Edexcel Theme 2: The UK Economy — Performance and Policies — Past Paper Questions

With reference to Figure 1, explain the term ‘inflation rate’.

2.1.2 Inflation

With reference to Figure 4 and Extract A, examine the likely impact of the ‘freeze in income tax thresholds’ (Extract A line 1) on aggregate demand.

2.2.1 Aggregate Demand · 4.5.2 Taxation

Assess the likely impact of an increase in real wages on the UK economy. Use an aggregate demand and aggregate supply diagram in your answer.

2.2.1 Aggregate Demand · 2.2.2 Consumption

With reference to the information provided, explain two characteristics of a recession.

2.5.3 The Trade Cycle

With reference to Extract B, discuss the use of quantitative easing in preventing deflation.

2.6.2 Demand-Side Policies · 4.4.3 Role of Central Banks

Explain one reason why ‘the fall in the exchange rate of the British pound’ (Extract A, line 21) is likely to increase inflation.

2.1.2 Inflation

Discuss supply-side policies the UK government could introduce to stimulate economic growth.

2.6.3 Supply-Side Policies

Discuss factors, apart from changes in real wages, which the MPC may have considered when changing the base interest rate.

2.6.2 Demand-Side Policies

Evaluate whether expansionary demand-side policies lead to conflicts between macroeconomic objectives.

One of two options in Section B — candidates answered this or the other.

2.6.4 Conflicts Between Objectives · 2.6.2 Demand-Side Policies

Evaluate whether the MPC has been successful in meeting the UK’s macroeconomic objectives between 2008 and 2019.

One of two options in Section B — candidates answered this or the other.

2.6.1 Macroeconomic Objectives · 2.6.2 Demand-Side Policies

Discuss factors influencing the level of aggregate demand in Ghana. Use an aggregate demand and aggregate supply diagram in your answer.

2.2.1 Aggregate Demand

Evaluate the microeconomic and macroeconomic effects of high interest rates in Ghana, or another developing country of your choice.

One of two options in Section B — candidates answered this or the other.

2.6.2 Demand-Side Policies · 4.4.3 Role of Central Banks

With reference to Figure 1, explain the term ‘balance of trade in goods and services’.

2.1.4 The Balance of Payments

With reference to Figure 2, explain how the CPI inflation rate is measured. Refer to the concept of weights in your answer.

2.1.2 Inflation

Discuss the impact of improved transport links between African countries on economic growth rates.

4.3.2 Factors Influencing Growth · 2.5.1 Causes of Growth

With reference to Extract A, assess the likely impact of a rise in the value of exports on the UK economy.

2.2.5 Net Trade

With reference to Extract B, explain two reasons for the increase in the rate of UK inflation.

2.1.2 Inflation

Discuss the likely economic effects of the high rate of UK inflation on consumers and workers.

2.1.2 Inflation

Evaluate the main influences on the UK’s net trade balance.

One of two options in Section B — candidates answered this or the other.

2.2.5 Net Trade · 2.1.4 The Balance of Payments

Evaluate how interest rates are used to control UK inflation.

One of two options in Section B — candidates answered this or the other.

2.6.2 Demand-Side Policies · 2.1.2 Inflation

UK inflation, as measured by the CPI, rose to 10.1% in the 12 months to July 2022, compared to 2.0% in the 12 months to July 2021. Evaluate macroeconomic policies, apart from monetary policy, the UK government could use to reduce inflation.

One of two options in Section C — candidates answered this or the other.

2.1.2 Inflation · 2.6.2 Demand-Side Policies

Examine two reasons for the rise in inflation in the UK. Refer to the information provided in your answer.

2.1.2 Inflation

Evaluate the likely microeconomic and macroeconomic effects of tax cuts in the UK.

One of two options in Section A — candidates answered this or the other.

4.5.2 Taxation · 2.6.2 Demand-Side Policies

Evaluate the microeconomic and macroeconomic effects of falling house prices.

One of two options in Section B — candidates answered this or the other.

2.2.2 Consumption · 4.4.1 Role of Financial Markets

Evaluate the microeconomic and macroeconomic effects of labour shortages in the UK, or a developed economy of your choice.

One of two options in Section B — candidates answered this or the other.

3.5.2 Supply of Labour · 2.1.3 Employment and Unemployment

With reference to Figure 1, explain the term ‘investment’.

2.2.3 Investment

With reference to Extract A, explain two influences on the level of UK investment.

