June 2016: AS Paper 2

Mark scheme

Examiner's comment

This is the first of several short questions where candidates simply need to define a key economic term. Most candidates were able to clearly define these terms. The main problem with a national income definition was the significant number of candidates who said this was the average income of a country, which is incorrect. This answer is clearly a correct definition of national income and so scores 1/1. This answer scores 0 marks as national income is not the average income of a country. This illustrates the importance of candidates having a sound knowledge of key definitions from the specification.

Notes from the mark scheme and report

• total income (or output or spending) of a whole economy over a period
• report: many wrongly said the average income of a country

Answer

C

Mark scheme

Notes from the mark scheme and report

• injections are investment, government spending and exports (C)
• savings, taxation and imports are withdrawals

Mark scheme

Examiner's comment

This is an important concept in macroeconomics and one that candidates should be familiar with. There are 2 marks available so candidates are expected to do a little bit more than just a brief mention of flows of money. Because of the nature of the circular flow of income there is more than one way that candidates can achieve the 2 marks. If discussing injections and withdrawals candidates should give an example or examples of these. This answer achieves 1/2 for correctly explaining that the circular flow of income is 'the flow of money between households and firms'. To get the second mark they needed a bit more detail than just mentioning injections and withdrawals. On 2 mark definition questions, make sure you have clearly done enough for 2 marks. This answer achieves the full 2 marks. It accurately describes the circular flow of income with how money flows between households and businesses in exchange for labour and goods and services.

Notes from the mark scheme and report

• money flowing between households and firms in exchange for factor services and goods
• second mark needs a feature, e.g. injections and withdrawals WITH examples

Mark scheme

Examiner's comment

In this question it was very clear that a number of candidates did not know what 'purchasing power parities' was. Many candidates attempted to respond to the question by rearranging the words in the question. In terms of the 2 available marks, 1 was awarded for an understanding that it was about making a comparison between countries, and 2 marks awarded for an accurate definition. This candidate clearly has some idea what purchasing power parities are about and they have said it 'allows for comparison between countries'. Therefore this answer scores 1/2. This accurate definition of purchasing power parities achieves the full 2 marks.

Notes from the mark scheme and report

• the exchange rate at which the same basket of goods costs the same in each country, used to compare living standards
• "a comparison between countries" scores only 1
• report: "it was very clear that a number of candidates did not know what 'purchasing power parities' was", many just rearranged the words of the question

Answer

A

Mark scheme

Notes from the mark scheme and report

• total GDP = GDP per capita x population = US$38 500 x 64 million = about US$2.46 trillion (A)
• options not shown in the crop and the mark scheme gives only the letter

Quantitative skills: QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Mark scheme

Examiner's comment

This was a straightforward question that the majority of candidates annotated correctly. One issue that some candidates faced was where they did not show economic growth on the diagram, to get the mark there needed to be an outward shift of real output. This correct answer achieves 1/1- AD has been correctly shifted out and the new equilibrium point has been shown, with Y2 further out than Y1. Do remember to use a black pen throughout your exam paper, including for diagrams. This answer is incorrect as they have not labelled the new equilibrium point at the correct place, where the new AS curve crosses the original AD curve.

Notes from the mark scheme and report

• shift AD (or LRAS) right and mark the new equilibrium with real output Y2 beyond Y1
• report: some placed the new equilibrium wrongly

Quantitative skills: QS 4 (construct and interpret a range of standard graphical forms)

Mark scheme

Examiner's comment

This is another key definition question and the majority of candidates could accurately and concisely define the claimant count, either with reference to 'unemployment benefits' or 'jobseekers allowance'. Unfortunately a number of candidates referred to 'benefits' in general, which is incorrect. This correctly refers to 'job seekers allowance' and so achieves 1/1. This answer is incorrect because it refers simply to 'benefits'.

