National and International Economy · 7136/2
AQA A-level Paper 2, June 2018
All 14 written questions from AQA A-level Paper 2 (June 2018), National and International Economy. Case studies: The UK’s trade balance and Monetary policy and stability. 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
The UK’s trade balance
Extracts: The UK’s trade deficit · Germany’s trade surplus
Q1
Using the data in Extract A (Figure 1), calculate the change in the effective exchange rate index, as a percentage, between November 2015 (point A) and November 2016 (point B). Give your answer to two decimal places.
TopicThe international economyExchange rates
Q2
Extract B describes the trade figures as ‘disappointing’.
Explain how the data in Extract A (Figure 2) show that the UK’s trade performance has been ‘disappointing’ given the fall in the value of the pound since November 2015.
Explain how the data in Extract A (Figure 2) show that the UK’s trade performance has been ‘disappointing’ given the fall in the value of the pound since November 2015.
TopicThe international economyTrade & comparative advantage
Q3
Extract C (lines 8–9) states ‘Trade deficits and surpluses may be self- correcting in a floating exchange rate system.’
With the help of a diagram showing the supply of and demand for a currency, explain how a floating exchange rate may help to correct a trade surplus.
With the help of a diagram showing the supply of and demand for a currency, explain how a floating exchange rate may help to correct a trade surplus.
TopicThe international economyTrade & comparative advantageExchange rates
Examiner insight
- What to cover
- A trade surplus means high demand for the currency, so it appreciates. Exports become dearer and imports cheaper, which reduces the surplus.
- Diagram
- Currency market diagram: demand for the currency shifts right, exchange rate rises.
- Watch out
- The question asks for a diagram showing supply of and demand for the currency. Use the correct axes.
Q4
Extract B (lines 19–21) states ‘Although some argue that a current account deficit is not a problem, others point to the worryingly large and persistent nature of the deficit.’
Using the data in the extracts and your knowledge of economics, assess the impact of a persistent current account deficit on the macroeconomic performance of the UK economy.
Using the data in the extracts and your knowledge of economics, assess the impact of a persistent current account deficit on the macroeconomic performance of the UK economy.
TopicThe international economyBalance of payments
Examiner insight
- What to cover
- A persistent deficit can mean weak competitiveness, rising foreign debt and pressure on the exchange rate.
- Diagram
- AD/AS diagram with lower net exports.
- Evaluation
- Consider how it is financed (FDI inflows), whether it reflects strong consumer demand, and the floating pound. Judge using the extract data.
- Watch out
- Show understanding that the deficit can be sustainable.
Context 2
Monetary policy and stability
Extracts: Financial regulation and monetary policy · A new financial crisis?
Q5
Using the data in Extract D (Figure 4), calculate the average amount saved per household in 2016 if average household income was £26 300. Give your answer to the nearest pound.
TopicHow the macroeconomy works (AD/AS)Aggregate demand
Q6
Explain how the data in Extract D (Figures 3 and 4) show that consumer confidence may have risen since 2014.
TopicHow the macroeconomy works (AD/AS)Aggregate demand
Q7
Extract E (lines 16–17) states ‘However, some argue that trying to maintain stable prices and low unemployment could create trade-offs.’
With the help of a diagram, explain why a trade-off between price stability and low unemployment might occur.
With the help of a diagram, explain why a trade-off between price stability and low unemployment might occur.
TopicEconomic performanceUnemploymentMacro objectives & conflicts
Examiner insight
- What to cover
- Lower unemployment means a tighter labour market, so wages rise faster. Higher costs push up prices. To cut inflation, AD must fall, which raises unemployment.
- Diagram
- Short-run Phillips curve.
- Watch out
- Explain the cause, not just the curve.
Q8
Extract F (lines 10–12) states ‘The Austrian economist, Friedrich Hayek, highlighted artificially low interest rates and excessive credit creation as being the main causes of cyclical instability.’
Using the data in the extracts and your knowledge of economics, evaluate the view that maintaining low interest rates for a sustained period of time may be damaging to the UK’s macroeconomic stability.
Using the data in the extracts and your knowledge of economics, evaluate the view that maintaining low interest rates for a sustained period of time may be damaging to the UK’s macroeconomic stability.
TopicFinancial markets and monetary policyMonetary policy & interest rates
Examiner insight
- What to cover
- Low rates for long periods can cause asset bubbles, excess credit and debt, and little room to cut in a downturn.
- Diagram
- AD/AS diagram.
- Evaluation
- Low rates also support growth, jobs and investment. Judge by inflation expectations and financial regulation.
- Watch out
- Use Hayek's point from the extract.
