Explain, using a production possibilities curve (PPC) diagram, an increase in the actual output of an economy.

Discuss the view that economic growth always leads to a rise in living standards.

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.

Answers may include:

• definitions of production possibilities curve, actual output
• PPC diagram to show an increase in actual output
• explanation that an increase in actual output results from increased utilization of resources, showing a movement towards the production possibility curve
• example of actual growth in specific countries.

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.

Answers may include:

• definitions of economic growth, living standards
• PPC diagram or AD/AS diagram to depict economic growth
• explanation of why economic growth leads to a rise in living standards because, for example, of rising incomes and employment
• example of economic growth leading to changes in living standards
• synthesis or evaluation (discuss).

Discussion may include: consideration that economic growth may not always lead to a rise in living standards because of factors such as environmental costs, the distribution of income, inflation and how the increased use of capital intensive technology may lead to unemployment.