2.2.3 Investment

With reference to Figure 2, assess whether an increase in real income improves subjective happiness within the UK.

2.1.1 Measuring Economic Growth · 2.5.4 The Impact of Economic Growth

With reference to the fourth paragraph of Extract A, assess the limitations of using GDP to compare living standards over time.

2.1.1 Measuring Economic Growth

Explain one likely reason why ‘the UK Government expects the UK economy to perform better than Germany and Italy’ (Extract A, lines 19–20).

2.1.1 Measuring Economic Growth

With reference to Extract B, discuss the benefits of an increase in infrastructure spending on the UK economy. Use an aggregate demand and aggregate supply diagram to support your answer.

2.2.4 Government Expenditure · 2.6.3 Supply-Side Policies

With reference to the information provided, discuss the likely impact of a recession on the UK economy.

2.5.3 The Trade Cycle

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).

One of two options in Section B — candidates answered this or the other.

2.6.2 Demand-Side Policies

Evaluate the supply-side policies the UK Government could use to increase the UK’s productivity.

One of two options in Section B — candidates answered this or the other.

2.6.3 Supply-Side Policies

Evaluate the microeconomic and macroeconomic effects of decreasing interest rates in Kenya, or another developing country of your choice.

One of two options in Section B — candidates answered this or the other.

2.6.2 Demand-Side Policies · 4.4.3 Role of Central Banks

The European Central Bank introduced a new round of quantitative easing (QE) in March 2020, purchasing up to €750 billion of assets. The objective of this QE was to reduce the serious risks to the effectiveness of monetary policy resulting from a significant recession. The European Central Bank’s target for inflation remains at ‘below but close to 2%’. Evaluate the effectiveness of quantitative easing during ‘a significant recession’.

One of two options in Section C — candidates answered this or the other.

2.6.2 Demand-Side Policies · 4.4.3 Role of Central Banks

It has been estimated that if climate change led to the world’s temperature rising 2.5 °C compared to the temperature in 2010, then global GDP per capita would be 15% lower by 2100. If temperatures rise by 4 °C compared to the temperature in 2010, then by 2100 global GDP per capita would decline by more than 30%. Evaluate the potential trade-offs between environmental protection and other macroeconomic objectives.

One of two options in Section C — candidates answered this or the other.

2.6.4 Conflicts Between Objectives · 2.5.4 The Impact of Economic Growth

Examine two likely effects of the forecast change in the rate of unemployment between 2019 to 2020, on firms in Germany. Refer to Figure 4 in your answer.

2.1.3 Employment and Unemployment

Discuss the likely impact of investment in new technology on the profitability of firms in Germany, as described in Extract C line 20. Use a cost and revenue diagram to support your answer.

2.2.3 Investment · 3.3.2 Costs

Evaluate the microeconomic and macroeconomic factors which are likely to determine the rate of economic growth in Germany relative to other developed economies.

One of two options in Section B — candidates answered this or the other.

2.5.1 Causes of Growth

Evaluate the microeconomic and macroeconomic impacts of ‘a much more expansionary fiscal policy’ (Extract C line 23) on the German economy.

One of two options in Section B — candidates answered this or the other.

2.6.2 Demand-Side Policies

With reference to Figure 1, explain the term ‘balanced government budget’.

2.6.2 Demand-Side Policies

Explain the likely effect of a fall in the exchange rate of the British pound on aggregate demand. Refer to Extract A in your answer.

2.2.1 Aggregate Demand · 2.2.5 Net Trade

With reference to Figure 2 and Extract A, explain two likely influences on the level of UK real household consumption.

2.2.2 Consumption

Assess the likely impact on the UK economy of an ‘increase in consumption’ (Extract A, lines 5–6). Use an aggregate demand and aggregate supply diagram in your answer.

2.2.1 Aggregate Demand · 2.2.2 Consumption

Discuss the factors that might explain why ‘the UK’s forecast long-term trend rate of growth was reduced’ (Extract B lines 9–10).

2.5.1 Causes of Growth · 2.3.3 Long-Run Aggregate Supply

Evaluate supply-side policies that could be used to increase the UK’s rate of economic growth.

One of two options in Section B — candidates answered this or the other.

2.6.3 Supply-Side Policies

Evaluate the likely macroeconomic effects of the UK government pursuing a policy of reducing its budget deficit.

One of two options in Section B — candidates answered this or the other.

