Paper 2: The UK Economy – Performance and Policies · 8EC0/02
Edexcel A AS Paper 2, June 2019
All 16 written questions and 5 multiple choice questions from Edexcel A AS Paper 2 (June 2019), The UK Economy – Performance and Policies. Case studies: UK inflation and economic growth. 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 ‘injection’ in this context.
Mark splitKnowledge 1
TopicNational income
Q1(b)
Calculate the value of the multiplier based on the data given. You are advised to show your working.
Mark splitApplication 2
TopicAggregate demand
Q1(c)
Which one of the following is a likely cause of a decrease in the value of the UK’s multiplier?
- AA decrease in the marginal propensity to save
- BA decrease in the marginal propensity to tax
- CAn increase in the marginal propensity to consume
- DAn increase in the marginal propensity to import
Show the answer
The answer is D.
TopicAggregate demand
Q2(a)
Illustrate the shape of the Keynesian long-run AS curve on the diagram below.
Mark splitKnowledge 1
Q2(b)
Explain what is meant by spare capacity in an economy.
Mark splitKnowledge 2
Q2(c)
Which one of the following is most likely to cause a movement along the AS curve? Changes in:
- Acompetition policy
- Brelative productivity
- Cthe cost of raw materials
- Dthe level of aggregate demand
Show the answer
The answer is D.
TopicAggregate demand
Q3(a)
With reference to the chart above, explain one likely economic effect of the change in the UK unemployment rate between 2012 and 2018.
Mark splitKnowledge 1Application 1Analysis 1
Q3(b)
Which one of the following policies is most likely to reduce the unemployment rate in the UK?
- AA decrease in direct taxes on company profits
- BA decrease in quantitative easing
- CAn increase in government payments to the unemployed
- DAn increase in the UK base interest rate
Show the answer
The answer is A.
TopicMacroeconomic objectives and policyMeasures of economic performance
Q4(a)
Define the term ‘price level’.
Mark splitKnowledge 1
TopicAggregate supplyAggregate demand
Q4(b)
Annotate the diagram above to show the likely impact of government policy to promote business competition on the equilibrium level of real output and price level.
Mark splitApplication 2
TopicAggregate supplyAggregate demand
Q4(c)
Which one of the following is an interventionist supply-side policy?
- AAn improvement in infrastructure
- BAn increase in indirect taxation
- CAn increase in interest rates
- DAn increase in the regulation of markets
Show the answer
The answer is A.
Q5(a)
Which one of the following is the most likely impact of an increase in average UK house prices on existing homeowners?
- AGreater confidence
- BHigher income
- CLower consumption
- DNegative wealth effect
Show the answer
The answer is A.
TopicAggregate demand
Q5(b)
Using 2014 as the base year, calculate the index number for
Mark splitApplication 2
Q5(c)
Define the term ‘index number’.
Mark splitKnowledge 1
Section B
Case study
UK inflation and economic growth
Extracts: A: Rising inflation · B: Economic growth and living standards
In the extracts: GDP, CPI, Bank of England, Telegraph, Consumer, Child, Basic, Monetary Policy Committee, Gross Domestic Product, Office for National
Q6(a)
With reference to the first paragraph of Extract A and Figure 1, explain how the change in the exchange rate of the pound has ‘contributed to rising inflation’ (Extract A, line 4).
Mark splitKnowledge 2Application 2
TopicEconomic growthMacroeconomic objectives and policyMeasures of economic performance
Q6(b)
With reference to Extract A, explain two likely economic effects of the higher rate of UK inflation.
Mark splitKnowledge 2Application 2Analysis 2
TopicEconomic growthMacroeconomic objectives and policyMeasures of economic performance
Examiner insight
- What to cover
- Give two developed effects using Extract A, such as falling real incomes cutting consumption, lost export competitiveness, or higher costs and uncertainty reducing investment.
- Watch out
- Two distinct effects are needed, each traced through a chain; one effect written twice scores half.
Q6(c)
With reference to the last paragraph of Extract A and Figure 2, explain one reason why it is necessary to regularly update the CPI basket of goods and services.
Mark splitKnowledge 1Application 2Analysis 2
TopicMeasures of economic performance
Examiner insight
- What to cover
- Spending patterns and tastes change over time, so old items and weights stop reflecting what households buy. Use the last paragraph of Extract A and Figure 2 to show the resulting measurement error.
- Watch out
- Give one reason for updating the basket rather than a general list of CPI weaknesses.
Q6(d)
With reference to Figure 3, assess the likely impact of the change in the value of exports, since mid-2016, on the economic growth of the UK. Use an aggregate demand and aggregate supply diagram in your answer.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicAggregate demandAggregate supplyEconomic growth
Examiner insight
- What to cover
- Describe the export trend in Figure 3 since mid-2016. Higher exports raise net trade, so AD shifts right and the multiplier raises real GDP, giving actual economic growth.
- Diagram
- AD/AS: AD shifts right. Label price level, real GDP and both equilibria.
- Evaluation
- Depends on what imports did, since growth needs net trade. Also depends on the size of exports relative to GDP, spare capacity and whether the rise came from a weaker pound or world demand.
- Watch out
- Use the direction actually shown in Figure 3 and judge net trade, not exports on their own.
Q6(e)
With reference to Figure 4, Extract B and your own knowledge, discuss the limitations of using GDP data to compare living standards between the UK and developing countries.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicMeasures of economic performance
Examiner insight
- What to cover
- Set out limitations using Figure 4 and Extract B: need for per capita and PPP adjustment, large informal economies, inequality, poor data quality, and welfare factors GDP misses.
- Evaluation
- Weigh against the fact that GDP per capita is measurable, widely available and correlates with welfare. Depends on the size of the informal sector and the reliability of developing country data.
- Watch out
- Keep to comparison between countries; do not drift into comparing UK living standards over time.
Q6(f)
Evaluate the use of interest rate changes as a means of controlling UK inflation.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
TopicMacroeconomic objectives and policy
Examiner insight
- What to cover
- Explain the transmission from Bank Rate: dearer borrowing and better saving returns cut consumption and investment, a stronger pound cuts import prices, so AD falls and demand-pull inflation eases.
- Diagram
- AD/AS: AD shifts left. Label the lower price level and the lower real GDP.
- Evaluation
- Weak against cost-push and imported inflation. Depends on time lags of up to two years, confidence, how low rates already are, and the cost in lost growth and jobs.
- Watch out
- The MPC sets Bank Rate, not the rates banks charge, so the pass through is not automatic.
Q6(g)
Evaluate the potential conflicts between the objective of economic growth and two other UK macroeconomic objectives.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
TopicEconomic growthMacroeconomic objectives and policy
Examiner insight
- What to cover
- Choose exactly two other objectives, such as low inflation and a current account balance. Show growth raising AD toward capacity, creating demand-pull inflation and higher import spending.
- Diagram
- AD/AS: AD shifts right toward LRAS along a steepening SRAS. Label price level and real GDP.
- Evaluation
- Weigh whether the conflicts are real. Depends on spare capacity, on whether growth is supply led through LRAS, and on the time period. Supply-side growth can avoid the inflation conflict.
- Watch out
- Two other objectives must be covered and the conflict shown, not each objective described in turn.
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.