Q9Essay 1
Explain the main barriers that LEDCs face when attempting to achieve stable, long-term economic growth.
Essay stimulus. An African Development Bank report showed that Angola received more direct foreign investment than any other African country in 2015. Angola is a less economically developed country (LEDC) that has had fluctuating economic growth in the past. Despite having suffered from a long civil war which ended in 2002, many multinational corporations (MNCs) are now investing heavily in Angola’s growing economy.
TopicThe international economyDevelopmentEconomic growth & cycle
Examiner insight
- What to cover
- Barriers to stable growth in LEDCs: poor infrastructure, low human capital, corruption and weak institutions, dependence on primary products with volatile prices, debt, capital flight and political instability.
- Watch out
- Explain why each barrier affects stable, long-term growth.
Q10Essay 1
Evaluate the view that MNCs play a positive role in the development of LEDCs.
Essay stimulus. An African Development Bank report showed that Angola received more direct foreign investment than any other African country in 2015. Angola is a less economically developed country (LEDC) that has had fluctuating economic growth in the past. Despite having suffered from a long civil war which ended in 2002, many multinational corporations (MNCs) are now investing heavily in Angola’s growing economy.
TopicThe international economyGlobalisationDevelopment
Examiner insight
- What to cover
- MNCs bring FDI, jobs, technology transfer, skills and tax revenue.
- Evaluation
- They may repatriate profits, avoid tax, exploit workers, damage the environment and crowd out local firms. Judge by regulation, type of investment and the host country's bargaining power.
- Watch out
- Use real examples.
Q11Essay 2
Explain how fiscal policy can be used to try to improve the supply side of an economy.
Essay stimulus. In the 2016 Autumn statement, the UK Chancellor of the Exchequer, Philip Hammond, officially abandoned the government’s policy of trying to achieve a budget surplus by 2020. While some criticise the government for failing to achieve its fiscal target, others argue that the government should be doing more to help the supply side of the economy.
TopicFiscal policy and supply-side policiesFiscal policy & public financesSupply-side policies
Examiner insight
- What to cover
- Supply-side fiscal policy: lower income tax to raise the incentive to work, lower corporation tax to raise investment, spending on education, training, infrastructure and research.
- Diagram
- LRAS shifting right.
- Watch out
- Explain how each measure increases productive capacity.
Q12Essay 2
Evaluate whether achieving a budget surplus is a desirable objective of economic policy.
Essay stimulus. In the 2016 Autumn statement, the UK Chancellor of the Exchequer, Philip Hammond, officially abandoned the government’s policy of trying to achieve a budget surplus by 2020. While some criticise the government for failing to achieve its fiscal target, others argue that the government should be doing more to help the supply side of the economy.
TopicFiscal policy and supply-side policiesFiscal policy & public financesMacro objectives & conflicts
Examiner insight
- What to cover
- A budget surplus reduces national debt and interest payments, and creates room to spend in a downturn.
- Diagram
- AD/AS diagram.
- Evaluation
- Running a surplus in a slowdown reduces AD and growth. Judge by the stage of the economic cycle and the level of debt.
- Watch out
- Link the answer to the state of the economy.
Q13Essay 3
Explain the causes of cyclical and structural unemployment.
Essay stimulus. In July 2017, more people were employed in the UK than ever before. At the same time, the UK unemployment rate fell to 4.3%, the lowest rate for 40 years. Whilst this suggests that the government’s policies for employment are working, some claim that zero-hours contracts, low real wages and temporary jobs have made many people worse off.
TopicEconomic performanceUnemployment
Examiner insight
- What to cover
- Cyclical unemployment comes from a fall in AD in a downturn. Structural unemployment comes from long-term changes in industries and a mismatch of skills or location.
- Diagram
- AD/AS diagram for cyclical; labour market or LRAS for structural.
- Watch out
- Explain both types with real examples.
Q14Essay 3
Assess the view that falling unemployment will inevitably lead to an improvement in the standard of living for people in the UK.
Essay stimulus. In July 2017, more people were employed in the UK than ever before. At the same time, the UK unemployment rate fell to 4.3%, the lowest rate for 40 years. Whilst this suggests that the government’s policies for employment are working, some claim that zero-hours contracts, low real wages and temporary jobs have made many people worse off.
TopicEconomic performanceUnemploymentLiving standards & wellbeing
Examiner insight
- What to cover
- Falling unemployment raises incomes, wellbeing and tax revenue.
- Evaluation
- Living standards may not rise if jobs are low paid, part-time or insecure, or if real wages fall. Judge using the stimulus on zero-hours contracts.
- Watch out
- Define standard of living before you judge.
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.