Notes from the mark scheme and report

• number of people claiming unemployment-related benefit (Jobseeker's Allowance)
• just "benefits" is wrong

Mark scheme

Examiner's comment

This question was a straightforward test of quantitative skills, and most candidates could correctly do the calculations involved. With the renewed emphasis on quantitative skills it is important that candidates practice such questions as part of their economics course. This candidates has got the correct answer of '-10.70%'. Some margin for rounding up/down is allowed on mark schemes but do try to be as accurate as you can with calculations. This answer only scores 1/2 as the candidate has failed to appreciate that this is a fall in the percentage change in the claimant count. Always check whether an answer should be positive or negative in calculation questions.

Notes from the mark scheme and report

• (858 344 - 961 149) / 961 149 x 100 = -10.7%
• giving +10.7% scores 1
• check the sign of the answer

Quantitative skills: QS 2 (calculate, use and understand percentages, percentage changes and percentage point changes); QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Answer

B

Mark scheme

Notes from the mark scheme and report

• a compulsory weekly interview raises the cost of claiming and pushes claimants into work or off benefit (B)
• A raises the incentive to claim
• C and D are likely to raise the count

Answer

D

Mark scheme

Notes from the mark scheme and report

• answer D (options not shown in the crop and the mark scheme gives only the letter)
• read the seasonally adjusted goods deficit, services surplus and total balance in Figure 1

Quantitative skills: QS 12 (understand the meaning of seasonally adjusted figures); QS 4 (construct and interpret a range of standard graphical forms); QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Mark scheme

Examiner's comment

There are a number of potential answers to this question and any 'likely reason' was awarded. However, a significant number of candidates simply said it was because the UK was exporting more and importing less. This is not a 'reason' for the trade deficit reducing- it is simply saying what a reduction in the trade deficit is. Reiterating the point made in the introduction to this question, there is no 'reason' in this answer and so it cannot achieve any marks. This answer has a clear reason and has explained it in a logical step-by-step manner. Therefore this answer achieves 3/3. Quality not quantity is important. This answer may look fairly brief but it identifies a reason and explains how/why it would lead to a reduction in the trade deficit.

Notes from the mark scheme and report

• a reason (falling oil price cutting import costs, relatively low UK inflation, depreciation, better export quality) explained step by step
• quote the deficit of about £1 billion in January 2015
• report: many just said exports rose and imports fell, which is a description not a reason

Quantitative skills: QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Mark scheme

Examiner's comment

In this question it was clear who knew their multiplier formula and who did not. Candidates need to be practicing such key calculations as part of their exam preparation. This candidate has the correct answer of '£30bn' and so achieves all 3 marks. This candidate achieves 2/3 as they have correctly identified the multiplier formula and worked out that the multiplier is 2. Unfortunately the candidate fails to multiply it by £15 billion. Always show your working out in calculation questions. That way even if you get the wrong answer at the end (or fail to include it like here) you can still get marks for your working out.

Notes from the mark scheme and report

• multiplier = 1 / (1 - MPC) = 1 / 0.5 = 2
• £15 billion x 2 = £30 billion
• some found the multiplier but did not multiply by £15 billion

Quantitative skills: QS 1 (calculate, use and understand ratios and fractions)

Answer

D

Mark scheme

Notes from the mark scheme and report

• higher productivity raises productive capacity, shifting AS right (D)
• A is an outcome
• B and C are price level changes, which are movements along AS

Mark scheme

Examiner's comment

In this question the emphasis is on knowledge and application. Candidates should bear this in mind and focus specifically on what the question is asking them to do. Some candidates are losing precious time by suggesting reasons why real income has changed, which is not what this question is asking of them. This answer achieves a mark of 3/4. They have appropriate application from figure 1 and have said income is 'the amount people earn...'. Unfortunately they then discuss taxes rather than inflation. This answer achieves the full 4 marks. There is an accurate definition of real income for 2 knowledge marks and application from figure 1 for the other 2 marks. Focus specifically on what the question is asking in this question. The second sentence here is not relevant to the question so the candidate is using up valuable time.