2.6.2 Demand-Side Policies

In 2018, the United States Government cut the corporation tax rate (tax on company profits) from 35% to 21%. Income tax rates for US citizens were also reduced: for example, the top rate of income tax was cut from 39.6% to 37%. Evaluate the likely impact of cutting tax rates as a policy to increase economic growth.

One of two options in Section C — candidates answered this or the other.

4.5.2 Taxation · 2.6.3 Supply-Side Policies

Evaluate the likely microeconomic and macroeconomic effects of a rise in interest rates in Turkey.

One of two options in Section A — candidates answered this or the other.

2.6.2 Demand-Side Policies

Evaluate the microeconomic and macroeconomic impact of large infrastructure projects such as the building of a third airport in Istanbul.

One of two options in Section A — candidates answered this or the other.

2.2.4 Government Expenditure · 2.6.3 Supply-Side Policies

With specific reference to Figure 3, explain why productivity is measured by ‘GDP per hour worked, nominal values at PPPs’.

2.1.1 Measuring Economic Growth

Apart from literacy and numeracy skills in young workers, examine one reason for the trend in productivity in the UK, over the period shown in Figure 4.

2.6.3 Supply-Side Policies · 4.1.9 International Competitiveness

Evaluate the microeconomic and macroeconomic effects of a decline in the literacy and numeracy skills of a country’s young workers.

One of two options in Section B — candidates answered this or the other.

2.6.3 Supply-Side Policies · 3.5.1 Demand for Labour

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).

2.1.2 Inflation

With reference to Extract A, explain two likely economic effects of the higher rate of UK inflation.

2.1.2 Inflation

With reference to the last paragraph in Extract C, assess the impact of a fall in real incomes on subjective happiness.

2.1.1 Measuring Economic Growth

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.

2.1.2 Inflation

With reference to Extract C, discuss the potential conflicts between macroeconomic objectives when the central bank attempts to control inflation.

2.6.4 Conflicts Between Objectives · 2.1.2 Inflation

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.

2.2.5 Net Trade · 2.1.1 Measuring Economic Growth

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.

2.1.1 Measuring Economic Growth

Evaluate the use of interest rate changes as a means of controlling UK inflation.

One of two options in Section B — candidates answered this or the other.

2.6.2 Demand-Side Policies · 2.1.2 Inflation

Evaluate the potential conflicts between the objective of economic growth and two other UK macroeconomic objectives.

One of two options in Section B — candidates answered this or the other.

2.6.4 Conflicts Between Objectives

Evaluate the microeconomic and macroeconomic effects of increased government spending on education to promote healthy eating in the UK.

One of two options in Section A — candidates answered this or the other.

2.2.4 Government Expenditure · 1.3.2 Externalities

Evaluate the likely microeconomic and macroeconomic effects of relatively high inflation rates in many African countries.

One of two options in Section B — candidates answered this or the other.

2.1.2 Inflation

With reference to Figure 1, explain one reason why the claimant count and the ILO measure of unemployment differ.

2.1.3 Employment and Unemployment

With reference to Extract A, assess the likely macroeconomic effects of an increase in house prices. Use an aggregate demand and aggregate supply diagram in your answer.

2.2.1 Aggregate Demand · 2.2.2 Consumption

With reference to the information provided, explain one likely factor, other than changes in house prices, that could influence the level of savings of UK households.

2.2.2 Consumption

Explain two factors that might cause a rise in the value of the multiplier.

2.4.4 The Multiplier

With reference to Extract B and Figure 1, discuss the likely impact of migration on employment and unemployment in the UK.

2.1.3 Employment and Unemployment

Evaluate government policies, apart from migration policies, that could be used to increase the employment rate in the UK.

One of two options in Section B — candidates answered this or the other.

2.6.3 Supply-Side Policies · 2.1.3 Employment and Unemployment

Evaluate the likely impact of high inflation on the UK government’s macroeconomic objectives.

One of two options in Section B — candidates answered this or the other.

2.1.2 Inflation · 2.6.1 Macroeconomic Objectives

In 2016 the UK Chancellor of the Exchequer announced that the government would spend an extra £23 billion on innovation and infrastructure over the following five years. Evaluate the likely economic effects of this planned increase in government expenditure.

One of two options in Section C — candidates answered this or the other.

2.2.4 Government Expenditure · 2.4.4 The Multiplier

The British pound fell by over 10% to a 30-year low against the US dollar after the UK voted to leave the European Union. To what extent will this depreciation impact on future economic growth in the UK?

