WJEC · The global economy · International trade and exchange rates
WJEC Economics past paper questions: International trade and exchange rates
Every WJEC question on International trade and exchange rates from 2016 to 2025: 13 essays, 25 data response questions, 5 short answer questions and 11 multiple choice questions. It covers Measuring economic performance, Macroeconomic objectives and policy, Demand, supply and elasticity, Aggregate demand and The financial sector. Each question links to its paper, mark scheme and examiner report.
SubtopicsMeasuring economic performance 12Macroeconomic objectives and policy 4Demand, supply and elasticity 3Aggregate demand 3The financial sector 2Government intervention in markets 1Growth and development 1The labour market 1Economic growth and the economic cycle 1
Essay questions on international trade and exchange rates
Using an exchange rate diagram(s), explain how and why a country might manipulate its exchange rate as a form of protectionism.
Examiner insight
- What to cover
- Describe more than one way to manage the exchange rate: selling domestic currency on the foreign exchange market, cutting interest rates, capital controls, and using reserves. Then explain why a weaker currency acts as protectionism, through dearer imports and cheaper exports.
- Watch out
- To depreciate, a country sells its own currency, it does not buy it. Describing only one method caps AO1 at Band 2. Do not analyse protectionism arising from an appreciating currency, which earns no AO3.
Explain the possible causes of a structural deficit on the current account of the balance of payments.
Examiner insight
- What to cover
- Explain the current account and what makes a deficit structural rather than cyclical: persistent weak competitiveness, low productivity, a long term decline in manufacturing, a high marginal propensity to import, a persistently overvalued exchange rate. Show how each causes imports to exceed exports.
- Watch out
- Understanding of the current account is usually strong, understanding of structural is not. Each cause must be shown to be an underlying problem that persists through the cycle, and must be traced through to imports exceeding exports.
Evaluate the impact of a rising terms of trade index for economies at different stages of development.
Examiner insight
- What to cover
- A rising terms of trade index means export prices rising relative to import prices. Work through the effect for an MEDC and for an LEDC in turn: cheaper imports and higher real income against the loss of export competitiveness and export volumes, with primary product dependency making LEDCs more exposed.
- Watch out
- A rising terms of trade index is about relative prices, not about selling more exports and buying fewer imports. That confusion was common. Your own numerical example demonstrates the point quickly.
Explain why a currency devaluation may not improve an economy's trade balance.
Examiner insight
- What to cover
- Explain the devaluation and its effect on export and import prices, then explain why the trade balance may still not improve: the Marshall Lerner condition when demand is inelastic, the J curve in the short run, non price competitiveness such as quality and reliability, dearer imported inputs, and retaliation or protectionism.
- Watch out
- Describing the J curve or Marshall Lerner is not enough. Explain why, in that case, exports do not rise and imports do not fall. Many candidates lost the AO3 marks here.
Discuss the view that free international trade is more beneficial for MEDCs than LEDCs.
Examiner insight
- What to cover
- Compare MEDCs and LEDCs directly and repeatedly, on comparative advantage, specialisation, primary product dependency, terms of trade, employment and wages, infant industries and access to technology.
- Watch out
- Two common problems: treating only one group's perspective, and building the answer on the movement of labour or FDI. Those earn credit only where they are linked to free trade in goods and services, not as the main argument.
Case study: THE WELSH ECONOMY
(i) With reference to Figure 1, calculate the percentage of total exports from Wales that went to the European Union over the period shown. Give your answer to two decimal places. (ii) Evaluate the likely effects of 'the pound having lost around 10% of its value against the euro and US dollar since the UK voted to leave the EU in 2016' (lines 18–19) on Welsh households and firms. (iii) To what extent might an improvement in Wales' trade balance contribute to the attainment of other government economic policy objectives?
Examiner insight
- What to cover
- Part (i) is a percentage to two decimal places. Part (ii): take the 10 per cent fall in the pound through to Welsh firms, with cheaper exports and dearer imported inputs, and Welsh households, with dearer imports and holidays. Part (iii): link an improving trade balance to growth, employment and inflation.
- Watch out
- The balance of payments and the balance of trade are not interchangeable terms. SPICED and WPIDEC will get you started but will not earn the analysis marks on their own, and many answers lost marks by using no data or no evaluation.
Explain the likely link between changes in the terms of trade and changes in the current account balance.
Examiner insight
- What to cover
- Define the terms of trade as the export price index divided by the import price index times 100, then work through the link: an improvement means each export buys more imports, but if demand is elastic, export volumes fall and the current account can worsen.
- Watch out
- The terms of trade is not the degree of protectionism or bargaining power between countries, and the formula uses prices, not values or quantities. Even candidates who knew the formula often could not say what an improvement does to the trade balance.
