Paper 2: The UK Economy – Performance and Policies · 8EC0/02
Edexcel A AS Paper 2, June 2022
All 14 written questions and 5 multiple choice questions from Edexcel A AS Paper 2 (June 2022), The UK Economy – Performance and Policies. Case studies: UK investment and productivity. 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)
Which one of the following is the most likely effect of this quantitative easing?
- AA fall in economic growth
- BA fall in the rate of inflation
- CAn increase in the money supply
- DAn increase in unemployment
Show the answer
The answer is C.
TopicEconomic growthMacroeconomic objectives and policy
Q1(b)
Explain one likely impact of a decrease in the base interest rate on inflation.
Mark splitKnowledge 1Application 1Analysis 1
Q2(a)
Define the term ‘nominal’.
Mark splitKnowledge 1
Q2(b)
Using the above GDP data, which one of the following represents the index number for 2016, if 2017 is the base year?
- A96.8
- B98.1
- C101.9
- D103.3
Show the answer
The answer is B.
Q2(c)
Calculate the UK’s nominal GDP per capita in 2018. You are advised to show your working.
Mark splitApplication 2
Q3(a)
Which one of the following can be inferred from the above chart? Between 2007 and 2019,
Show the answer
The answer is C. Open the question paper to read the options.
Q3(b)
With reference to the chart, explain the likely relationship between real incomes and subjective happiness.
Mark splitKnowledge 1Application 1Analysis 1
Q4(a)
Define the term ‘exchange rate’.
Mark splitKnowledge 1
Q4(b)
Which one of the following represents the percentage change in the £ sterling and US$ exchange rate?
- A0.31%
- B20.26%
- C25.41%
- D79.74%
Show the answer
The answer is B.
Q4(c)
Annotate the aggregate demand (AD) and aggregate supply (AS) diagram below to show the likely impact of an improvement in net trade on the equilibrium level of real output and the price level.
Mark splitApplication 2
TopicAggregate demandAggregate supply
Q5(a)
Which one of the following can be deduced from the chart?
- AThe average price level was lower in January 2018 than in January 2019
- BThe average price level was unchanged between January 2017 and January 2019
- CThere was deflation from January 2018 to January 2019
- DThere was disinflation from January 2016 to January 2017
Show the answer
The answer is A.
Q5(b)
Explain one limitation of CPI in measuring the rate of inflation.
Mark splitKnowledge 1Application 1Analysis 1
Section B
Case study
UK investment and productivity
Extracts: A: Another recession?
In the extracts: Germany and Italy, GDP, Brexit, Global Financial Crisis, Consumption, Declining, Household, Recession, Business, Guardian
Q6(a)
With reference to Figure 1, explain the term ‘investment’.
Mark splitKnowledge 2Application 2
TopicAggregate demand
Q6(b)
With reference to Extract A, explain two influences on the level of UK investment.
Mark splitKnowledge 2Application 2Analysis 2
TopicAggregate demand
Examiner insight
- What to cover
- Give two developed influences from Extract A, such as business confidence, interest rates and the cost of borrowing, corporation tax, or expected demand and spare capacity.
- Watch out
- Investment means firms buying capital goods, not buying shares or saving money.
Q6(c)
With reference to the fourth paragraph of Extract A, assess the limitations of using GDP to compare living standards over time.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 4
TopicMeasures of economic performance
Examiner insight
- What to cover
- Use the fourth paragraph of Extract A. Explain that GDP must be real and per capita, that the hidden economy is missed, and that inequality, quality changes and unpaid work are ignored.
- Evaluation
- Weigh against the fact that real GDP per capita is consistent over long periods and closely tracks income. Depends on the time span chosen and on how fast inequality or product quality is changing.
- Watch out
- Keep the comparison over time and use real GDP per capita rather than nominal totals.
Q6(d)
Explain one likely reason why ‘the UK Government expects the UK economy to perform better than Germany and Italy’ (Extract A, lines 19–20).
Mark splitKnowledge 1Application 2Analysis 2
TopicAggregate demandMeasures of economic performanceEconomic growth
Examiner insight
- What to cover
- Give one developed reason from Extract A, such as stronger consumer spending, a larger policy stimulus, recovery from a deeper fall, or a different mix of industries.
- Watch out
- Growth rates depend on the base year, so a faster rate does not mean a higher level of output.
Q6(e)
With reference to the information provided, discuss the likely impact of a recession on the UK economy.
Mark splitKnowledge 3Application 3Analysis 3Evaluation 6
TopicEconomic growth
Examiner insight
- What to cover
- Falling AD in a recession lowers real GDP, raises cyclical unemployment and cuts investment, while tax revenue falls and benefit spending rises. Use the figures provided.
- Diagram
- AD/AS: AD shifts left. Label the lower real GDP, the lower price level and the negative output gap.
- Evaluation
- Weigh the harm against lower inflation, a smaller trade deficit and firms cutting waste. Depends on the depth and length of the recession, the policy response and hysteresis effects.
- Watch out
- Not every effect is negative, so a one sided list of costs cannot reach the top level.
Q6(f)
Evaluate the fiscal policies the UK Government could use if it believes that ‘the UK economy is likely to experience another recession’ (Extract A, lines 27–28).
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
TopicEconomic growth
Examiner insight
- What to cover
- Use expansionary fiscal policy: cut income tax or VAT and raise spending on infrastructure and benefits. Show C and G rising, AD shifting right and the multiplier closing the output gap.
- Diagram
- AD/AS: AD shifts right. Label the rise in real GDP and the price level, closing a negative output gap.
- Evaluation
- Weigh a larger deficit, crowding out, time lags and leakage into imports. Depends on spare capacity, the size of the multiplier and whether monetary policy supports the stimulus.
- Watch out
- The question fixes fiscal policy, so do not build the answer around interest rates or supply-side reform.
Q6(g)
Evaluate the supply-side policies the UK Government could use to increase the UK’s productivity.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
TopicMacroeconomic objectives and policy
Examiner insight
- What to cover
- Select policies such as education and training, infrastructure, investment and R&D incentives, and deregulation. Link each to higher output per worker per hour and a rightward LRAS shift.
- Diagram
- AD/AS: LRAS shifts right. Label the higher real GDP and the lower price level.
- Evaluation
- Weigh high cost, very long lags and uncertain results against lasting gains. Depends on whether the UK productivity gap comes from skills, capital investment or management quality.
- Watch out
- Productivity is output per worker or per hour, not total output, so keep that distinction clear.
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.