Notes from the mark scheme and report

• income adjusted for inflation (purchasing power)
• quote Figure 1, e.g. about £675 in 2008 falling to about £615 in 2013
• report: do not explain why real income changed

Quantitative skills: QS 7 (make calculations to convert from money to real terms); QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question demonstrates very clearly the importance of candidates carefully reading the question and making sure they understand precisely what is being asked of them. Far too many candidates gave a very generic answer talking about issues like falling aggregate demand but failed to link their writing specifically to UK consumers. Also key with this question was understanding the concept of real income, bearing in mind this is with inflation already taken into account. Finally, this is also the first question on the exam paper that tests candidates' evaluation skills, and it is important that they are aware of what key words like 'assess' mean. This answer is too focused on inflation and general macroeconomic effects. It fails to fully address the focus of the question- the impact on UK consumers. The most relevant paragraph is the first one, however there is some correct economics throughout. Overall this answer was awarded a low level 2 for KAA. When you're half-way through writing your answer, it's always a good idea to go back to the beginning and read the question again, to make sure you haven't drifted off-topic.

Notes from the mark scheme and report

• link every point to UK consumers: lower consumption, confidence, saving and living standards
• real income already allows for inflation
• report: "far too many candidates gave a very generic answer" about AD without linking to consumers

Mark scheme

Examiner's comment

In this question it was important that candidates understood the key relationship between the exchange rate and aggregate demand, via imports and exports. Many candidates explained this nice and clearly and, as long as they knew the economics correctly, this was a fairly straightforward question. This answer starts off correctly, by stating that 'imports will become cheaper and exports more expensive'. However, the rest of this is incorrect. They also have some application about 'inflation is at a record low'. This gives them a total of 3/5, 2 for analysis and 1 for application. This answer gains the full 5 marks, for clearly explaining the process with appropriate knowledge, application, and analysis. In questions about aggregate demand and supply it is always good practice to draw a diagram to back up your explanation.

Notes from the mark scheme and report

• a stronger pound makes exports dearer and imports cheaper, so (X - M) and AD fall
• apply the lagged effect and cheaper imported commodities from Extract A

Mark scheme

Examiner's comment

In this question one important point to note was that the question asks for two likely reasons. Unfortunately a number of candidates said that one likely reason was that interest rates had been increased. However, the extract (and candidates' general knowledge) shows this is not the case, and so this reason was not awarded any knowledge marks. Many other relevant reasons however were offered by candidates, for which they gained credit. This question also demonstrates the importance of using the case study as much as possible, as there were several reasons that candidates could use included in the information provided. In this answer the candidate correctly identifies two relevant reasons. However, the second reason is about higher interest rates, so they cannot achieve the knowledge mark here. The rest of the question is clear, well-applied, and well-analysed, so this is the only mark they have missed out on. Do ensure your answers are correct in terms of the economic situation explained in the figures and extract. This answer includes two relevant reasons which are well applied and analysed, and as such earns the maximum mark of 6/6.

Notes from the mark scheme and report

• two reasons (falling oil and energy prices, cheaper telecoms and shipping, stronger pound, weak demand) each linked to lower inflation
• a falling rate need not mean falling prices
• report: rising interest rates is wrong as rates had not risen

Quantitative skills: QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question was one that candidates needed to read properly to ensure they were writing a relevant answer. The key word really was 'concerned'- should the MPC be concerned about the risk of deflation? Candidates need to ensure their answers focused specifically on deflation- whether this was a risk or not. Many candidates picked up on the reference to Japan in extract B, and the more able answers went on to explain why exactly Japan found deflation so hard to shift once it had set in. Other good answers referred to the fact that the UK was close to deflation and issues around the ability of the Bank of England to cut interest rates further bearing in mind they are already at 0.5%. There were many other relevant points that candidates made, both for KAA and for evaluation. This answer very clearly explains the problem of monetary policy being unable to deal with deflation. Unfortunately, that is all it says. There is no evaluation of this or any other points discussed. Overall therefore this answer achieves a level 2 for KAA, and no marks for evaluation. Make sure in advance of the exam that you know which questions, such as this one, require evaluation. This answer has some good explanation of the problems the MPC has in trying to deal with deflation to start off with and also talks about the risk of deflation leading to a recession. They also have some good evaluation about how it might improve competitiveness. Unfortunately, it does drift off-topic towards the end. Overall therefore this answer is a level 3 for KAA and a level 2 for evaluation.