Evaluate the ways in which governments could reduce a sustained current account deficit, in both LEDCs and MEDCs.
Examiner insight
- What to cover
- Take a range of policies: expenditure switching through protectionism or a lower exchange rate, expenditure reducing through tighter fiscal policy, and supply side policies to raise competitiveness. Explain the mechanism of each.
- Watch out
- Do not confuse a current account deficit with a budget deficit. Candidates who did could not be awarded many marks at all.
Explain possible causes of a current account deficit.
Examiner insight
- What to cover
- Cover the whole current account, not just the trade balance: trade in goods and services, primary income (profits, interest and dividends flowing abroad) and secondary income (transfers). Then explain causes: an overvalued exchange rate, weak competitiveness and productivity, strong domestic demand, structural decline in exporting industries, commodity prices.
- Watch out
- A shopping list of causes earns some AO1 but no AO3. Develop two or three causes properly. Candidates who brought in primary and secondary income were generously rewarded, and very few did.
Explain the factors that may result in an improving terms of trade index.
Examiner insight
- What to cover
- Define the terms of trade as the index of export prices divided by the index of import prices times 100. An improvement means export prices rising relative to import prices. Explain the causes: a stronger exchange rate, higher world commodity prices for exports, rising domestic inflation, changing demand for exports.
- Watch out
- The terms of trade is not the same as international competitiveness, and an improvement can go with worse competitiveness. Get the formula the right way up and remember it is prices, not volumes.
Evaluate the view that running a current account surplus is always better than running a current account deficit for LEDCs.
Examiner insight
- What to cover
- Take the LEDC case specifically. A surplus builds reserves and reduces dependence on borrowing, but a deficit lets an LEDC import capital goods and technology needed for development. Set the current account within the whole balance of payments, including the financial account.
- Watch out
- Three recurring errors: confusing the current account with government current spending, using the old two account version of the balance of payments, and assuming the government receives the revenue from a current account surplus. That revenue goes to businesses.
Discuss the extent to which governments of all LEDCs should encourage inward foreign direct investment (FDI).
Examiner insight
- What to cover
- Use the full meaning of FDI, which is investment in productive assets across borders, not only inward activity by multinationals. Give the gains: capital, technology transfer, jobs, training, tax revenue, export capacity. Then the costs: profit repatriation, transfer pricing, environmental and labour standards, and the crowding out of local firms.
- Watch out
- FDI is not a plural noun and does not mean multinationals themselves. Very few candidates reached full marks, mostly because of this narrow reading.
With reference to the principle of comparative advantage, explain the circumstances under which free international trade will be beneficial.
Examiner insight
- What to cover
- The question is about the circumstances in which trade is beneficial, not simply the benefits. Show comparative advantage with a numerical example or a PPF, identify the terms of trade range, then set out the conditions: different opportunity cost ratios, low transport costs, no heavy protectionism, mobile and flexible factors.
- Watch out
- Most candidates wrote about the benefits of trade instead of the circumstances. A tight answer of under a page scored very high marks.
Data response questions on international trade and exchange rates
Discuss the view that the theory of comparative advantage is relevant in determining whether countries should specialise and trade.
Case study: All about trade
Calculate the value of Welsh exports to Brazil, South Africa and Malaysia in 2022, as a percentage of Wales' average yearly export total.
Case study: All about trade
With reference to the functions of prices, explain how the free market allocates resources to different sectors such as agriculture or petroleum.
Case study: All about trade
Consider whether increasing net exports (value of exports minus value of imports) is always desirable for an economy.
Examiner insight
- What to cover
- Show the benefit first: higher net exports raise AD, so growth and employment rise, with the multiplier magnifying the effect. Then the cost, that AD rising near capacity adds inflationary pressure.
- Watch out
- The command word is consider, which requires evaluation. Always means you must find the cases where it is not desirable.
Case study: All about trade
Discuss the likely impact of a depreciation of the Pound against the Euro on the value of Welsh exports.
Examiner insight
- What to cover
- A weaker pound makes Welsh exports cheaper in euros, so volumes rise and the total value of exports rises. Trace it through specific Welsh exports.
- Watch out
- Analysis was generally good here and evaluation was the weak point. The elasticity argument is the strongest available and few candidates used it.
Case study: All about trade
Using a tariff diagram, discuss the extent to which removing an import tariff on lamb may negatively affect the Welsh economy.
Examiner insight
- What to cover
- Start with the removal of the tariff, not its imposition. Removing it lowers the price of imported lamb, so imports rise, Welsh lamb producers lose sales and revenue, and rural incomes and jobs fall.
