National and International Economy · 7136/2
AQA A-level Paper 2, June 2019
All 14 written questions from AQA A-level Paper 2 (June 2019), National and International Economy. Case studies: GDP and living standards and UK fiscal policy and taxation. 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
GDP and living standards
Extracts: What is GDP? · A happy planet?
Q1
Using the data in Extract A, calculate the GDP per capita for Costa Rica in 2015/2016 to the nearest dollar.
TopicMeasuring macroeconomic performanceGDP & national incomeLiving standards & wellbeing
Q2
Explain how the data in Extract A indicate living standards may be higher in the UK than in the USA.
TopicMeasuring macroeconomic performanceLiving standards & wellbeing
Q3
Extract B (lines 8–9) states ‘If injections into an economy’s circular flow of income increase, then this may generate multiple increases in GDP.’
With the help of a diagram, explain how an increase in injections may generate multiple increases in an economy’s GDP.
With the help of a diagram, explain how an increase in injections may generate multiple increases in an economy’s GDP.
TopicHow the macroeconomy works (AD/AS)Circular flowAggregate demand
Examiner insight
- What to cover
- An injection raises income. Part of the extra income is spent again, so GDP rises by a multiple of the injection.
- Diagram
- AD/AS diagram or circular flow diagram, with multiplier effect.
- Watch out
- State the multiplier formula: 1 divided by (1 minus MPC), or 1 divided by MPW.
Q4
Extract B (lines 13–15) states ‘If real GDP goes up, the economy is doing well; this is associated with higher incomes, more jobs and higher spending.’
Using the data in the extracts and your knowledge of economics, assess the view that to improve the living standards of their citizens, governments across the world should prioritise achieving economic growth.
Using the data in the extracts and your knowledge of economics, assess the view that to improve the living standards of their citizens, governments across the world should prioritise achieving economic growth.
TopicMeasuring macroeconomic performanceLiving standards & wellbeingEconomic growth & cycle
Examiner insight
- What to cover
- Growth raises incomes, jobs, and tax revenue for public services.
- Evaluation
- Growth may not raise living standards: inequality, environmental damage, long working hours. Compare with HDI and wellbeing data from the extracts.
- Watch out
- Use data on GDP and living standards.
Context 2
UK fiscal policy and taxation
Extracts: Deficit reduction · Scottish income tax
Q5
Using the data in Extract D (Figure 3), calculate, to the nearest pound, the amount of income tax payable for someone in Scotland earning £13 500.
TopicFiscal policy and supply-side policiesFiscal policy & public finances
Q6
Explain how the data in Extract D (Figure 2) show that the UK’s public finances have been improving since 2010.
TopicFiscal policy and supply-side policiesFiscal policy & public finances
Q7
Extract E (lines 11–12) states ‘If growth could be increased, the budget deficit would fall much faster.’
With the help of a diagram, explain why a higher rate of economic growth is likely to reduce the budget deficit.
With the help of a diagram, explain why a higher rate of economic growth is likely to reduce the budget deficit.
TopicEconomic performanceEconomic growth & cycleFiscal policy & public finances
Examiner insight
- What to cover
- Higher growth raises tax revenue (income tax, VAT, corporation tax) and lowers spending on benefits, so the deficit falls automatically.
- Diagram
- AD/AS diagram with rising real output.
- Watch out
- Explain automatic stabilisers.
Q8
Extract F (line 1) states ‘In most of the UK, reducing the budget deficit has focused on austerity rather than tax rises.’
Using the data in the extracts and your knowledge of economics, evaluate the view that there is a strong case for significant increases in UK income tax rates.
Using the data in the extracts and your knowledge of economics, evaluate the view that there is a strong case for significant increases in UK income tax rates.
TopicFiscal policy and supply-side policiesFiscal policy & public finances
Examiner insight
- What to cover
- Higher income tax raises revenue, reduces inequality and could fund public services.
- Evaluation
- Higher rates can reduce work incentives, cause tax avoidance and lower consumption (the Laffer curve). Judge using the Scottish tax data in the extracts.
- Watch out
- Use the data on Scottish tax rates.
Q9Essay 1
Explain why the value of a currency may fall in a floating exchange rate system.
