Paper 2: The UK Economy – Performance and Policies · 8EC0/02
Edexcel A AS Paper 2, June 2017
All 15 written questions and 5 multiple choice questions from Edexcel A AS Paper 2 (June 2017), The UK Economy – Performance and Policies. Case studies: UK economic recovery. Each question shows its marks and topic, with an examiner insight on 6, and opens the question paper and mark scheme at the right page.
Section A
Q1(a)
Calculate the percentage change in the UK Consumer Prices Index from September 2014 to September 2015. You are advised to show your working.
Mark splitApplication 2
Q1(b)
Define the term ‘deflation’.
Mark splitKnowledge 1
Q1(c)
Which one of the following is most likely to be a cause of deflation? A fall in:
- Aoil prices
- Bunemployment
- Cincome tax rates
- Dinterest rates
Show the answer
The answer is A.
TopicMeasures of economic performanceMacroeconomic objectives and policy
Q2(a)
With reference to the statement above, explain the term ‘under-employment’.
Mark splitKnowledge 1Application 1Analysis 1
Q2(b)
Which one of the following is the most likely reason for a fall in the unemployment rate?
- AIncreasing unemployment benefit payments
- BDecreasing real GDP
- CDecreasing funding for apprenticeships
- DIncreasing consumer spending
Show the answer
The answer is D.
Q3(a)
Which one of the following can be inferred from the chart?
- AThe UK’s real GDP is smaller in 2014 than it was in 2008
- BBetween 2008 and 2014 France’s real GDP growth rate was higher
- CBetween 2008 and 2014 inflation was lower in France than in the UK
- DFrance experienced a greater fall in real GDP than the UK in 2014
Show the answer
The answer is B.
Q3(b)
Define the term ‘real GDP’.
Mark splitKnowledge 2
Q3(c)
Illustrate a negative output gap on the diagram below.
Mark splitKnowledge 1
TopicNational income
Q4(a)
Annotate the aggregate demand and aggregate supply diagram below to show the likely impact of the increase in the personal allowance on the UK’s price level and real output.
Mark splitApplication 2
TopicAggregate demandAggregate supply
Q4(b)
Define the term ‘direct tax’.
Mark splitKnowledge 1
Q4(c)
Which one of the following is an example of a direct tax?
- AValue Added Tax
- BVehicle Excise Duty
- CCorporation tax
- DAlcohol duty
Show the answer
The answer is C.
Q5(a)
Explain one likely reason for the change in consumer confidence between 2012 and 2015.
Mark splitKnowledge 1Application 1Analysis 1
TopicAggregate demand
Q5(b)
Which one of the following is most likely to result from an improvement in UK consumer confidence? A decrease in the marginal propensity to:
- Aconsume
- Btax
- Cimport
- Dsave
Show the answer
The answer is D.
TopicAggregate demand
Section B
Case study
UK economic recovery
Extracts: A: The UK economy – a strange recovery
In the extracts: GDP, PPPs, Chancellor, Exports, Germany, Country Consumption Investment, Purchasing Power Parities, Global Financial Crisis, France Germany United, Office for Budget
Q6(a)
With reference to Figure 1, explain the term ‘net trade’.
Mark splitKnowledge 2Application 2
TopicMeasures of economic performanceAggregate demandEconomic growth
Q6(b)
With reference to the information provided and your own knowledge, assess the likely causes of the UK’s trade deficit.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicMeasures of economic performance
Examiner insight
- What to cover
- Give causes such as weak relative productivity and competitiveness, a strong pound, strong domestic demand pulling in imports, and weak demand in export markets. Link each to the data.
- Evaluation
- Weigh which cause matters most. The effect depends on the price elasticity of demand for exports and imports, and on whether the cause is cyclical or structural. Judge.
- Watch out
- Confusing the trade deficit on the current account with a government budget deficit.
Q6(c)
With reference to Extract A, paragraph 2, explain one likely influence on UK investment.
Mark splitKnowledge 1Application 2Analysis 2
TopicAggregate demand
Examiner insight
- What to cover
- Take one influence from Extract A paragraph 2, such as business confidence, interest rates or expected demand. Explain the chain from it to the expected return on capital and then to investment.
- Watch out
- Listing several influences briefly rather than explaining one in a full chain of reasoning.
Q6(d)
With reference to Figure 2 and Extract A, explain two likely reasons why the growth of the UK’s nominal GDP per capita at PPPs was slower than that of Germany after 2010.
Mark splitKnowledge 2Application 2Analysis 2
TopicMeasures of economic performance
Examiner insight
- What to cover
- Use Figure 2 and Extract A. Give two reasons, such as weaker UK productivity growth and faster UK population growth, which spreads output over more people.
- Watch out
- Comparing total GDP growth when the measure is GDP per capita at purchasing power parity.
Q6(e)
Evaluate policies the government could use to increase the UK’s productivity.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicMeasures of economic performanceAggregate demandEconomic growth
Examiner insight
- What to cover
- Cover supply side policies such as investment in education and training, infrastructure spending, tax incentives for capital investment and support for research. Explain how each raises output per worker.
- Diagram
- Aggregate demand and aggregate supply with LRAS shifting right, showing higher potential output and a lower price level.
- Evaluation
- Weigh long time lags and the opportunity cost of the spending against lasting productivity gains. Results depend on the quality of training and whether firms actually invest. Judge.
- Watch out
- Offering demand side policies such as an interest rate cut when the aim is higher productivity.
Q6(f)
Evaluate the benefits of economic growth to the UK given that ‘a number of concerns remain’ in the UK economy (Extract A, line 7).
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
TopicEconomic growth
Examiner insight
- What to cover
- Explain how growth raises real incomes, employment, profits and tax revenue, using the UK recovery in Extract A. Show AD or LRAS rising and the multiplier spreading the gain.
- Diagram
- AD/AS: AD shifts right, or LRAS shifts right. Label price level, real GDP, initial and new equilibrium.
- Evaluation
- Weigh the benefits against demand-pull inflation, wider inequality, a bigger current account deficit and pollution. Depends on spare capacity and on whether growth is demand led or supply led.
- Watch out
- Do not simply list benefits; the remaining UK concerns in Extract A must drive the judgement.
Q6(g)
Evaluate the view that another recession is ‘inevitable’ in the UK (Extract A, line 24).
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
TopicEconomic growth
Examiner insight
- What to cover
- Define recession as two consecutive quarters of falling real GDP. Explain triggers from Extract A such as weak confidence, falling investment, external shocks and the business cycle lowering AD.
- Diagram
- AD/AS: AD shifts left. Label the fall in real GDP, the lower price level and the negative output gap.
- Evaluation
- Weigh against policy that can prevent one: rate cuts, fiscal stimulus and automatic stabilisers. Depends on the size of the shock, remaining policy room and time lags.
- Watch out
- Judge whether a recession is inevitable rather than just listing possible causes of one.
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.