National and International Economy · 7136/2
AQA A-level Paper 2, June 2017
All 14 written questions from AQA A-level Paper 2 (June 2017), National and International Economy. Case studies: Economic development in India and Inflation, deflation and economic policy. Each question shows its marks and topic, with an examiner insight on 10, and opens the question paper and mark scheme at the right page.
Context 1
Economic development in India
Extracts: Is India still a developing country? · ‘Make in India’ – the road to development?
Q1
Using the data in Extract A (Figure 2), calculate, to two decimal places, the mean growth rate for India from 2010 to 2014.
TopicEconomic performanceEconomic growth & cycleDevelopment
Q2
Explain why the data in Extract A (Figure 1) show that living standards in India have improved.
TopicMeasuring macroeconomic performanceLiving standards & wellbeing
Q3
Extract B (lines 17–19) states ‘India still protects its economy with anti-dumping measures and export subsidies that are designed to promote economic growth.’
With the help of a diagram, explain how export subsidies may help promote economic growth in India.
With the help of a diagram, explain how export subsidies may help promote economic growth in India.
TopicThe international economyProtectionism & trading blocsEconomic growth & cycle
Examiner insight
- What to cover
- Export subsidies lower the price of Indian exports abroad, so export volumes rise. Higher net exports raise aggregate demand and real GDP.
- Diagram
- AD/AS diagram with AD shifting right (or a subsidy diagram in the export market).
- Watch out
- Link the chain to growth: subsidy, cheaper exports, higher X minus M, higher AD, higher real output.
Q4
Extract C (lines 2–3) states ‘More recently, India has begun to use more market-based strategies to help its development, including liberalising trade and privatisation.’
Using the data in the extracts and your knowledge of economics, evaluate the view that greater use of market-based strategies is the best way to improve the economic development of India.
Using the data in the extracts and your knowledge of economics, evaluate the view that greater use of market-based strategies is the best way to improve the economic development of India.
TopicThe international economyDevelopment
Examiner insight
- What to cover
- Market-based strategies: trade liberalisation, privatisation, FDI, microfinance, removal of subsidies.
- Evaluation
- Compare with interventionist strategies (infrastructure, education, protection of infant industries). Judge by India's data, inequality, corruption and time period.
- Watch out
- "Best way" needs a comparison. Use India's data on poverty, growth and HDI.
Context 2
Inflation, deflation and economic policy
Extracts: Good and bad deflation · The Japanese problem
Q5
Using the data in Extract D (Figure 3), calculate, to two decimal places, the mean inflation rate for Japan from 2010 to 2015.
TopicEconomic performanceInflation & deflation
Q6
Explain how the data in Extract D (Figure 4) show that Japan has been less successful than the UK in achieving a stable rate of economic growth.
TopicEconomic performanceEconomic growth & cycle
Q7
Extract E (lines 9–10) states ‘Improvements in productivity on the supply side of the economy could actually lead to more deflation.’
With the help of a diagram, explain how improvements in productivity could cause deflation.
With the help of a diagram, explain how improvements in productivity could cause deflation.
TopicEconomic performanceInflation & deflationAggregate supply
Examiner insight
- What to cover
- Higher productivity lowers unit costs, shifting SRAS and LRAS right. The price level falls while real output rises: benign deflation.
- Diagram
- AD/AS diagram with SRAS and LRAS shifting right and the price level falling.
- Watch out
- Explain why this deflation is "good": output grows as prices fall.
Q8
Extract F (lines 19–20) states ‘What is not clear is what should be done if low inflation turns to bad deflation.’
Using the data in the extracts and your knowledge of economics, evaluate the view that monetary policy is the most effective way of tackling deflation in developed economies such as the UK and Japan.
Using the data in the extracts and your knowledge of economics, evaluate the view that monetary policy is the most effective way of tackling deflation in developed economies such as the UK and Japan.
TopicEconomic performanceInflation & deflationMonetary policy & interest rates
Examiner insight
- What to cover
- Monetary policy can cut interest rates and use QE to raise AD and inflation expectations.
- Diagram
- AD/AS diagram with AD shifting right.
- Evaluation
- Limits: zero lower bound, liquidity trap, weak confidence (Japan). Compare with fiscal policy and supply-side measures. Judge by type of deflation.
- Watch out
- Separate good deflation (supply-side) from bad deflation (demand-side). The right policy depends on the cause.
Q9Essay 1
Explain how government policies can reduce the natural rate of unemployment.
Essay stimulus. Between 2011 and 2016, UK unemployment fell from a high of 8.5% to 4.8%. Some argue that government attempts to reduce unemployment inevitably lead to trade-offs with other macroeconomic policy objectives.