- Watch out
- Do not spend time describing how a tariff is implemented or why governments impose tariffs. Answer the question directly. Some answers were weakened by being one sided.
Case study: A NEW COAL MINE IN THE UK
Assess the likely impact of the new coal mine on the exchange rate of the pound to the euro. Illustrate your answer with an exchange rate diagram.
Examiner insight
- What to cover
- Explain the routes to an appreciation: import substitution reduces the supply of pounds, export sales of coal raise demand for pounds, and inward interest in the project raises demand.
- Watch out
- Most candidates got the direction right but lost marks through labelling. Full and correct labels on every diagram are among the cheapest marks on this paper.
With reference to the data, outline why the prices of agricultural goods, such as olive oil, tend to be volatile.
Explain one likely benefit to the USA of imposing a tariff on Spanish olive oil.
Using the information in Figure 1, calculate the value of Net Errors and Omissions. Show your workings.
Using Figure 2 and Figure 3, discuss the extent to which the UK has a structural current account deficit, rather than a cyclical current account deficit.
Examiner insight
- What to cover
- Define both. A structural deficit comes from underlying problems such as weak competitiveness and low productivity, and persists through the cycle. A cyclical deficit moves with the trade cycle. Use Figures 2 and 3 to test which pattern the UK shows.
- Watch out
- Do not confuse a current account deficit with a fiscal deficit. This is a long standing and costly error. Also get the cycle the right way round: in the UK a boom raises imports because of a high marginal propensity to import, so the deficit widens in booms and narrows in recessions, not the reverse.
Case study: INTERESTING INTEREST RATES
With reference to the data and with the use of an exchange rate diagram, discuss whether interest rates are the main factor affecting exchange rates.
Examiner insight
- What to cover
- Show the interest rate channel on the exchange rate, then weigh other factors: the trade balance, speculation, relative inflation, confidence and long term capital flows.
- Watch out
- Application was poorly done. Quote values from both axes and the dates when citing a chart, rather than saying it rose or fell.
Explain two ways in which monetary authorities can influence the value of an exchange rate in a free floating system.
Evaluate whether Donald Trump's claims that China is holding its exchange rate artificially below the free market level is likely to worsen the US trade balance.
Examiner insight
- What to cover
- Explain the mechanism first: an artificially low yuan makes Chinese exports cheaper in dollars and US exports dearer in yuan, so US imports rise and exports fall and the trade balance worsens. Use the data, for example the 6.6 per cent fall of the yuan against the dollar.
- Watch out
- Full marks needed two developed evaluation points, not a list. AO2 marks were there for the data or for your own knowledge of the trade dispute, so use one or the other.
Calculate the % change in the value of the US dollar ($) over the two year period and state whether it has appreciated or depreciated against the euro (€).
Assume the price elasticity of demand (PED) of all Eurozone imports from the US is –0.8. Calculate the likely impact of this exchange rate change on the quantity demanded of Eurozone imports from the US.
With the aid of a tariff diagram, discuss whether the imposition of a tariff on Chinese steel could save UK-based jobs.
Examiner insight
- What to cover
- Show how a tariff on Chinese steel raises the import price, cuts import volume and raises domestic output, protecting steel jobs. Then take the other side: higher input costs for steel using industries and the risk of retaliation costing jobs elsewhere.
- Watch out
- A great many candidates could not draw the tariff diagram accurately and many evaluated weakly. Both cost marks.
Case study: HAS BRAZIL'S BUBBLE BURST?
Using the data in lines 26 to 28, calculate: (i) Brazil's GDP in 2015 (ii) the value of Brazilian exports bought by China and the USA.
Case study: Education, Education, Education or Inflation, Inflation, Inflation
Using an exchange rate diagram, describe one reason why the 2008 financial crisis may have led to a depreciation of sterling.
Case study: Education, Education, Education or Inflation, Inflation, Inflation
Using an AD/AS diagram, outline how a sharp depreciation of sterling can cause inflation despite weak aggregate demand.
Case study: Education, Education, Education or Inflation, Inflation, Inflation
With reference to Extract B and economic theory, discuss the extent to which high quality education and training programmes can improve the trade balance and reduce unemployment levels in the UK.
Examiner insight
- What to cover
- Answer both halves. Education and training raise productivity and skills, which cuts structural unemployment and improves international competitiveness, so export volumes rise and the trade balance improves. Use the Alacrity Foundation and the Global Competitiveness report hooks.
- Watch out
- Marks were lost by answering only one half of the question, by drifting onto other supply side policies, and by leaving out the UK context. Answers that used none of the data hooks got no AO2 marks.
