Paper 2: The National and Global Economy · 9EC0/02
Edexcel A A-level Paper 2, June 2019
All 16 written questions and 5 multiple choice questions from Edexcel A A-level Paper 2 (June 2019), The National and Global Economy. Case studies: The UK economy since the financial crisis. 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 would be most likely to cause an increase in credit card lending?
- AA fall in interest rates
- BA fall in investment
- CAn increase in the deficit on the current account of the balance
- DAn increase in savings
Show the answer
The answer is A.
TopicAggregate demandMacroeconomic objectives and policyInternational economics
Q1(b)
Using the chart, calculate an index number for additions to credit card lending in March 2017, using January 2016 as the base. You are advised to show your working.
Mark splitApplication 2
Q1(c)
Explain one possible link between an increase in credit card lending and the rate of inflation.
Mark splitKnowledge 1Application 1
Q2(a)
Draw an aggregate demand and aggregate supply diagram to show the likely impact of an increase in government spending on infrastructure on a country’s price level and real output.
Mark splitKnowledge 2Application 2
TopicAggregate demandAggregate supply
Q2(b)
Which one of the following would be an example of government spending on infrastructure?
- Aconstruction work on new railway lines
- Binterest payments on the national debt
- Csalaries for teachers
- Dunemployment benefit payments
Show the answer
The answer is A.
TopicAggregate demandRole of the state in the macroeconomy
Q3(a)
Explain one likely reason for Estonia’s unit labour costs rising faster than in other European countries.
Mark splitKnowledge 1Analysis 1
Q3(b)
Explain how Estonia’s competitiveness could be affected by rising unit labour costs.
Mark splitKnowledge 1Analysis 1
Q3(c)
The increase in Austria’s unit labour costs between 2010 and 2017 is:
- A3%
- B11.3%
- C13%
- D113%
Show the answer
The answer is C.
Q4(a)
This would be an example of:
- Aa contractionary monetary policy
- Ban exchange rate policy
- Can expansionary monetary policy
- Da supply-side policy
Show the answer
The answer is D.
TopicMacroeconomic objectives and policyInternational economics
Q4(b)
If a company makes £500 000 pre-tax profit in 2020, calculate how much corporation tax it will pay. Assume that the government cuts the rate of corporation tax as planned.
Mark splitApplication 2
Q4(c)
Explain one possible reason why the revenue from corporation tax could increase if the government cuts the rate of tax.
Mark splitKnowledge 1Analysis 1
Q5(a)
Explain the distinction between income and wealth.
Mark splitKnowledge 2
Q5(b)
Explain one likely reason why global wealth inequality has increased.
Mark splitKnowledge 1Analysis 1
Q5(c)
Which one of the following would be most likely to reduce a country’s Gini coefficient? An increase in:
- Aimport tariffs
- Bprogressive taxes
- Cregressive taxes
- Dvalue added tax
Show the answer
The answer is B.
TopicPoverty and inequalityInternational economics
Section B
Case study
The UK economy since the financial crisis
Extracts: A: UK companies use forward currency market · B: Bank of England seeking to prevent future bank bailouts · C: Bank of England tells lenders to increase capital reserves
In the extracts: Bank of England, TFTA, Nielsen Bainbridge, GDP, Jill Treanor, Ms Burdett, Lloyds, Global Financial Crisis, Copyright Guardian News, Gemma Tetlow and Martin
Q6(a)
With reference to Extract A, explain the role of forward markets in currencies.
Mark splitKnowledge 2Application 2Analysis 1
TopicMacroeconomic objectives and policyAggregate demand
Examiner insight
- What to cover
- Explain that a forward market lets a firm agree an exchange rate now for a currency transaction at a future date. This hedges against exchange rate movements, so importers and exporters can plan costs and revenues.
- Watch out
- Confusing the forward market with the spot market, where currency is exchanged immediately.
Q6(b)
With reference to Extract A and Figure 1, examine the likely impact of the change in the sterling exchange rate on the UK economy.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
Examiner insight
- What to cover
- Read the direction of the change from Figure 1. A weaker pound raises export competitiveness and net exports, shifting AD right, while dearer imported inputs raise firms' costs and shift SRAS left, raising inflation.
- Diagram
- AD and AS diagram. Show AD shifting right and SRAS shifting left, giving a clearly higher price level and an uncertain effect on real output. Label both shifts.
- Evaluation
- Judge which effect dominates. Depends on the Marshall Lerner condition, the J curve lag, and how far UK production relies on imported components.
