O Level Business: Economic issues (Cambridge 7115) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions practise section 6.1, Economic issues, of the Cambridge O Level Business Studies 7115 syllabus for examination in 2026. Revise first with the study guide and the revision notes. The wider unit has a topic-level set. Course links: hub and checklist. If a topic feels shaky, take a free diagnostic. All money is in a local currency.

Questions

1. Define “Gross Domestic Product (GDP)”. [2]

2. In one country GDP has fallen for two quarters in a row, unemployment is rising, but most firms are still trading. (a) Identify the stage of the business cycle. [1] (b) Explain one effect of this stage on a shoe retailer. [2]

3. GDP was 3,150 billion last year and is 3,276 billion this year. Calculate the GDP growth rate. [2]

4. A price index rises from 125.0 to 131.25. (a) Calculate the inflation rate. [2] (b) Explain one way this inflation could reduce the profit of a bakery. [2]

5. A country has a labour force of 25 million. 1.5 million are unemployed. (a) Calculate the unemployment rate. [1] (b) Unemployment then falls steadily for two years. Explain how this could affect a mobile phone shop. [3]

6. Imbrey Foods has profit before tax of 340,000. The government raises the tax on company profit from 20% to 24%. (a) Calculate the firm’s profit after tax before and after the change. [3] (b) Explain one way the change could affect its decisions. [2]

7. Pinnacre Gifts sells a clock for 250 before sales tax. The sales tax rate rises from 8% to 12%. (a) Calculate the price paid by a customer before and after the rise. [2] (b) Outline two ways Pinnacre Gifts could respond. [2]

8. A government cuts its spending on new roads. Explain how this could affect: (a) a construction firm that builds roads [2] (b) a café next to a large road-building site. [2]

9. Cardrew Joinery has a loan of 150,000 at a variable rate. The rate rises from 6% to 9%. Its profit before interest is 36,000. (a) Calculate the annual interest before and after the rise. [2] (b) Calculate its profit after interest before and after the rise. [2] (c) Explain one way the owner might respond. [2]

10. Cardrew Textiles sells cloth to clothing makers. In a recession its sales revenue fell from 4,800 thousand in year 1 to 4,320 thousand in year 2 and to 3,888 thousand in year 3. Unemployment rose from 5% to 9%. The owner is choosing between: Option A: cut prices by 8% to try to hold sales. Option B: close its oldest workshop to reduce fixed costs, accepting lower output. (a) Calculate the percentage change in sales revenue in each of years 2 and 3. [2] (b) Recommend which option the owner should choose. Justify your answer. [6]

11. Pinnacre Cycles has a variable-rate loan of 240,000. Profit before interest and tax is 120,000. The interest rate rises from 4% to 7%. In the same year the government cuts the tax on company profit from 25% to 20%. The owner is considering a second shop, funded by a new loan of 180,000 at 7%. (a) Calculate the annual interest on the existing loan before and after the rise. [2] (b) Calculate profit after tax before and after both changes. [4] (c) Justify whether the owner should open the second shop now. [4]

Answers

1. The combined value [1] of all goods and services made within a country over a period (usually a year) [1]. [2] Examiner insight: Answers that say “the money a country has” or “the country’s income from tax” describe something different. Name both goods and services, and say “produced”.

2. (a) Recession [1]. (b) Households have less to spend, so the retailer’s sales fall [1], and with lower revenue its profit may fall or it may cut stock and staff [1]. Shoes can be delayed, which makes the effect likely. Examiner insight: The second mark usually comes from carrying the effect through to profit, jobs or stock. “Sales fall” alone is only a first step.

3. Change = 3,276 - 3,150 = 126 [1]. Growth = 126 / 3,150 × 100 = 4.0% [1]. Examiner insight: Show the formula and the working. The usual slip is to divide by the new figure when the old one is needed.

4. (a) Change = 131.25 - 125.0 = 6.25 [1]. Inflation = 6.25 / 125.0 × 100 = 5.0% [1]. (b) The prices of flour, energy and rent rise [1], so unless the bakery raises its prices, each loaf earns less profit [1]. If it raises prices, customers may buy less. Examiner insight: Name a cost relevant to a bakery. Writing only “costs go up” gives the answer less application to the stem.

5. (a) 1.5 / 25 × 100 = 6% [1]. (b) More households have wages [1], so more can afford new phones and demand rises [1]. The shop may also need to hire staff in a tighter job market, and pay may rise [1]. Examiner insight: A three-mark “explain” usually needs a chain: more jobs, more income, more sales. Add context from the shop.

6. (a) Before: 340,000 × 0.80 = 272,000 [1]. After: 340,000 × 0.76 = 258,400 [1]. Fall = 13,600 [1]. (b) Less profit is kept [1], so the firm may delay new equipment or expansion funded from profit [1]. Examiner insight: Be clear which tax is changing. A profit tax does not change the price on the label, so a link to cheaper goods and higher demand does not fit.

