Paper 2: The UK Economy – Performance and Policies · 8EC0/02
Edexcel A AS Paper 2, June 2018
All 16 written questions and 5 multiple choice questions from Edexcel A AS Paper 2 (June 2018), The UK Economy – Performance and Policies. Case studies: The UK economy. 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)
Define the term ‘Gross Domestic Product’.
Mark splitKnowledge 1
Q1(b)
Calculate the UK’s GDP per capita in 2015. You are advised to show your working.
Mark splitApplication 2
Q1(c)
Which one of the following is the most likely effect of an increase in real GDP per capita?
- AIncrease in living standards
- BIncrease in unemployment
- CLower consumer confidence
- DLower purchasing power
Show the answer
The answer is A.
TopicMeasures of economic performanceAggregate demand
Q2(a)
Define the term ‘recession’.
Mark splitKnowledge 1
TopicEconomic growth
Q2(b)
Explain one characteristic of a recession.
Mark splitKnowledge 2
TopicEconomic growth
Q2(c)
Which point on the trade cycle diagram illustrates a negative output gap?
Show the answer
The answer is B. Open the question paper to read the options.
TopicNational income
Q3(a)
With reference to the chart above, explain one factor that the Monetary Policy Committee (MPC) of the Bank of England may have considered when reducing the base interest rate.
Mark splitKnowledge 1Application 1Analysis 1
Q3(b)
Which one of the following is the most likely effect of the Bank of England’s quantitative easing?
- AA fall in economic growth
- BA fall in the money supply
- CAn increase in the rate of inflation
- DAn increase in unemployment
Show the answer
The answer is C.
TopicMacroeconomic objectives and policyEconomic growth
Q4(a)
Define the term ‘aggregate demand’.
Mark splitKnowledge 1
TopicAggregate demand
Q4(b)
Annotate the diagram above to show the likely impact of a rise in the cost of raw materials on the UK’s equilibrium level of real output and price level.
Mark splitApplication 2
TopicAggregate supplyAggregate demand
Q4(c)
Which one of the following factors is most likely to cause an increase in the long-run aggregate supply?
- ADecrease in investment
- BIncrease in relative productivity
- CIncrease in the level of unemployment benefits
- DReduced access to credit for consumers and businesses
Show the answer
The answer is B.
TopicAggregate demandAggregate supply
Q5(a)
Which one of the following can be inferred from the chart? In 2016/17:
- Athe change in forecast UK government spending is highest on education
- Bthe forecast UK government spending in all areas has fallen from 2015/16
- Cthe forecast UK government spending on defence is twice as much as
- Dthe percentage change in forecast UK government spending on
Show the answer
The answer is D.
TopicAggregate demand
Q5(b)
In 2016/17 total forecast UK government spending amounted to £772 billion and total forecast tax receipts amounted to £716 billion. Calculate forecast UK government spending on social protection as a percentage of total forecast UK government spending in 2016/17. You are advised to show your working.
Mark splitApplication 2
TopicAggregate demand
Q5(c)
Define the term ‘budget deficit’.
Mark splitKnowledge 1
Section B
Case study
The UK economy
Extracts: A: Soaring house prices · B: UK migration trends in the year ending June 2016
In the extracts: ILO, First-time, Brexit, House, International Labour Organisation, Office for National Statistics, Millions ILO Claimant, Education Ltd, Unemployment, Countrywide
Q6(a)
With reference to Figure 1, explain one reason why the claimant count and the ILO measure of unemployment differ.
Mark splitKnowledge 2Application 2
Q6(b)
With reference to Extract A, assess the likely macroeconomic effects of an increase in house prices. Use an aggregate demand and aggregate supply diagram in your answer.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicAggregate demandAggregate supply
Examiner insight
- What to cover
- Higher house prices create a wealth effect and more equity withdrawal, so consumption rises. AD shifts right and the multiplier raises real GDP, employment and the price level.
- Diagram
- AD/AS: AD shifts right along an upward sloping SRAS. Label price level, real GDP and both equilibria.
- Evaluation
- Size depends on the share of households owning homes, the marginal propensity to consume out of wealth and spare capacity. Renters face higher costs and inflation may rise.
- Watch out
- House price rises are a wealth effect on consumption, not investment in the national accounts.
Q6(c)
With reference to the information provided, explain one likely factor, other than changes in house prices, that could influence the level of savings of UK households.
Mark splitKnowledge 1Application 2Analysis 2
TopicAggregate demand
Examiner insight
- What to cover
- Choose one factor such as interest rates, consumer confidence, real income or inflation. Trace the chain to the household saving ratio using the data provided.
- Watch out
- Only one factor is credited, so developing several loses the analysis marks.
Q6(d)
Explain two factors that might cause a rise in the value of the multiplier.
Mark splitKnowledge 2Application 2Analysis 2
TopicAggregate demand
Examiner insight
- What to cover
- Use the multiplier as 1/(MPS+MPT+MPM). Explain two changes that cut withdrawals, such as a lower saving rate or a lower marginal tax rate, so each round of spending is larger.
- Watch out
- Quoting the formula is not enough; show why the withdrawal falls and why the multiplier then rises.
Q6(e)
With reference to Extract B and Figure 1, discuss the likely impact of migration on employment and unemployment in the UK.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicAggregate demand
Examiner insight
- What to cover
- Migration raises labour supply, filling vacancies and raising employment and output. It also raises AD through spending. Use Extract B and Figure 1 to judge the effect on unemployment.
- Diagram
- Labour market: supply of labour shifts right. Axes wage rate and quantity of labour. Label the new wage and employment level.
- Evaluation
- Depends on whether migrant skills match vacancies, on the AD effect offsetting the supply effect, and on the time period. Employment can rise without unemployment rising.
- Watch out
- Employment and unemployment are different measures, so answer both and avoid the lump of labour fallacy.
Q6(f)
Evaluate government policies, apart from migration policies, that could be used to increase the employment rate in the UK.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
TopicAggregate demand
Examiner insight
- What to cover
- Select two or three policies, such as cutting income tax, funding training, childcare support or expansionary fiscal policy. Trace each to more people willing and able to work.
- Diagram
- AD/AS: AD or LRAS shifts right. Label price level and real GDP. A labour market diagram with labour supply shifting right also works.
- Evaluation
- Compare cost, time lags and likely size of effect. Depends on whether unemployment is cyclical or structural, on the stage of the cycle and on the opportunity cost of the spending.
- Watch out
- The employment rate is the share of the working age population in work, not the unemployment rate.
Q6(g)
Evaluate the likely impact of high inflation on the UK government’s macroeconomic objectives.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
TopicMacroeconomic objectives and policy
Examiner insight
- What to cover
- Link high inflation to each objective: slower growth from uncertainty and falling real incomes, lost competitiveness worsening net trade, and pressure on the 2% target and real wages.
- Diagram
- AD/AS: demand-pull with AD shifting right, or cost-push with SRAS shifting left. Label the rise in price level and the change in real output.
- Evaluation
- Weigh damage against short run gains such as lower real debt and a possible fall in unemployment. Depends on the cause of inflation, whether it is anticipated, and rival countries' inflation.
- Watch out
- Not all inflation is harmful; the target is 2% and the effects differ for cost-push and demand-pull.
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.