Paper 2: The National and Global Economy · 9EC0/02
Edexcel A A-level Paper 2, June 2017
All 13 written questions and 5 multiple choice questions from Edexcel A A-level Paper 2 (June 2017), The National and Global Economy. Case studies: The Eurozone economy. Each question shows its marks and topic, with an examiner insight on 7, and opens the question paper and mark scheme at the right page.
Section A
Q1(a)
Which one of the following types of unemployment best explains the change in the data between 2008 and 2010?
- ACyclical
- BFrictional
- CSeasonal
- DVoluntary
Show the answer
The answer is A.
Q1(b)
Explain the likely effects on the circular flow of income of the change in unemployment between 2013 and 2015.
Mark splitKnowledge 2Application 1Analysis 1
TopicNational income
Q2(a)
Explain one possible reason for the changes in the marginal propensity to save as shown in the table.
Mark splitKnowledge 2
TopicAggregate demand
Q2(b)
Explain the likely effect of a fall in the marginal propensity to save on the value of the multiplier if other things remain equal.
Mark splitKnowledge 2
TopicAggregate demand
Q2(c)
Which one of the following is the correct size of the multiplier?
- A0.4
- B0.6
- C1.7
- D2.5
Show the answer
The answer is D.
TopicAggregate demand
Q3(a)
Which one of the following statements is correct about the UK’s inflation record between September 2011 and January 2013? Based on the data shown, the UK experienced:
- Adeflation
- Bdisinflation
- Cfalling average prices
- Dfalling money supply
Show the answer
The answer is B.
Q3(b)
With reference to the data provided, explain the process of calculating the rate of inflation in the UK using the Consumer Prices Index. Refer to the concept of weights in your answer.
Mark splitKnowledge 2Application 1Analysis 1
Q4(a)
Explain one likely reason for the change in UK income inequality since 2007.
Mark splitApplication 3Analysis 1
Q4(b)
Which one of the following values for the Gini coefficient is correct if there is perfect income equality?
- A0
- B0.5
- C1
- D50:50
Show the answer
The answer is A.
Q5(a)
Which one of the following statements can be deduced from the data in the table?
- AAverage incomes are higher in India than in Vietnam.
- BLevels of absolute poverty are higher in Vietnam.
- CLife expectancy is higher in India than in Vietnam.
- DProvision of healthcare and education is less effective in Vietnam than
Show the answer
The answer is A.
Q5(b)
With reference to the data provided, explain two limitations of using the HDI to compare levels of development between countries and over time.
Mark splitKnowledge 2Application 1Analysis 1
Section B
Case study
The Eurozone economy
Extracts: A: European Central Bank disappoints markets with weaker than expected stimulus
In the extracts: Eurozone, ECB, European Central Bank, Mr Draghi, Year, Italian and Spanish, Education Ltd, Mario Draghi, Exchange, Consumer
Q6(a)
With reference to Figure 1, calculate the percentage change in the value of the euro in pounds from the start of 2009 to the start of 2015.
Mark splitKnowledge 1Application 2Analysis 2
TopicThe financial sectorMacroeconomic objectives and policy
Examiner insight
- What to cover
- Read the euro value in pounds at the start of 2009 and at the start of 2015 from Figure 1. Use change divided by the 2009 value times 100. Show working and state the direction of change.
- Watch out
- Dividing by the 2015 value instead of the 2009 starting value, or dropping the minus sign on a fall.
Q6(b)
With reference to the information provided and your own knowledge, examine two factors which might explain the change in the rate of Eurozone inflation as shown in Figure 2.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicThe financial sectorMacroeconomic objectives and policy
Examiner insight
- What to cover
- Take two factors. Falling world oil prices cut firms' costs and shift SRAS right, lowering the price level. Weak demand, high unemployment and spare capacity hold back demand pull pressure on prices.
- Diagram
- AD and AS diagram for the Eurozone. Show SRAS shifting right with weak AD, giving a lower price level. Label the price level and real output changes.
- Evaluation
- Judge which factor explains more of the change in Figure 2. Depends on the weight of energy in the price index and on whether the effect is temporary, since oil price falls drop out of the annual rate.
- Watch out
- Confusing a fall in the inflation rate with deflation, which requires a falling price level.