7. (a) Before: 250 × 1.08 = 270 [1]. After: 250 × 1.12 = 280 [1]. (b) For example: absorb part of the tax to keep the price down, accepting a lower margin [1]; promote cheaper lines or find cheaper suppliers [1]. Examiner insight: Responses should be stated, not just described as “do something about the price”. One clear action for each mark is enough for an outline.

8. (a) The government is a main customer for road builders [1], so contracts fall, and revenue and jobs may fall [1]. (b) The site workers are the café’s customers [1], so demand falls when work stops or slows [1]. Examiner insight: Part (b) rewards reading the stem. The link goes from the workers’ spending to the café, not from roads to the café in general.

9. (a) Before: 150,000 × 0.06 = 9,000; after: 150,000 × 0.09 = 13,500 [2]. (b) Before: 36,000 - 9,000 = 27,000; after: 36,000 - 13,500 = 22,500 [2]. (c) Repay part of the loan from cash [1] to cut future interest, or move to a fixed-rate loan [1]. Examiner insight: Show interest first, then subtract it. Joining the steps without working makes errors hard to credit.

10. (a) Year 2: (4,320 - 4,800) / 4,800 × 100 = -10% [1]. Year 3: (3,888 - 4,320) / 4,320 × 100 = -10% [1]. (b) Option A. A cut of 8% on every sale means revenue only holds if volume rises by about 8.7%, because 1 / 0.92 = 1.087 [1]. In a recession, with unemployment at 9% and clothing makers also cutting back, that rise is unlikely [1], and the lower price is paid on every sale [1]. Option B. Closing the oldest workshop cuts fixed costs, which helps profit when revenue has fallen by 10% for two years [1], and it protects cash [1]. The risk is lost capacity if the economy recovers, so the owner would need to be ready to hire or rent space when it does [1]. Judgement: Option B is the better choice, because the 8.7% rise in volume is unlikely in this recession while the fixed-cost saving is certain. Examiner insight: A strong answer uses the numbers (10% falls, 9% unemployment) and weighs both options before choosing. An unsupported choice gains little.

11. (a) Before: 240,000 × 0.04 = 9,600; after: 240,000 × 0.07 = 16,800 [2]. (b) Before: (120,000 - 9,600) × 0.75 = 82,800 [2]. After: (120,000 - 16,800) × 0.80 = 82,560 [2]. The two changes almost cancel. (c) The new loan adds 180,000 × 0.07 = 12,600 interest a year [1], so the shop must earn more than 12,600 profit before tax just to cover it [1]. For: the tax cut and any growth stage help [1]. Against: the rate is variable and could rise again; the profit after tax is only 82,560, so there is little margin for error. A reasoned answer: wait until the shop’s forecast profit clearly exceeds the interest, or fix the rate first [1]. Examiner insight: Judgement answers do better when they use the calculated figures from earlier parts and state what the decision depends on.

Where marks are usually lost

• Defining GDP as money held by the government rather than the value of output.
• Giving an effect with no link to the type of business in the stem.
• Dividing by the new figure when working out a percentage change.
• Treating a rise in profit tax as if it raised the shelf price.
• Writing “interest rises” without saying the loan costs more or what that does to profit.
• Choosing a response with no reason it suits the firm.
• Recommending without using the data or weighing the other option.
• Forgetting to show the working that leads to a figure.

Frequently asked questions

Are these Cambridge O Level Business Studies 7115 past paper questions? No. They are original practice questions written for Marlbridge on section 6.1, Economic issues. Use them alongside the official past papers.

Which figure do you divide by in a percentage change calculation? Divide the change by the old figure, not the new one, then multiply by 100. Dividing by the new figure is the usual slip in growth-rate questions.

Does a rise in profit tax raise the price customers pay? No. A tax on company profit does not change the shelf price, so linking it to higher prices and lower demand is a common error. A sales tax is the tax added to the price.

How do you earn the second mark on an economic effect? Carry the effect through to the business in the stem, for example from higher loan costs to lower profit, or from falling sales to job cuts or unsold stock. “Sales fall” on its own is only a first step.

How do you answer a judgement question on economic issues? Use the figures you have calculated, such as interest costs or falls in revenue, weigh both options and state what the decision depends on before making a clear choice.

Next steps

• Revisit the revision notes and study guide.
• Tick off the checklist and open the course hub.
• Take one of the free 10-minute diagnostics.
• Book a free trial class: /trial/.

Official syllabus

Cambridge O Level Business Studies 7115 syllabus for 2026, Cambridge University Press & Assessment (Cambridge Assessment International Education), section 6.1 Economic issues.