The National Economy in a Global Context · 7135/2

AQA AS Paper 2, June 2017

All 12 written questions and 20 multiple choice questions from AQA AS Paper 2 (June 2017), The National Economy in a Global Context. Case studies: Managing the UK economy and UK wages and competitiveness. Each question shows its marks and topic, with an examiner insight on 4, and opens the question paper and mark scheme at the right page.

Question paper Mark scheme Insert

Context 1

Managing the UK economy

Extracts: Lending to households and businesses, annual percentage change, · Consumer borrowing is rising · Is history repeating itself?

Q21Define3 marks

Define the term ‘real interest rate’ Extract B (line 5).

TopicFinancial markets and monetary policyMonetary policy & interest rates

Question paper p.12 Mark scheme p.6 Insert p.1 Open in the tool

Q22Calculate4 marks

The price of a television is £500 without VAT. Use Extract C to calculate the decrease in the amount of VAT that would have to be paid on this television as a result of the tax cut introduced by Alistair Darling.

TopicFiscal policy and supply-side policiesFiscal policy & public finances

Question paper p.13 Mark scheme p.7 Insert p.1 Open in the tool

Q23Identify4 marks

Use Extract A to identify two significant points of comparison between the growth of mortgage lending and the growth of consumer credit over the period shown.

TopicFinancial markets and monetary policyMoney & bankingAggregate demand

Question paper p.13 Mark scheme p.8 Insert p.1 Open in the tool

Q24Draw4 marks

Extract B (lines 8–10) states ‘House prices have been rising over the past few years and this has increased homeowners’ wealth.’
Draw an AD/AS diagram to show the impact of an increase in household wealth on both real national income and the price level.

TopicHow the macroeconomy works (AD/AS)Aggregate demand

Question paper p.14 Mark scheme p.9 Insert p.1 Open in the tool Draw it: AD/AS diagram

Q25Explain10 marks

Extract B (line 12) states ‘The average debt per household, including mortgages, was £53 904 in December 2015.’
Explain two factors that influence the willingness of UK households to borrow.

TopicHow the macroeconomy works (AD/AS)Aggregate demandMonetary policy & interest rates

Examiner insight

What to cover: Factors: interest rates, consumer confidence, income, house prices and wealth, and availability of credit.
Watch out: Explain two factors clearly.

Question paper p.15 Mark scheme p.10 Insert p.1 Open in the tool

Q26Assess25 marks

Extract C (lines 13–15) states ‘A tighter fiscal policy was adopted to reduce the budget deficit. Meanwhile, loose monetary policy was used to bring about a recovery of the UK economy.’
Use the extracts and your knowledge of economics to assess the contribution that fiscal policy and monetary policy can make in sustaining the recovery of an economy, such as the UK.

TopicFinancial markets and monetary policyMonetary policy & interest ratesFiscal policy & public finances

Examiner insight

What to cover: Tight fiscal policy reduced AD; loose monetary policy raised AD.
Diagram: AD/AS diagram.
Evaluation: Judge each policy's contribution using the data.
Watch out: Use the extracts.

Question paper p.17 Mark scheme p.11 Insert p.1 Open in the tool Practise the AD/AS diagram

Context 2

UK wages and competitiveness

Extracts: UK balance of payments on current account, January 2014 to · Balance of payments problems · Productivity and competitiveness

Q27Define3 marks

Define the term ‘deficit on the balance of trade in goods and services’ Extract E (line 14).

TopicThe international economyBalance of payments

Question paper p.22 Mark scheme p.12 Insert p.1 Open in the tool

Q28Calculate4 marks

Use Extract E to calculate, to two decimal places, the percentage change in the median real wage between 2004 and 2015.

TopicMeasuring macroeconomic performanceLiving standards & wellbeingPrice indices & inflation measurement

Question paper p.22 Mark scheme p.13 Insert p.1 Open in the tool

Q29Identify4 marks

Use Extract D to identify two significant points of comparison between the balance of trade in goods and the balance of trade in services over the period shown.

TopicThe international economyBalance of paymentsTrade & comparative advantage

Question paper p.23 Mark scheme p.14 Insert p.1 Open in the tool

Q30Draw4 marks

Extract E (lines 1-2) states ‘...the causes include a stronger pound, higher energy prices’.
Draw an AD/AS diagram to show the impact of higher energy prices on the price level and real output.

TopicHow the macroeconomy works (AD/AS)Aggregate supplyInflation & deflation

Question paper p.24 Mark scheme p.15 Insert p.1 Open in the tool Draw it: AD/AS diagram

Q31Explain10 marks

Extract F (lines 7–8) states ‘productivity remains a key issue in improving competitiveness and aiding the recovery of the economy.’
Explain two factors that may have contributed to low productivity in the UK.