Notes from the mark scheme and report

• deflation risk: delayed spending, deflationary spiral, rising real debt, Japan, little room to cut Bank Rate below 0.5%
• evaluate with "good" deflation from falling oil prices, a temporary dip and a strong domestic economy
• stay focused on whether the MPC should be concerned

Mark scheme, including the levels grid and indicative content

Examiner's comment

The key word in this question is 'successful'. Candidates are expected to discuss arguments that the MPC has and has not been successful in keeping inflation on target since 2011. Less able answers failed to truly address this specific demand of the question, and instead focused simply on explaining the monetary policy transmission mechanisms. This is obviously an important part of it but to access top levels there also needed to be a clear answer to the question. In both (f) and (g) candidates need to remember that their answer should include a 'substantiated judgement' as part of level 3 evaluation. This answer focuses primarily on the data in figure 2 to discuss whether the MPC have or have not been successful in controlling inflation. This is important and should be a part of the answer to this question. However this should really be going along with some economic concepts to explain how monetary policy works to achieve a higher level. Overall this answer is a level 3 for KAA and a level 2 for evaluation. Remember to make use of transmission mechanisms when explaining key concepts such as monetary policy. This is a more able response than the previous one. While it has some of the same points about referring to figure 2 it takes this a step further and discusses, for example, the current state of the world economy and the multiplier effect. The evaluation in particular in this question is more developed than in the first answer. Overall therefore, this answer achieves a high level 3 for its KAA and a low level 3 for evaluation.

Notes from the mark scheme and report

• judge success against the 2% CPI target (plus or minus 1%) using Figure 2: above 5% in 2011, under 1% by late 2014
• Bank Rate, QE and forward guidance
• supply-side shocks the MPC cannot control
• report: weaker answers only described the transmission mechanism
• a substantiated judgement is needed for Level 3 evaluation

Quantitative skills: QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Mark scheme, including the levels grid and indicative content

Examiner's comment

This was the more popular of the two essay questions. There tended to be less answers to this question that didn't focus on answering it. However, what did hold back a lot of candidates was that the question did not ask them to evaluate demand-side policies. The question specifically refers to the Global Financial Crisis of 2008. To get top marks candidates' answers needed to be in the appropriate context. For example a discussion of using high interest rates to combat high inflation is clearly not in the context of the UK economy over the last few years. As mentioned on section (f), it is important that candidates remember that their answer should include a 'substantiated judgement' as part of the criteria for level 3 evaluation. This is a more able answer where the candidate has discussed both expansionary fiscal and monetary policies. There is also a lot of context to their points, where they have clearly tried to relate what they are writing to the Global Financial Crisis of 2008. They have also included a number of good evaluative points, including about the elasticity of the AS curve, for example. Overall this answer achieved a high level 4 for KAA and a high level 2 for evaluation. In essay questions it is always good practice to break up your points into separate paragraphs so the structure of your argument is clearer. In this answer the candidate has explained the concepts of both fiscal and monetary policy and explained how they could help to boost aggregate demand in the economy. However, there is no context in terms of relating it to the Global Financial Crisis of 2008, and the analysis could be more developed. They also try to bring in the exchange rate but do not really explain it correctly. There are evaluation comments here but they are of a somewhat brief nature and, again, could do with a bit more development. Overall therefore this answer is a high level 2 for KAA and a low level 2 for evaluation. Remember to ensure your answer is focused on the specific context given by the question.

Notes from the mark scheme and report

• policies must be linked to the 2008 crisis: cuts in Bank Rate to 0.5%, QE, bank bailouts, fiscal stimulus and tax cuts, in the UK and/or US
• evaluate liquidity trap, debt and deficits, time lags
• report: answers about high rates to fight inflation are out of context
• substantiated judgement needed