factor or product
markets
✔✔Consequences of redistribution of income (fiscal policy) - ✔✔1. Reduces inequalities
of income
2. More services available to the poor
3. People may not seek work
4. Reduces incentives
5. People leave the country
6. Lack of investment
7. Lower savings
8. Tax evasion
✔✔Effects of lower interest rates (monetary policy) on growth - ✔✔1) Spending and
borrowing by consumers increases because borrowing is cheaper so disposable income
rise. Spending incurs a lower opportunity cost. Rising consumption leads to more
demand for G/S
2) Borrowing for investment by firms increases
3) UK exchange rate falls as lower interest rates leads to a fall in demand for pounds
4) Fall in exchange rate means imports are dearer and exports cheaper so there is a
better balance of payments
✔✔Effects of lower interest rates (monetary policy) on employment - ✔✔1) More
demand leads to more people being employed to provide G/S
2) More spending on capital goods by firms so suppliers employ more people
3)
✔✔Effect of lower interest rates (monetary policy) on price stability - ✔✔1) Borrowing
and spending increases so inflation rises
2) More firm spending leads to demand pull inflation
✔✔Effect of lower interest rates (monetary policy) on consumer spending - ✔✔1) Fall in
the opportunity cost of spending
, 2) An increase in spending
3) Retired people who rely on income from savings may now spend less as their income
falls
4) Those with mortgages pay less interest so have more money to spend elsewhere
✔✔Effect of lower interest rates (monetary policy) on borrowing - ✔✔1) Consumers
borrow more to buy high price or big ticket items
2) If consumers lack confidence in the economy a cut in interest rate may not lead to
more borrowing
3) More people can afford to buy larger or more houses
✔✔Benefits of specialisation for producers - ✔✔- Higher output
- Higher Productivity
- Higher quantity produced
- Economies of scale
✔✔Costs of specialisation for producers - ✔✔- Dependency on certain factors of
production
- Loss of workers
- Diseconomies of scale: As output rises, costs may also rise
✔✔Benefits of specialisation for workers - ✔✔- Increased skills
- Use of natural strengths
- Job satisfaction
- Higher standard of living
✔✔Costs of specialisation for workers - ✔✔- Boredom
- Deskilling
- Unemployment as they are easier to replace with machines
✔✔Benefits of specialisation for regions - ✔✔- Efficiently uses resources
- More employment
✔✔Costs of specialisation for regions - ✔✔- Risk of a fall in demand in that particular
sector
- Resource exhaustion
- Loss of advantage as a another country becomes better
- Negative environmental externalities
✔✔Causes of shifts in demand - ✔✔1) Income
2) Marketing
3) Tastes and fashion
4) Substitutes and complements
5) Population growth
6) Government policies