Case study: RECESSION TESTS RUSSIA'S RESILIENCE
According to Figure 2, calculate the percentage fall in the world price of oil between 1st June 2014 and 1st January 2015. Show your workings.
Case study: RECESSION TESTS RUSSIA'S RESILIENCE
Using a demand and supply diagram, explain why 'the world price of oil fell dramatically between June 2014 and January 2015' (line 5).
Case study: RECESSION TESTS RUSSIA'S RESILIENCE
Discuss the view that consumers, workers and firms will always benefit if their country adopts free trade policies.
Examiner insight
- What to cover
- There are no application marks here, so it is a theory question. Take consumers, workers and firms in turn and give the gains and the losses of free trade for each: lower prices and choice, comparative advantage and export jobs, structural unemployment, import competition.
- Watch out
- Full marks needed all three agents dealt with, and both sides for each. The best answers took each agent in turn under its own heading.
Case study: RECESSION TESTS RUSSIA'S RESILIENCE
Using an exchange rate diagram, explain why the Russian rouble collapsed between 2014 and 2015 (lines 32-33).
Short answer questions on international trade and exchange rates
(i) Using the data in Table 1; calculate the percentage change in the dollar price of palm oil between 2019 and 2022. You are advised to show your working. (ii) 'The cedi depreciated sharply against the dollar in 2022 and, although it recovered a little towards the end of the year, it was still 50% weaker than in 2019', (lines 3-5). Using this information and your answer to (a)(i), calculate the percentage change in the cedi price of palm oil between 2019 and 2022. You are advised to show your working.
With reference to the data and using a cost and revenue diagram, show how the weak cedi has resulted in higher prices, fewer sales and falling profits for firms in Ghana that import commodities.
With reference to the data, distinguish between absolute advantage and comparative advantage.
With reference to the data, assess the view that globalisation is good for the Chinese economy.
With reference to the data, discuss the extent to which Japan's economy is likely to benefit from increased free-trade and reduced protectionism.
Examiner insight
- What to cover
- Give the gains from more free trade for Japan: comparative advantage, cheaper imported inputs and food, larger export markets for cars and electronics, more competition and efficiency. Then the losses for protected sectors.
- Watch out
- A diagram that is drawn and then never referred to earns little. Answers with no Japanese context got no AO2 marks at all, when one line on rice or car producers would have earned one.
Multiple choice questions
- AS Unit 1, June 2025, Q12
The chart below shows the value of exports for Korea between October 2021 and September 2023 in US$ millions. Export value for Korea in US$ millions Ju O Ja Ap Ju O Ja Ap Se ct ct l n l2 n r2 r2 pt Month Which of the following statements…
- AS Unit 1, June 2025, Q15
The table below shows the monthly average GBP sterling effective exchange rate index. Jan 2005 = 100 (base). Month/year Value Oct 2022 76.96 Nov 2022 78.11 Dec 2022 79.02 Jan 2023 78.27 Feb 2023 77.79 Mar 2023 78.26 Apr 2023 79.30 May 2023…
- AS Unit 1, June 2024, Q7
The diagram below shows a tariff being imposed on imports of barley into China at the world price P1. Price of barley (per tonne) Sdomestic P3 P2 Sworld + tariff P1 Sworld Ddomestic Q1 Q2 Q3 Q4 Q5 Quantity of barley (tonnes per year)…
- AS Unit 1, June 2024, Q8
The chart below gives information on the exchange rate of the US dollar to the Indian rupee (the currency of India) from January 2022 to October 2022. Price of US$1 in rupees Jan Feb Mar Apr May Jun Jul Aug Sept Oct 2022 From the chart it…
- AS Unit 1, June 2023, Q12
Which one of the following policies would be expected to reduce the level of unemployment in the long run?
- AS Unit 1, June 2023, Q13
If there was a significant outflow of the Pound Sterling from the UK, which one of the following would be most likely to occur?
- AS Unit 1, June 2019, Q10
In 2017, the price of a Toshiba laptop computer was £460. Twelve months later in 2018, the price of the same Toshiba laptop was £483. In the same period of time, the UK's inflation rate was measured at 3.5%. Using 2017 as a base year…
- AS Unit 1, June 2019, Q11
Which area shows the increase in revenue received by domestic producers after the imposition of the tariff?
- AS Unit 1, June 2019, Q12
Which area shows the loss in consumer surplus after the imposition of the tariff?
- AS Unit 1, June 2017, Q14
Which of the following trade policies is unlikely to reduce the number of imports into a country?
- AS Unit 1, June 2016, Q11
A sudden large rise in consumer spending in an economy would be most likely to cause: Economic Inflation Trade balance Budget (Fiscal) growth balance
Question text is quoted from the question papers, © WJEC CBAC Ltd, 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.