TopicEconomic performanceUnemploymentSupply-side policies
Examiner insight
- What to cover
- The natural rate falls when frictional and structural unemployment fall: training, better job information, labour mobility, benefit reform, flexible labour markets.
- Diagram
- LRAS shift right, or labour market diagram.
- Watch out
- Keep the focus on supply-side policies. Demand-side policy does not change the natural rate.
Q10Essay 1
Discuss the view that falling unemployment will inevitably lead to trade-offs with other macroeconomic policy objectives.
Essay stimulus. Between 2011 and 2016, UK unemployment fell from a high of 8.5% to 4.8%. Some argue that government attempts to reduce unemployment inevitably lead to trade-offs with other macroeconomic policy objectives.
TopicEconomic performanceUnemploymentMacro objectives & conflicts
Examiner insight
- What to cover
- Falling unemployment can raise inflation (Phillips curve), widen the current account deficit and increase inequality pressure.
- Diagram
- Short-run Phillips curve.
- Evaluation
- Trade-offs are not inevitable: supply-side growth, spare capacity, the long-run Phillips curve, low global inflation. Judge using recent UK experience.
- Watch out
- "Inevitably" invites a clear counter-argument.
Q11Essay 2
Explain the possible reasons for changes in the pattern of trade between the UK and the rest of the world.
Essay stimulus. The UK has seen significant changes in its pattern of trade with the rest of the world in terms of what we trade and with whom. The UK’s current account deficit widened from £29.1bn in 2011 to £100.2bn in 2015. The deficit in 2015 was 5.4% of GDP, the largest annual deficit as a percentage of GDP since records began in 1948.
TopicThe international economyTrade & comparative advantage
Examiner insight
- What to cover
- Changes in the pattern of UK trade come from shifts in comparative advantage, the growth of emerging economies, exchange rates, trade agreements and EU exit, relative inflation, and the move from manufacturing to services.
- Watch out
- Use real examples, such as the growth of trade with China.
Q12Essay 2
Evaluate the measures that might be taken to reduce a deficit on the current account of the UK’s balance of payments.
Essay stimulus. The UK has seen significant changes in its pattern of trade with the rest of the world in terms of what we trade and with whom. The UK’s current account deficit widened from £29.1bn in 2011 to £100.2bn in 2015. The deficit in 2015 was 5.4% of GDP, the largest annual deficit as a percentage of GDP since records began in 1948.
TopicThe international economyBalance of payments
Examiner insight
- What to cover
- Measures: expenditure-switching (depreciation, protection) and expenditure-reducing (contractionary fiscal and monetary policy), and supply-side policies.
- Diagram
- AD/AS diagram, or currency market diagram.
- Evaluation
- Judge each by side effects (lower growth, retaliation, inflation), time lags and the Marshall-Lerner condition.
- Watch out
- A current account deficit is not always a problem. Say when it matters.
Q13Essay 3
Explain how changes in both government spending and taxation might affect the level of economic activity.
Essay stimulus. The Government has ruled out the possibility of a rise in VAT before 2020 but other indirect taxes may increase. It has also stated that the personal income tax allowance will be increased from £10 800 in 2015/16 to £12 500 by 2020, and plans to cut the main rate of corporation tax from 20% to 17%.
TopicFiscal policy and supply-side policiesFiscal policy & public finances
Examiner insight
- What to cover
- Higher government spending adds directly to AD. Lower taxes raise disposable income and profits, so consumption and investment rise. The multiplier increases the final effect. The reverse reduces activity.
- Diagram
- AD/AS diagram with AD shifting.
- Watch out
- Cover both spending and taxation, and mention the multiplier.
Q14Essay 3
Evaluate the economic consequences for the UK economy of a significant shift in the burden of taxation from direct taxes to indirect taxes.
Essay stimulus. The Government has ruled out the possibility of a rise in VAT before 2020 but other indirect taxes may increase. It has also stated that the personal income tax allowance will be increased from £10 800 in 2015/16 to £12 500 by 2020, and plans to cut the main rate of corporation tax from 20% to 17%.
TopicFiscal policy and supply-side policiesFiscal policy & public finances
Examiner insight
- What to cover
- Indirect taxes are regressive, can raise inflation, but may improve incentives to work and save.
- Diagram
- AD/AS diagram, SRAS shift from higher indirect taxes.
- Evaluation
- Judge by effect on inequality, incentives, tax revenue and inflation.
- Watch out
- Explain direct versus indirect taxes clearly.
Question text is quoted from the question papers, © AQA, for students’ private study. Open the official papers and mark schemes from the links on each question. Examiner insights are written with AI assistance and moderated by Finn.