Worksheet 3: Chains of analysis answers

(Change in) Economic … (may) lead(s) to … which may/result(s) Therefore, …

concept in …

Net immigration Increase in population More of the resource The economy’s PPC shifts
labour available to the right

Cut in interest rates Lower cost of Increased access to Investment in capital

borrowing finance for firms goods increases

Increase in demand A short-term state of Creating upward Equilibrium price

shortage pressure on the price increases
to clear the shortage

A surplus Quantity supplied Downward pressure on Price decreases

exceeding quantity the price to clear the
demanded surplus

Increase in price An increase in revenue A greater Total revenue increases

per unit sold but proportionate rise in
decreases quantity total revenue from the
demanded rise in price if PED<1

Information failure Consumers Underconsumption of The market has failed

underestimating the merit goods
private benefits of
merit goods

Deregulation Reduced barriers to Increase in competition The likelihood of abuse

entry in a market of monopoly power
decreases

Division of labour Increase in productivity Higher wages earned, Living standards increase
of workers giving them access
to more goods and
services

Increase in unemployment Weaker power of trade Decreasing their Average wages decrease
unions bargaining power

Increase in the size of the Greater ability to Lower average cost Selling price decreases
firm take advantage of
economies of scale

A change towards The firm investing Higher investment/ Total costs increase
more capital-intensive in more capital fixed costs
production equipment

Existence of monopoly Decrease in/absence of The monopoly Consumers pay higher

competition becoming a price prices
maker/gaining control
over prices

Expansionary fiscal policy Increase in aggregate Firms producing higher Economic growth
demand output if there is spare
capacity

© Cambridge University Press & Assessment 2023 vX 3

 (Change in) Economic … (may) lead(s) to … which may/result(s) Therefore, …
concept in …

Contractionary monetary Decrease in aggregate Decrease in the derived Greater unemployment

policy demand demand for labour

Supply-side policy Provision of more Workers becoming Reduced poverty

training and education more employable/
increase in workers’
earning potential

Decrease in incomes Decrease in the A decrease in net Causing a recession in the

abroad demand for the exports and domestic domestic economy
domestic economy’s output
exports

Frictional unemployment Workers staying in Workers finding a Increasing an individual’s

between jobs better-paid job standard of living

Increase in cost of An increase in import- Imported cost-push Decreasing export

imported raw materials reliant industries’ costs inflation competitiveness
of production

Greater indebtedness of Outflows from the BoP Future generations Lowering living standards
developing countries to repay the loans experiencing a decrease in developing countries
in national income

Lack of access to Learners being absent Decrease in knowledge/ Creating a poverty trap
healthcare from school more often qualifications and
due to sickness earning potential for
future generations

Low living standards Net emigration in A decrease in working Increasing a country’s

search of employment population dependency ratio
abroad

Reduction in quotas Decrease in quantity of Decrease in Growth of infant industries

imports and increase competition for local
in their price industries

Decrease in the exchange Decrease in export Decrease in export Worsening the Balance of
rate prices and increase in revenue (if PED<1) Trade deficit
import prices and increase in import
expenditure (if PED<1)

© Cambridge University Press & Assessment 2023 v1 4