TopicHow the macroeconomy works (AD/AS)Aggregate supplyProductivity & efficiency

Examiner insight

What to cover: Factors: low investment, skills gaps, poor infrastructure, low R&D, and weak management.
Watch out: Explain two factors clearly.

Question paper p.25 Mark scheme p.16 Insert p.1 Open in the tool

Q32Assess25 marks

Extract F (lines 16-17) states ‘there is much to be done if the UK is to pay its way with the rest of the world.’
Use the extracts and your knowledge of economics to assess the policies that could be used to reduce the UK’s balance of trade deficit.

TopicThe international economyBalance of paymentsTrade & comparative advantage

Examiner insight

What to cover: Policies: expenditure-switching (depreciation), expenditure-reducing, and supply-side policies.
Diagram: AD/AS diagram.
Evaluation: Judge by side effects and time. Use the data.
Watch out: Use the extracts.

Question paper p.27 Mark scheme p.17 Insert p.1 Open in the tool

Q11 mark

In the circular flow of income model, which one of the following is an injection?

AConsumer spending
BGovernment spending
CImports
DWages

Show the answer

The answer is B.

TopicHow the macroeconomy works (AD/AS)Circular flow

Question paper p.2 Mark scheme p.3 Open in the tool

Q21 mark

The diagrams below show the aggregate demand (AD) and short run aggregate supply (SRAS) curves for an economy. AD1 and SRAS1 show the initial positions of the curves and AD2 and SRAS2 the new positions.
Which one of the following diagrams, A, B, C or D, illustrates a fall in world commodity prices as well as a fall in government spending?

A(see diagram in paper)
B(see diagram in paper)
C(see diagram in paper)
D(see diagram in paper)

Show the answer

The answer is B.

TopicHow the macroeconomy works (AD/AS)Aggregate demandAggregate supplyFiscal policy & public finances

Question paper p.3 Mark scheme p.3 Open in the tool Practise the AD/AS diagram

Q31 mark

Which one of the following is not part of the role of the Monetary Policy Committee of the Bank of England?

AAchieving the target rate of inflation
BChanging Bank Rate
CReviewing various pieces of macroeconomic data
DSetting the target rate for inflation

Show the answer

The answer is D.

TopicFinancial markets and monetary policyMonetary policy & interest rates

Question paper p.4 Mark scheme p.3 Open in the tool

Q41 mark

The table below shows the components of gross domestic product (GDP) for an economy in 2016.
£bn Consumption 850 Imports 210 Government expenditure 300 Investment 180 Exports 230 Aggregate demand in the economy is

A£1310bn
B£1350bn
C£1560bn
D£1770bn

Show the answer

The answer is B.

TopicHow the macroeconomy works (AD/AS)Aggregate demand

Question paper p.4 Mark scheme p.3 Open in the tool

Q51 mark

Which one of the following would be most likely to generate growth in an economy without producing an increase in inflation?

AA decrease in the exchange rate
BAn increase in labour productivity
CAn increase in the budget surplus
DAn increase in the rate of interest

Show the answer

The answer is B.

TopicEconomic performanceEconomic growth & cycleInflation & deflation

Question paper p.5 Mark scheme p.3 Open in the tool

Q61 mark

Which one of the following is an objective of UK government macroeconomic policy?

AA fall in the supply of money
BA stable labour force
CAn increase in real GDP per head
DLow interest rates

Show the answer

The answer is C.

TopicEconomic performanceMacro objectives & conflicts

Question paper p.5 Mark scheme p.3 Open in the tool

Q71 mark

The table below shows annual income before tax for three different households and the total annual amount of income tax that each household pays.
Household income Income tax before tax £18 000 £7 000 £40 000 £12 000 £80 000 £22 400 This income tax is

Aflat rate.
Bprogressive.
Cproportional.
Dregressive.

Show the answer

The answer is D.

TopicFiscal policy and supply-side policiesFiscal policy & public finances

Question paper p.6 Mark scheme p.3 Open in the tool

Q81 mark

The annual rate of change in the consumer prices index for an economy falls from 6% to 3%. All other things being equal, this economy is best described as

Aentering a positive output gap.
Bentering a recovery period.
Cexperiencing deflation.
Dexperiencing disinflation.

Show the answer

The answer is D.

TopicEconomic performanceInflation & deflation

Question paper p.6 Mark scheme p.3 Open in the tool

Q91 mark

Which one of the following represents investment expenditure?

AA firm spends £7m on new computer software
BA government spends £10m more on nurses wages
CA household puts £10 000 into an interest paying account
DAn individual spends £28 000 buying company shares

Show the answer

The answer is A.

