Why did God address Muslims in the Qur'an as "O you who believe" instead of "O you who have submitted (Muslims)"? And is Islam a higher degree or is faith (Iman)?

When "Iman" (faith) and "Islam" (submission) are separated, each term denotes the other. However, when they are conjoined, they are distinct. Iman is superior to Islam, as indicated by the Almighty’s saying: (The Bedouins say, "We have believed." Say, "You have not [yet] believed; but rather say, 'We have submitted.'") [Quran 49:14]. Iman is more specific than Islam; every believer (mu'min) is a Muslim, but not every Muslim is a believer (mu'min). Therefore, the Quranic discourse addressing followers uses the form of Iman, for inspiration and motivation, as Ibn Mas'ud said: "When you hear Allah say: 'O you who have believed,' then pay close attention, for it is either a good deed you are commanded to do, or an evil you are prohibited from."