June 2017: AS Paper 2

Mark scheme

Examiner's comment

This is a straightforward percentage change calculation that candidates should be able to answer relatively easily, and the majority were able to do this. It is vital that time is spent practicing calculations such as this. Candidates also need to be careful to read the question and the data carefully, as a number of candidates lost marks because they selected the wrong two pieces of data. This candidate achieves 2/2 marks. They have correctly calculated an answer of – 0.16%. Always show your working out in calculation questions. This candidate also correctly calculates the right answer and as such achieves full marks.

Notes from the mark scheme and report

• (128.2 - 128.4) / 128.4 x 100 = -0.16% (accept -0.15 to -0.2)
• use the September 2014 and 2015 values, some picked the wrong pair

Quantitative skills: QS 2 (calculate, use and understand percentages, percentage changes and percentage point changes); QS 5 (calculate and interpret index numbers)

Mark scheme

Examiner's comment

This question requires a short but precise definition of deflation. It is important that candidates are clear in their answers. This candidate has an accurate definition of deflation and as such achieves the 1 mark available. This answer also includes a correct definition of deflation and as such scores full marks.

Notes from the mark scheme and report

• a fall in the general (average) price level, i.e. negative inflation
• not a fall in the rate of inflation

Answer

A

Mark scheme

Notes from the mark scheme and report

• falling oil prices cut firms' costs (SRAS shifts right) causing cost-push deflation (A)
• lower unemployment, income tax or interest rates all raise AD and push prices up

Mark scheme

Examiner's comment

In this question the marks are split as 1 for knowledge, 1 for application, and 1 for analysis. The knowledge comes from explaining what under-employment is, the application for discussing the numbers, and analysis for some development building on the knowledge. This answer scores 2/3 marks. There is a correct definition of under-employment and also application that it has increased by 86.7%. There is no analysis of their answer. This candidate scores full marks. They have explained what under-employment is, applied it to the information provided, and also analysed this in terms of falling unemployment and zero hours contracts.

Notes from the mark scheme and report

• working fewer hours than wanted (or below one's skills)
• data: rose from 76 482 to 142 788 (about 87%) while unemployment fell to 5.7%
• analysis e.g. zero-hours and part-time contracts, flatters the unemployment figure

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

D

Mark scheme

Notes from the mark scheme and report

• higher consumer spending raises AD and the derived demand for labour (D)
• higher benefits, falling real GDP and less apprenticeship funding would raise unemployment

Answer

B

Mark scheme

Notes from the mark scheme and report

• France's index rose to about 102 while Italy's fell to about 92, so France grew faster (B)
• the UK index is above 100 in 2014 (A wrong)
• real GDP says nothing about inflation (C)
• France did not fall in 2014 (D)

Quantitative skills: QS 5 (calculate and interpret index numbers); QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Mark scheme

Examiner's comment

This question is asking for a definition of real GDP. With 2 knowledge marks available there are two specific things candidates need to include. They need to define the 'real' part and the 'GDP' part. This answer scores the full 2 marks. They have explained what GDP is first of all and then the 'real' aspect. This answer explains the 'real' aspect of the definition but not the GDP part and as such gets 1/2 marks. GDP is an acronym of gross domestic product, for a definition of GDP you need to explain what it means, not simply spell out the words.

Notes from the mark scheme and report

• 1 mark for GDP (total value of output/income/expenditure in an economy) and 1 for real (adjusted for inflation)
• spelling out 'gross domestic product' is not a definition

Mark scheme

Examiner's comment

There is 1 mark available for this question, for showing an output gap on the diagram. Whilst a lot of candidates did get this correct there was also a significant number who clearly didn't know what to do to answer this question. This answer does not illustrate an output gap and so therefore scores no marks. This candidate has correctly identified an output gap as the difference between full employment and the current level of output, and thus achieves the 1 mark available.

Notes from the mark scheme and report

• mark the gap between current real output Y1 and full-capacity output where AS becomes vertical
• many did not know what to show

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

Mark scheme

Examiner's comment

This question requires candidates to draw the effect of the increase in the personal allowance in terms of an AD/AS diagram. Marks were awarded as 1 mark for the rightward shift in AD and 1 mark for a new equilibrium showing higher price level and real output. Most candidates achieved the 2 marks on this question. This answer achieves the full 2 marks – the shift in AD is correct and they have illustrated the new equilibrium and the change in price level and real output with the dotted lines. This answer achieves 0 marks – there is no shift in aggregate demand and also therefore no appropriate new equilibrium and impact on price level and real output.

Notes from the mark scheme and report

• a higher personal allowance raises disposable income and consumption so AD shifts right
• show the new equilibrium with higher price level and real output (an AS shift right is also allowed)

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

Mark scheme

Examiner's comment

With these questions it is important that candidates do not waste time. The question has asked only for a definition of a direct tax, so that is all the candidates should write. In terms of what constitutes a correct definition, it is a tax on income or profits (or similar words). This answer scores full marks – a short but accurate definition of a direct tax. This answer is too vague, not specifically defining a direct tax, and so scores 0 marks.