Q6(c)
Since mid-2015 the euro has appreciated. Assess the likely impact of an appreciation of the euro on the current account of the balance of payments for Eurozone countries.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicInternational economicsMeasures of economic performance
Examiner insight
- What to cover
- Use the chain: a stronger euro makes Eurozone exports dearer in foreign currency and imports cheaper in euros. Export volumes fall and import volumes rise, worsening the trade balance and the current account.
- Evaluation
- Apply the Marshall Lerner condition, since the current account worsens only if combined demand elasticities exceed one. The J curve means the effect is slow. Depends on elasticities and world growth.
- Watch out
- Stating the current account must worsen without testing it against the Marshall Lerner condition.
Q6(d)
Discuss the likely success of the ECB’s quantitative easing programme in moving Eurozone inflation closer to ‘the central bank’s ceiling of 2%’ (Extract A, line 17).
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicMacroeconomic objectives and policyThe financial sector
Examiner insight
- What to cover
- Explain quantitative easing: the ECB buys bonds, raising their price and lowering yields, increasing bank reserves and lending, weakening the euro, and raising AD so the price level moves towards the 2% target.
- Diagram
- AD and AS diagram. Show AD shifting right along an upward sloping SRAS, with the price level rising towards target and real output increasing. Label the negative output gap closing.
- Evaluation
- Weigh against banks holding reserves instead of lending, weak confidence, liquidity trap conditions, and falling oil prices offsetting the effect. Depends on the size of the programme and on time lags.
- Watch out
- Describing quantitative easing as printing cash for government spending rather than asset purchases that lower yields.
Q6(e)
Discuss ‘looser fiscal policy’ and ‘supply-side reforms’ (Extract A, lines 20 and 21) that may be used by governments of Eurozone countries to increase economic growth.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicEconomic growthMacroeconomic objectives and policy
Examiner insight
- What to cover
- Explain looser fiscal policy raising AD through higher spending or tax cuts, with a multiplier effect. Then explain supply side reforms, such as labour market deregulation and training, shifting LRAS right and raising capacity.
- Diagram
- AD and LRAS diagram. Show AD shifting right for the fiscal policy and LRAS shifting right for the supply side reform, labelling the price level and real output effect of each.
- Evaluation
- Weigh short run demand effects against long run capacity gains. Eurozone debt rules limit fiscal looseness and it may be inflationary, while supply side reform takes years. Judge which works better.
- Watch out
- Treating supply side reforms as extra government spending, so the LRAS curve is never shifted.
Section C
Q7
Since the global financial crisis of 2008 there have been over 5 700 increases in tariffs, quotas and administrative controls on international trade. Evaluate the likely effects of an increase in protectionism on the economy of a developing country of your choice.
TopicInternational economicsEmerging and developing economiesThe financial sector
Examiner insight
- What to cover
- Choose a named developing country. Explain tariffs and quotas raising the price of its exports abroad, cutting export volumes, worsening the current account, lowering AD and slowing growth in a primary export dependent economy.
- Diagram
- Tariff diagram for the importing market. Show world supply, the tariff raising price, domestic output rising and imports falling. Label government revenue and the welfare loss triangles.
- Evaluation
- Weigh export losses against protection helping infant industries diversify away from primary products. Depends on which goods are hit, elasticity of demand for exports, and access to other markets. Judge overall.
- Watch out
- Writing only about the country imposing the tariff rather than the developing country losing export sales.
Q8
Global oil prices fell from a 2008 peak of $147 a barrel to $27 in 2016. Evaluate the likely macroeconomic consequences of a significant fall in global oil prices.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
Examiner insight
- What to cover
- Split importers from exporters. For oil importers, lower input costs shift SRAS right, cutting inflation and raising real output and real incomes, which lifts consumption. For oil exporters, export revenue and tax receipts fall.
- Diagram
- AD and AS diagram with SRAS shifting right, giving a lower price level and higher real output. Add AD shifting right from higher real incomes. Label the price level and output changes.
- Evaluation
- Weigh importers' gains against exporters' losses, deflation risk, and cancelled investment in oil and renewable projects. Depends on how long prices stay low and whether savings are spent. Give a judgement.
- Watch out
- Treating the fall as good for every economy without separating oil importers from oil exporters.
Question text is quoted from the question papers, © Pearson Edexcel, 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.