Paper 2: The UK Economy – Performance and Policies · 8EC0/02
Edexcel A AS Paper 2, June 2023
All 14 written questions and 5 multiple choice questions from Edexcel A AS Paper 2 (June 2023), The UK Economy – Performance and Policies. Case studies: UK balance of trade and inflation. 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
TopicAggregate supplyMacroeconomic objectives and policy
- AA decrease in the level of unemployment benefits
- BA decrease in the regulation of product markets
- CAn increase in the provision of training programmes
- DAn increase in the rate of corporation tax
Show the answer
The answer is C.
- ADecrease in living standards
- BDecrease in unemployment
- CHigher consumer confidence
- DHigher price level
Show the answer
The answer is A.
TopicMeasures of economic performanceAggregate demand
- ACorporation tax revenue is higher than excise duties
- BIncome tax raises less revenue than Value Added Tax (VAT)
- CT ax revenue from business rates contributes to approximately 3% of
- DTax revenue from National Insurance contributions is five times
Show the answer
The answer is C.
TopicAggregate demand
- A9.7
- B90.3
- C109.7
- D110.8
Show the answer
The answer is B.
TopicAggregate demandAggregate supply
- AIn Q4 2020 the level of real GDP fell by 16.1 percentage points
- BThe price level was rising at a slower rate between Q1 2019 and
- CThe UK economy experienced a boom between Q3 2019 and Q1 2020
- DThe UK economy experienced a recession in the first six months
Show the answer
The answer is D.
TopicEconomic growthMeasures of economic performance
TopicEconomic growth
Section B
Case study
UK balance of trade and inflation
Extracts: A: Balance of trade in goods and services · B: Inflation
In the extracts: MPC, Bank of England Monetary, Policy Committee, Inflation, Transport, Consumer, Guardian, Balance, Rising, CPI
TopicMeasures of economic performanceMacroeconomic objectives and policy
TopicMeasures of economic performance
Examiner insight
- What to cover
- Describe the survey of household spending that sets the basket, monthly price collection, and weighting each item by its share of spending. The annual change in the index is the inflation rate. Use Figure 2.
- Watch out
- Weights must be explained as shares of household spending, not as an unweighted average of price changes.
TopicMeasures of economic performanceMacroeconomic objectives and policy
Examiner insight
- What to cover
- Higher export revenue raises net trade, so AD shifts right. The multiplier raises real GDP and employment and the trade balance improves. Use the figures in Extract A.
- Diagram
- AD/AS: AD shifts right. Label price level, real GDP and both equilibria.
- Evaluation
- Depends on what happens to imports, on the size of exports relative to GDP and on spare capacity. Inflation may rise if the economy is near capacity.
- Watch out
- A rise in export value may be higher prices rather than more goods sold, so check volume.
TopicMeasures of economic performanceMacroeconomic objectives and policy
Examiner insight
- What to cover
- Give two developed reasons from Extract B, such as higher global energy and commodity prices, a weaker pound raising import costs, or recovering demand meeting supply shortages.
- Watch out
- Each reason must be traced through to the price level; naming energy prices alone is not an explanation.
TopicMeasures of economic performanceMacroeconomic objectives and policy
Examiner insight
- What to cover
- For consumers, show falling real incomes, lost purchasing power and eroded savings. For workers, show real wage cuts, wage demands and the risk to jobs as firms face higher costs.
- Evaluation
- Weigh losers against gainers: borrowers gain, savers lose, and workers with strong bargaining power keep pace. Depends on whether wages match prices and on how long inflation lasts.
- Watch out
- Both consumers and workers must be covered; an answer on only one group cannot reach the top level.
TopicMeasures of economic performanceMacroeconomic objectives and policy
Examiner insight
- What to cover
- Explain the main influences on exports minus imports: the exchange rate, relative inflation and competitiveness, real incomes at home and abroad, productivity, and non-price factors such as quality.
- Evaluation
- Judge which influence dominates for the UK. Depends on the Marshall-Lerner condition, the elasticity of demand for exports and imports, the J-curve and the time period.
- Watch out
- Net trade is exports minus imports, so both sides must be explained, not exports alone.
TopicMacroeconomic objectives and policy
Examiner insight
- What to cover
- Explain the transmission of a Bank Rate rise through borrowing, saving, wealth, confidence and the exchange rate. Consumption and investment fall, AD shifts left and demand-pull inflation eases.
- Diagram
- AD/AS: AD shifts left after a rate rise. 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, on confidence, on how low rates already are, and on the cost in lost growth.
- Watch out
- Bank Rate is not the inflation target, and banks may not pass a rate change on in full.
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.