Essay stimulus. Between 2014 and 2018, the pound fell by more than 20% against the dollar and euro. Some argued that this would benefit the UK’s macroeconomic performance, but others claimed that a lower exchange rate will cause problems.
TopicThe international economyExchange rates
Examiner insight
- What to cover
- A currency falls when demand for it falls or supply rises: lower interest rates, a current account deficit, lower confidence, higher inflation, speculation or capital outflows.
- Diagram
- Currency market diagram.
- Watch out
- Link each cause to demand or supply of the currency.
Q10Essay 1
Assess the view that a depreciation of the pound against other currencies is likely to improve the UK’s macroeconomic performance.
Essay stimulus. Between 2014 and 2018, the pound fell by more than 20% against the dollar and euro. Some argued that this would benefit the UK’s macroeconomic performance, but others claimed that a lower exchange rate will cause problems.
TopicThe international economyExchange ratesMacro objectives & conflicts
Examiner insight
- What to cover
- Depreciation makes exports cheaper and imports dearer, raising net exports and growth.
- Diagram
- AD/AS diagram.
- Evaluation
- It can raise inflation and lower real incomes; the Marshall-Lerner condition and J-curve. Judge by elasticity.
- Watch out
- Cover more than one macro objective.
Q11Essay 2
Explain how the monetary policy transmission mechanism works when the Monetary Policy Committee (MPC) raises Bank Rate.
Essay stimulus. Since 1998, the Bank of England has had responsibility for the operation of monetary policy and maintaining price stability. In response to the financial crisis of 2007–08, the Financial Services Act 2012 gave the Bank of England overall responsibility for financial stability. This was designed to reduce systemic risk and the impact on the real economy of problems that arise in financial markets.
TopicFinancial markets and monetary policyMoney & bankingMonetary policy & interest rates
Examiner insight
- What to cover
- A higher Bank Rate raises market interest rates. Borrowing falls, saving rises, asset prices fall and the pound strengthens. Consumption, investment and net exports fall, so AD and inflation fall.
- Diagram
- AD/AS diagram with AD shifting left.
- Watch out
- Explain each step in the chain, and mention time lags.
Q12Essay 2
Evaluate the view that strict rules and regulations on financial markets are essential to help create a more stable economy.
Essay stimulus. Since 1998, the Bank of England has had responsibility for the operation of monetary policy and maintaining price stability. In response to the financial crisis of 2007–08, the Financial Services Act 2012 gave the Bank of England overall responsibility for financial stability. This was designed to reduce systemic risk and the impact on the real economy of problems that arise in financial markets.
TopicFinancial markets and monetary policyMoney & banking
Examiner insight
- What to cover
- Regulation reduces systemic risk, moral hazard and excessive lending (capital and liquidity ratios).
- Evaluation
- Too much regulation can reduce lending, investment and growth. Judge using the 2008 financial crisis.
- Watch out
- Use real examples from the financial crisis.
Q13Essay 3
Explain the main causes of a rise in inflation.
Essay stimulus. In the past few years, CPI inflation has often differed by more than 1% from its 2% target. In the winter of 2015 the UK experienced a brief period of deflation but, more recently, inflation has been over 3%.
TopicEconomic performanceInflation & deflation
Examiner insight
- What to cover
- Demand-pull: AD rises faster than capacity. Cost-push: higher wages, energy prices, import prices or taxes. Monetary: fast growth in the money supply.
- Diagram
- AD/AS diagrams for demand-pull and cost-push.
- Watch out
- Explain both types with real causes.
Q14Essay 3
Evaluate the view that inflation is always preferable to deflation.
Essay stimulus. In the past few years, CPI inflation has often differed by more than 1% from its 2% target. In the winter of 2015 the UK experienced a brief period of deflation but, more recently, inflation has been over 3%.
TopicEconomic performanceInflation & deflation
Examiner insight
- What to cover
- Mild inflation encourages spending and makes real debt easier to repay. Deflation can cause delayed spending and a rising real burden of debt.
- Evaluation
- Some deflation is benign (productivity), and high inflation is damaging. Judge by type and level.
- Watch out
- "Always" invites counter-examples.
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.