Paper 3: Microeconomics and Macroeconomics · 9EC0/03
Edexcel A A-level Paper 3, November 2020
All 10 written questions from Edexcel A A-level Paper 3 (November 2020), Microeconomics and Macroeconomics. Case studies: Turkey – an emerging economy and The UK economy. Each question shows its marks and topic, with an examiner insight on 9, and opens the question paper and mark scheme at the right page.
Summer exams were cancelled, so this paper was sat in the autumn series. The paper itself is headed with the original May date.
Section A
Case study
Turkey – an emerging economy
Extracts: A: Can Turkey’s central bank avoid another rate rise? · B: Turkey aims to bin the plastic bag · C: Istanbul’s third airport set to be the busiest in the world
In the extracts: Turkey, Turkish, Istanbul, Brazil, GDP, Long-term+outlook&subsubtopic, International Architecture, Russia and China, Economy&subtopic, South African
Q1(a)
Explain how the Turkish central bank intervenes in the currency market to prevent ‘excessive appreciation or depreciation of the Turkish lira’ (Extract A, lines 7–8).
Mark splitKnowledge 2Application 2Analysis 1
TopicInternational economicsThe financial sector
Q1(b)
Examine two reasons why the Turkish government may want to avoid a significant fall in the exchange rate of the Turkish lira.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
Examiner insight
- What to cover
- Give two reasons and develop each. Options include imported inflation through dearer imports, the rising cost of servicing foreign currency debt, capital flight, and loss of confidence in the lira.
- Diagram
- Exchange rate diagram showing the supply of lira shifting right and the dollar price of the lira falling.
- Evaluation
- Say which risk is greatest for Turkey. Note that a weaker lira also helps exporters, so the net effect depends on the Marshall Lerner condition and on the share of debt held in dollars.
- Watch out
- Treating a falling exchange rate as automatically bad. The reasons must be specific to Turkey's dollar debt and import dependence.
Q1(c)
Discuss the likely success of policies to reduce the consumption of single‐use plastic bags in cities such as Istanbul.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicAggregate demand
Examiner insight
- What to cover
- Set out the policies: a charge or tax per bag, a ban, recycling subsidies, and information campaigns. Trace how each changes the price or availability of bags in a city such as Istanbul.
- Diagram
- Negative externality of consumption diagram with an indirect tax shifting supply left to the social optimum.
- Evaluation
- Weigh effectiveness against the low price elasticity of demand for bags, enforcement cost, substitution to other plastics, and equity. Judge by the size of the charge and the time period.
- Watch out
- Describing the policies without judging how well each works. The command word is Discuss, so a supported judgement is needed.
Q1(d)
Evaluate the likely microeconomic and macroeconomic effects of a rise in interest rates in Turkey.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicMacroeconomic objectives and policy
Examiner insight
- What to cover
- Cover both sides. Micro: higher borrowing costs raise firms' costs and cut consumer durable demand. Macro: tighter AD, lower inflation, a stronger lira, slower growth and higher unemployment.
- Diagram
- AD and AS diagram with AD shifting left, plus a cost and revenue diagram for the firm level effect.
- Evaluation
- Judge micro and macro. Depends on the interest elasticity of demand, the level of household and corporate debt, the credibility of the central bank and time lags.
- Watch out
- Only covering the macro channel. Half the marks sit in the microeconomic effects on firms and consumers.
Q1(e)
Evaluate the microeconomic and macroeconomic impact of large infrastructure projects such as the building of a third airport in Istanbul.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicAggregate demand
Examiner insight
- What to cover
- Cover both sides. Micro: construction jobs, negative externalities, land use, effects on competing airports. Macro: the multiplier and accelerator, higher LRAS, tourism receipts, opportunity cost of public funds.
- Diagram
- AD and AS diagram with AD and LRAS both shifting right.
- Evaluation
- Judge micro and macro. Depends on the multiplier size, crowding out, whether the project is financed by debt, and whether demand for the third airport actually materialises.
- Watch out
- Treating infrastructure spending as unambiguously good. The opportunity cost and the risk of white elephant projects must be weighed.
Section B
Case study
The UK economy
Extracts: D: The end of the High Street?
In the extracts: Homebase, GDP, Wesfarmers, PPPs, Aged, DIY, Mothercare and Carpetright, Ireland France Canada, Poundworld and Maplin, Italy England Spain
Q2(a)
With specific reference to Figure 3, explain why productivity is measured by ‘GDP per hour worked, nominal values at PPPs’.
Mark splitKnowledge 2Application 2Analysis 1
TopicAggregate demand
Examiner insight
- What to cover
- Output must be measured per hour, not per worker, so differences in hours worked do not distort the comparison. PPPs convert currencies at comparable purchasing power so countries can be compared directly.
- Watch out
- Explaining productivity in general rather than why each element of that specific measure is used.
Q2(b)
Apart from literacy and numeracy skills in young workers, examine one reason for the trend in productivity in the UK, over the period shown in Figure 4.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicAggregate demand
Examiner insight
- What to cover
- Choose one reason and develop it fully. Options include weak business investment since 2008, low spending on research and development, an ageing capital stock, or a shift towards low productivity service jobs.
- Evaluation
- Comment on how strong the evidence for that reason is, and note that productivity has several causes acting together.
- Watch out
- The question asks for one reason only, developed in depth. Listing several reasons briefly wastes the analysis marks.
Q2(c)
Discuss factors that are causing many high street retailers in the UK to close some branches or shut down completely. Use a cost and revenue diagram to support your answer.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicAggregate demand
Examiner insight
- What to cover
- Trace falling revenue from online competition and weak real incomes against high fixed costs of rent and business rates. Show the firm making a loss and closing branches where AR falls below AVC.
- Diagram
- Cost and revenue diagram with AR below AC, the loss area shaded, and the shut down point where AR equals AVC.
- Evaluation
- Weigh which factor matters most, short run versus long run closure, and whether some retailers adapt through an online presence. Judge by cost structure.
- Watch out
- Drawing the diagram but not using it. The loss area and the shut down condition must be referred to in the writing.
Q2(d)
Evaluate possible microeconomic and macroeconomic policies which could be used to improve UK competitiveness.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
Examiner insight
- What to cover
- Cover both sides. Micro: education and training, infrastructure, competition policy, lower business taxes. Macro: exchange rate depreciation, supply side reform, productivity growth lowering unit labour costs.
- Diagram
- LRAS shifting right, plus an exchange rate diagram for the price competitiveness route.
- Evaluation
- Judge micro and macro. Depends on time lags, the cost and opportunity cost of each policy, and whether competitiveness is price based or quality based.
- Watch out
- Listing policies without ranking them. A supported final judgement on which policy works best is required.
Q2(e)
Evaluate the microeconomic and macroeconomic effects of a decline in the literacy and numeracy skills of a country’s young workers.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicAggregate demand
Examiner insight
- What to cover
- Cover both sides. Micro: lower marginal revenue product, lower wages, reduced labour mobility, higher training costs for firms. Macro: lower productivity, weaker LRAS, reduced competitiveness and slower growth.
- Diagram
- Labour market diagram with the demand for labour shifting left, plus LRAS shifting left or growing more slowly.
- Evaluation
- Judge micro and macro. Depends on the size of the skills decline, the time period, whether firms can recruit migrants, and whether technology substitutes for low skilled work.
- Watch out
- Writing about education policy instead of the effects of the decline itself.
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.