Paper 2: The UK Economy – Performance and Policies · 8EC0/02
Edexcel A AS Paper 2, June 2025
All 14 written questions and 5 multiple choice questions from Edexcel A AS Paper 2 (June 2025), The UK Economy – Performance and Policies. 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 best describes this cause of unemployment?
- ACyclical
- BFrictional
- CSeasonal
- DStructural
Show the answer
The answer is A.
TopicEconomic growth
Q1(b)
With reference to the information above, explain one possible effect of the increase in the rate of unemployment on the UK government budget.
Mark splitKnowledge 1Application 1Analysis 1
TopicEconomic growth
Q2(a)
Which one of the following can be deduced from the table?
Show the answer
The answer is D. Open the question paper to read the options.
Q2(b)
Explain one likely impact of the fall in average UK house prices on existing homeowners between January 2023 and March 2023. Refer to the table on page 4 in your answer.
Mark splitKnowledge 1Application 1Analysis 1
Q3(a)
Which point on the trade cycle diagram illustrates a positive output gap?
Show the answer
The answer is C. Open the question paper to read the options.
TopicNational income
Q3(b)
Explain one reason why it is difficult to measure the size of an output gap in an economy.
Mark splitKnowledge 2
TopicNational income
Q3(c)
Define the term ‘trade cycle’.
Mark splitKnowledge 1
TopicNational income
Q4(a)
Define the term ‘indirect tax’.
Mark splitKnowledge 1
Q4(b)
Annotate the aggregate demand (AD) and short-run aggregate supply (SRAS) diagram below to show the likely impact of a reduction in indirect tax on the equilibrium level of real output and the price level.
Mark splitApplication 2
TopicAggregate supplyAggregate demand
Q4(c)
Which one of the following is an example of an indirect tax?
- ACorporation tax
- BIncome tax
- CInheritance tax
- DValue added tax
Show the answer
The answer is D.
Q5(a)
Which one of the following can be deduced from the chart?
- AThe government was spending less than it received in taxation
- BThe government was spending more than it received in taxation
- CThe value of imports was greater than the value of exports
- DThe value of imports was smaller than the value of exports
Show the answer
The answer is C.
Q5(b)
Explain one likely reason for the deficit in the UK balance of trade in goods and services. Refer to the chart on page 10 in your answer.
Mark splitKnowledge 1Application 1Analysis 1
Section B
Q6(a)
With reference to Figure 1, explain the term ‘rate of economic growth’.
Mark splitKnowledge 2Application 2
TopicEconomic growth
Q6(b)
With reference to the first paragraph of Extract A, explain the likely relationship between real incomes and subjective happiness.
Mark splitKnowledge 1Application 2Analysis 2
TopicMeasures of economic performance
Examiner insight
- What to cover
- Higher real income raises happiness because more wants can be met, but the gain shrinks as income rises because of diminishing marginal utility and comparison with others. Use the first paragraph of Extract A.
- Watch out
- The link is positive but weakening, so explain why extra income adds less utility as income grows.
Q6(c)
With reference to Extract A and your own knowledge, 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 Extract A to set out limitations: the need for real and per capita figures, the hidden economy, inequality hidden by averages, quality changes, and unpaid work, leisure and environment ignored.
- Evaluation
- Weigh against the fact that real GDP per capita is measured consistently over long periods and tracks income closely. Depends on how fast inequality, product quality and the informal economy change.
- Watch out
- The comparison is over time, so use real GDP per capita and avoid slipping into country comparisons.
Q6(d)
With reference to the information provided, explain two factors that the Bank of England’s Monetary Policy Committee may have considered when changing the base interest rate.
Mark splitKnowledge 2Application 2Analysis 2
TopicMacroeconomic objectives and policy
Examiner insight
- What to cover
- Give two developed factors from the data, such as the CPI inflation rate and expectations, the output gap and growth, unemployment, or the exchange rate and import prices.
- Watch out
- Each factor must be linked to the decision on Bank Rate and the 2% target, not just described.
Q6(e)
Discuss the likely macroeconomic effects of a decrease in government expenditure on the UK economy. Use an aggregate demand and aggregate supply diagram to support your answer.
TopicAggregate demandAggregate supply
Examiner insight
- What to cover
- Government spending is a component of AD, so a cut shifts AD left. The reverse multiplier lowers real GDP, raises unemployment and eases inflation, while the budget deficit falls.
- Diagram
- AD/AS: AD shifts left. Label the fall in real GDP and the price level, and both equilibria.
- Evaluation
- Depends on the size of the multiplier, on spare capacity, on which spending is cut, and on crowding in of private investment. Capital cuts also weaken LRAS over time.
- Watch out
- Show the leftward AD shift and remember that cutting investment spending harms long run supply too.
Q6(f)
Evaluate the possible causes of inflation in the UK.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
Examiner insight
- What to cover
- Cover both sides: demand-pull inflation from rising AD near capacity and loose policy, and cost-push inflation from energy, wages, a weaker pound and supply shocks. Add money supply growth.
- Diagram
- Two AD/AS diagrams: AD shifting right for demand-pull and SRAS shifting left for cost-push. Label the price level and real output in each.
- Evaluation
- Judge which cause dominates in the UK and how long each lasts. Depends on spare capacity, inflation expectations, wage bargaining power and whether the shock is one-off.
- Watch out
- A one-off price rise is not sustained inflation, so keep the price level and the rate of change apart.
Q6(g)
Evaluate the use of market-based supply-side policies to increase UK employment.
Mark splitKnowledge 4Application 4Analysis 6Evaluation 6
TopicMacroeconomic objectives and policy
Examiner insight
- What to cover
- Select market-based policies such as cutting income tax and benefits, reducing trade union power, and deregulating hiring. Show incentives to work rising, labour supply rising and LRAS shifting right.
- Diagram
- Labour market: supply of labour shifts right. Axes wage rate and quantity of labour. Label the new wage and employment.
- Evaluation
- Weigh against interventionist policies such as training, since much UK unemployment is structural. Depends on inequality effects, on time lags and on how weak labour demand is.
- Watch out
- Keep to market-based policies; state funded education and training is interventionist.
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.