One of two options in Section C — candidates answered this or the other.

4.1.8 Exchange Rates · 2.5.1 Causes of Growth

With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic effects of increased UK demand for coffee at branded coffee shops.

One of two options in Section A — candidates answered this or the other.

1.2.2 Demand · 2.2.1 Aggregate Demand

Evaluate the likely microeconomic and macroeconomic effects of the supply-side policies recently introduced in Indonesia.

One of two options in Section B — candidates answered this or the other.

2.6.3 Supply-Side Policies · 4.3.3 Development Strategies

With reference to Figure 1, explain the term ‘net trade’.

2.2.5 Net Trade

With reference to the information provided and your own knowledge, examine two factors which might explain the change in the rate of Eurozone inflation as shown in Figure 2.

2.1.2 Inflation

With reference to the information provided and your own knowledge, assess the likely causes of the UK’s trade deficit.

2.1.4 The Balance of Payments · 2.2.5 Net Trade

With reference to Extract A, paragraph 2, explain one likely influence on UK investment.

2.2.3 Investment

Discuss the likely success of the ECB’s quantitative easing programme in moving Eurozone inflation closer to ‘the central bank’s ceiling of 2%’ (Extract A, line 17).

2.6.2 Demand-Side Policies · 4.4.3 Role of Central Banks

With reference to Figure 2 and Extract A, explain two likely reasons why the growth of the UK’s nominal GDP per capita at PPPs was slower than that of Germany after 2010.

2.1.1 Measuring Economic Growth

Discuss ‘looser fiscal policy’ and ‘supply-side reforms’ (Extract A, lines 20 and 21) that may be used by governments of Eurozone countries to increase economic growth.

2.6.2 Demand-Side Policies · 2.6.3 Supply-Side Policies

Evaluate policies the government could use to increase the UK’s productivity.

2.6.3 Supply-Side Policies

Evaluate the benefits of economic growth to the UK given that ‘a number of concerns remain’ in the UK economy (Extract A, line 7).

One of two options in Section B — candidates answered this or the other.

2.5.4 The Impact of Economic Growth

Evaluate the view that another recession is ‘inevitable’ in the UK (Extract A, line 24).

One of two options in Section B — candidates answered this or the other.

2.5.3 The Trade Cycle

Global oil prices fell from a 2008 peak of $147 a barrel to $27 in 2016. Evaluate the likely macroeconomic consequences of a significant fall in global oil prices.

One of two options in Section C — candidates answered this or the other.

2.1.2 Inflation · 2.3.2 Short-Run Aggregate Supply

With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic effects of policies that could be used to stimulate economic growth and development in Chile.

One of two options in Section A — candidates answered this or the other.

4.3.3 Development Strategies · 2.5.1 Causes of Growth

With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic impact on Chile’s economy of changes in the level of investment.

One of two options in Section A — candidates answered this or the other.

2.2.3 Investment · 4.3.2 Factors Influencing Growth

With reference to Extract D (line 18), explain the meaning of the term ‘output gap’. Use an aggregate demand and aggregate supply diagram in your answer.

2.5.2 Output Gaps

With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic effects of a government policy of cutting public expenditure rather than raising taxes as a means of reducing a fiscal deficit.

One of two options in Section B — candidates answered this or the other.

4.5.1 Public Expenditure · 2.6.2 Demand-Side Policies

With reference to Figure 1, explain the term ‘real income’.

2.1.2 Inflation

Assess the likely impact of falling real incomes on UK consumers.

2.2.2 Consumption

With reference to Extract A, explain the likely effect of a rise in the value of the pound on aggregate demand.

2.2.1 Aggregate Demand · 2.2.5 Net Trade

With reference to the data, explain two likely reasons for the UK’s falling inflation rate.

2.1.2 Inflation

With reference to Extracts A and B and your own knowledge, discuss whether the MPC should be concerned about the risk of deflation in the UK economy.

2.1.2 Inflation · 2.6.2 Demand-Side Policies

Evaluate whether the MPC has been successful in controlling the UK’s inflation rate since 2011.

One of two options in Section B — candidates answered this or the other.

2.6.2 Demand-Side Policies · 2.1.2 Inflation

Evaluate demand-side policy responses to the Global Financial Crisis of 2008.

One of two options in Section B — candidates answered this or the other.

2.6.2 Demand-Side Policies