- Watch out
- Giving only the export benefit and ignoring the cost push inflation from dearer imports.
Q6(c)
With reference to the last paragraph in Extract C, assess the impact of a fall in real incomes on subjective happiness.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicMeasures of economic performance
Examiner insight
- What to cover
- Explain that lower real incomes cut consumption of goods and services and raise financial stress and job insecurity, so measured life satisfaction falls. Use the happiness evidence in the last paragraph of Extract C.
- Evaluation
- Weigh against the Easterlin paradox, where happiness depends on relative income and on non income factors such as health, leisure and relationships. Depends on the size and duration of the income fall.
- Watch out
- Treating real GDP per head and subjective happiness as the same thing rather than testing the link.
Q6(d)
With reference to Extract C, discuss the potential conflicts between macroeconomic objectives when the central bank attempts to control inflation.
Mark splitKnowledge 4Application 2Analysis 2Evaluation 4
TopicMacroeconomic objectives and policyThe financial sector
Examiner insight
- What to cover
- Explain that raising interest rates to cut inflation reduces consumption and investment, shifting AD left. Inflation falls but growth slows and unemployment rises. A stronger pound also worsens the current account.
- Diagram
- Short run Phillips curve showing the inflation and unemployment trade off, or an AD and AS diagram with AD shifting left, a lower price level and lower real output. Label both axes.
- Evaluation
- Weigh the inflation gain against lost output and jobs. Depends on whether inflation is demand pull or cost push, on policy time lags, and on whether LRAS can shift right to ease the conflict.
- Watch out
- Naming the conflicting objectives without explaining the mechanism that puts them in conflict.
Q6(e)
Discuss whether providing substantial government financial support to banks is the best policy response during a financial crisis.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicThe financial sector
Examiner insight
- What to cover
- Explain bailouts and recapitalisation restoring bank liquidity and confidence, preventing bank runs, keeping credit flowing to firms and households, and so limiting the fall in investment, AD and employment.
- Diagram
- AD and AS diagram showing AD falling sharply in the crisis, with support limiting the leftward shift. Label real output and the price level before and after.
- Evaluation
- Weigh against moral hazard, the opportunity cost of public funds and a larger deficit. Compare with quantitative easing, interest rate cuts, tighter regulation or letting banks fail. Judge which is best.
- Watch out
- Describing the bailouts without comparing them to other policy responses, which the word best requires.
Section C
Q7
Three of Africa’s main trading blocs have agreed to form the Tripartite Free Trade Agreement (TFTA). This will create one of the world’s largest free trade areas, stretching across 26 countries with a combined GDP of around £1 trillion. (Source: https://uk.reuters.com/article/uk-africa-trade/mega-african-trade-bloc- paves-way-for-continental-commerce-idUKKBN0OR28M20150611) Evaluate the effects of the growth of trading blocs such as the TFTA on global trading patterns.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
Examiner insight
- What to cover
- Explain trade creation inside the TFTA as tariffs fall, so members specialise by comparative advantage and intra bloc trade rises. Then explain trade diversion away from cheaper non members facing the common external tariff.
- Diagram
- Tariff diagram for a member market, showing the external tariff raising the import price so trade shifts from a low cost non member to a higher cost member. Label the price and import change.
- Evaluation
- Weigh trade creation against trade diversion and the harm to non members. Depends on whether members have similar or different comparative advantages and on the external tariff level. Judge the net effect.
- Watch out
- Explaining the general benefits of free trade without distinguishing trade creation from trade diversion.
Q8
Japan’s budget deficit for 2017/18 is expected to be 4.6% of GDP. Its national debt is forecast to increase to above 250% of GDP by 2019. Evaluate the impact of a large fiscal deficit and national debt on a country’s economy.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicRole of the state in the macroeconomyMacroeconomic objectives and policy
Examiner insight
- What to cover
- Explain that deficit spending raises AD and real output in the short run with a multiplier. Then explain rising debt interest payments, their opportunity cost, crowding out of private investment, and a possible credit rating downgrade.
- Diagram
- AD and AS diagram with AD shifting right and a higher price level, or a loanable funds diagram showing government borrowing raising interest rates and crowding out private investment. Label clearly.
- Evaluation
- Weigh short run support for growth against long run debt servicing and the burden on future taxpayers. Depends on interest rates, who holds the debt, since Japan's is mostly domestic, and on whether spending raises capacity.
- Watch out
- Confusing the deficit, a yearly flow, with the national debt, the stock built up over time.
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.