How the economy works

AQA

GCSE

The study of 'How the economy works' establishes the foundational mechanisms of economic activity, centering on the Basic Economic Problem: infinite wants versus finite resources. It encompasses the allocation of resources through different economic systems (Free Market, Mixed, and Command), the role of the Factors of Production (Land, Labour, Capital, Enterprise), and the interaction between households, firms, and government in the Circular Flow of Income. This topic bridges microeconomic decision-making with macroeconomic performance.

Objectives

Exam Tips

Pitfalls

Key Terms

Mark Points

Learning Objectives

What you need to know and understand

Interest rates
Government spending
Unemployment
Balance of payments
Fiscal policy
Monetary policy
Supply-side policies
Exports/Imports
Exchange rates
Globalisation
Functions of money
Financial sector
Bank of England

Key Terminology

Essential terms to know

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Practice questions tailored to this topic

How the economy works

Learning Objectives

Key Terminology

{"theme":"The Basic Economic Problem","description":"The fundamental conflict between unlimited human wants and scarce resources, necessitating choices and resulting in opportunity costs."}

{"theme":"Economic Systems and Allocation","description":"How different societies organize the production and distribution of goods, ranging from the 'Invisible Hand' of the price mechanism to state planning."}

{"theme":"The Circular Flow of Income","description":"The model demonstrating the movement of money and physical resources between households and firms, including injections (investment, government spending, exports) and withdrawals (savings, taxes, imports)."}

{"theme":"Market Failure and Government Intervention","description":"Situations where the free market fails to allocate resources efficiently (e.g., externalities, public goods) and the state's role in correcting these distortions."}

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