TopicHow the macroeconomy works (AD/AS)Aggregate demand

Question paper p.7 Mark scheme p.3 Open in the tool

Q101 mark

The diagram below shows the initial short run aggregate supply curve (SRAS1) and long run aggregate supply curve (LRAS1) for an economy. SRAS2 and LRAS2 are the new positions of the two aggregate supply curves.
The most likely combination of causes of the shifts in the short run and long run aggregate supply curves is

Aa fall in indirect tax and a fall in skill levels.
Ba fall in money wages and a rise in immigration.
Ca fall in productivity and a rise in emigration.
Dan increase in oil prices and more investment in renewable energy.

Show the answer

The answer is B.

TopicHow the macroeconomy works (AD/AS)Aggregate supply

Question paper p.7 Mark scheme p.3 Open in the tool Practise the AD/AS diagram

Q111 mark

All other things being equal, under which of the following circumstances is an economy most likely to experience deflation?
Labour Exchange rate Employment productivity

AFalling Falling Rising
BFalling Rising Falling
CRising Falling Rising
DRising Rising Falling

Show the answer

The answer is D.

TopicEconomic performanceInflation & deflation

Question paper p.8 Mark scheme p.3 Open in the tool

Q121 mark

In an economy, the government reduced its spending by £4bn at the same time as exports rose by £20bn. As a result of these changes, national income rose by £20bn. The size of the multiplier is

A0.75
B1
C1.2
D1.25

Show the answer

The answer is D.

TopicHow the macroeconomy works (AD/AS)Aggregate demand

Question paper p.8 Mark scheme p.3 Open in the tool

Q131 mark

An economy has a surplus on the current account of its balance of payments.
Under which of the following circumstances is the economy most likely to experience a reduction in its current account surplus?
Growth in the Domestic Domestic world economy inflation productivity

AFalling Rising Falling
BFalling Falling Falling
CRising Falling Falling
DRising Rising Rising

Show the answer

The answer is A.

TopicThe international economyBalance of payments

Question paper p.8 Mark scheme p.3 Open in the tool

Q141 mark

Which one of the following policy changes represents a contractionary fiscal policy?

AA decrease in income tax
BA decrease in the budget deficit
CAn increase in government spending
DAn increase in the rate of interest

Show the answer

The answer is B.

TopicFiscal policy and supply-side policiesFiscal policy & public finances

Question paper p.9 Mark scheme p.3 Open in the tool

Q151 mark

Changes are regularly made to the weights used in the UK’s Consumer Prices Index. This means that the index takes account of changes in

Amonth on month increases in the general price level.
Bspending patterns throughout the economy.
Cthe growth of real output in the economy.
Dtotal spending on all domestic goods and services.

Show the answer

The answer is B.

TopicMeasuring macroeconomic performancePrice indices & inflation measurement

Question paper p.9 Mark scheme p.3 Open in the tool

Q161 mark

The diagram below shows two production possibility frontiers (PPF) for an economy.
Which one of the following movements represents an economy that has experienced short-run but not long-run economic growth?

AA to B
BA to C
CB to C
DC to D

Show the answer

The answer is C.

TopicEconomic performanceEconomic growth & cyclePPB / PPC

Question paper p.10 Mark scheme p.3 Open in the tool Practise the PPF diagram

Q171 mark

The table below shows four possible combinations of circumstances facing the UK economy. All other things being equal, which one of the following combinations is most likely to lead the Monetary Policy Committee of the Bank of England to lower Bank Rate?
Output gap Exchange rate Inflation rate

ANegative Falling Above target
BNegative Rising Below target
CPositive Falling Below target
DPositive Rising Above target

Show the answer

The answer is B.

TopicFinancial markets and monetary policyMonetary policy & interest rates

Question paper p.10 Mark scheme p.3 Open in the tool

Q181 mark

Which one of the following is most likely to reduce cyclical unemployment in the UK?

AA cut in the UK budget deficit
BAn increase in the pound sterling exchange rate
CAn increase in the UK retirement age
DHigher economic growth in the Eurozone

Show the answer

The answer is D.

TopicEconomic performanceUnemployment

Question paper p.11 Mark scheme p.3 Open in the tool

Q191 mark

All other things remaining the same, which one of the following events would directly increase the size of the UK’s national debt? An increase in

Amortgage borrowing from UK banks.
Boverseas lending to UK firms.
Cthe UK’s current account deficit.
Dthe UK government’s budget deficit.

Show the answer

The answer is D.

TopicFiscal policy and supply-side policiesFiscal policy & public finances

Question paper p.11 Mark scheme p.3 Open in the tool

Q201 mark

Which one of the following is most likely to improve the supply-side performance of an economy? An increase in

Agovernment spending on welfare benefits.
Bgrowth in the rest of the world.
Clabour productivity.
Dthe basic rate of income tax.

Show the answer

The answer is C.

TopicFiscal policy and supply-side policiesSupply-side policies

Question paper p.11 Mark scheme p.3 Open in the tool

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.

Managing the UK economy

Examiner insight

Examiner insight

UK wages and competitiveness

Examiner insight

Examiner insight

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