Notes from the mark scheme and report

• a tax on income or profits (paid directly to the government by the person earning it)
• vague answers score 0

Answer

C

Mark scheme

Notes from the mark scheme and report

• corporation tax is a tax on profits (C)
• VAT, vehicle excise duty and alcohol duty are indirect taxes on spending

Mark scheme

Examiner's comment

In this question the 3 marks are divided between knowledge, application, and analysis. Knowledge comes from identifying a likely reason. Application comes from studying the chart and seeing that between 2012 and 2015 consumer confidence has increased. Analysis comes from explaining the reason. One mistake that candidates made was not reading the question carefully – it refers specifically to the time period 2012 to 2015, when consumer confidence had improved, as you can see on the chart. As such answers discussing a reason for confidence falling (as it did in earlier years) are unlikely to receive many marks. This answer scores the full 3 marks. They have correctly interpreted the graph to see the consumer confidence has risen. They have identified falling unemployment as a reason, and have then gone on to explain this. It is important that candidates can quickly and easily interpret charts such as this. It is therefore worth practicing this as part of exam preparation. In this answer the candidate scores 2/3 marks. They receive the application mark for consumer confidence is rising and they have identified that coming out of recession is a likely reason. However, there is no analysis of why this would cause consumer confidence to rise. To get full marks you need to remember to explain your points, not just state them.

Notes from the mark scheme and report

• confidence rose from a low of about -25 in 2012 to positive in 2015
• reason e.g. falling unemployment or rising real incomes, then explain the link (job security)
• reasons for falling confidence earn little

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

Answer

D

Mark scheme

Notes from the mark scheme and report

• more confident consumers save a smaller share of extra income, so MPS falls (D)
• MPC would rise, MPT and MPM are not driven by confidence

Mark scheme

Examiner's comment

The marks for this question are split in half between knowledge and application. Candidates achieved 2 marks for an accurate definition and 2 marks for some relevant application from the information. Where most candidates lost a mark was in not stating that net trade is the value of exports minus value of imports rather than simply exports minus imports. This candidate achieves 3/4 marks. They have both of the application marks – discussing both the UK's and Germany's figures. They also earnt 1 knowledge mark for exports minus imports. There is no reference to value and hence they did not receive the final knowledge mark. This answer scores the full 4 marks available. They explain what net trade is and have two relevant pieces of application. Always be clear and precise in definitions of key terms such as net trade.

Notes from the mark scheme and report

• net trade = value of exports minus value of imports (X - M)
• 'value' needed for the second knowledge mark
• application e.g. UK -2% (deficit), Germany +6% (surplus)

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 builds on the previous question, considering reasons why the UK might have a current account deficit. In these longer questions the focus for a candidate needs to be on the quality of their answer, bearing in mind the levels mark scheme. They should ensure they are clearly giving step-by-step explanations their reasons. This would then cover the exam skills of knowledge, application, and analysis. There are also 4 marks available here for evaluation – presenting the counter-argument and considering why these reasons may not be valid explanations. Popular comments revolved around the exchange rate and real incomes, coupled with the UK's high marginal propensity to import. Keep the levels in mind – in this case you are aiming for KAA Level 3 and Evaluation Level 2. This is a more able response, scoring the full 10 marks. It clearly and logically explains different reasons for why the UK has a current account deficit and also offers relevant evaluation of these points along the lines of elasticity, which where relevant is often a good topic to use for evaluation. This answer scores 4 marks in total. There is no evaluation and so the highest mark possible is 6/10 marks. In terms of KAA relevant points have been identified but the explanation of them fits with the criteria for Level 2. There is room for a clearer explanation of the points beyond stating them and offering a bit of reasoning.

Notes from the mark scheme and report

• causes: strong pound, rising real incomes with a high propensity to import, slow world growth, low productivity (20 points below G7)
• 4 evaluation marks, e.g. elasticities
• no evaluation caps the mark at 6

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

Mark scheme

Examiner's comment

This question asked candidates for one specific reason, so it is important for candidates to make the most of their time in the exam and not explain two reasons. A number of possibilities could be explained here, such as interest rates and business confidence. Popular application included the 5% growth in UK investment and unemployment falling. Candidates should remember that in these shorter questions examiners are looking for specific pieces of application. This brief answer provides exactly what the examiner is looking for. A relevant point in the form of interest rates which is clearly analysed along with application from the extract. Be concise and stick to the point in these shorter questions. This answer achieves a score of 4/5 marks. It has identified a relevant point and has application also. However, the analysis is somewhat limited. A more detailed explanation is needed of the link between economic growth and investment.

Notes from the mark scheme and report

• one influence only (e.g. interest rates, business confidence, rising demand)
• application: investment grew 5%, fastest output growth in the G7
• develop the link e.g. lower borrowing costs raise the return on investment

Mark scheme

Examiner's comment

This question asks candidates for 'two likely reasons...'. It is important that candidates focus specifically on their reasons, as too much time was wasted on explaining what nominal GDP per capita at PPPs was. Each reason needed to be identified and analysed and there are also marks for application. In the first part of the answer, the candidate correctly identifies the UK's current account deficit as a likely reason and they have some application. However, their analysis is confused and they appear to have drifted into talking about a budget deficit. Their second point is better and includes all three exam skills of knowledge, application, and analysis. Overall therefore this answer achieves 5/6 marks. Make sure you know the difference between a current account deficit and a budget deficit. In this answer the first nine lines achieve no marks because they are not answering the question. When they do start to answer the question they get 1 application mark for the UK data reference, not the German one as that is incorrect. They also achieve a knowledge mark for their point about inflation. This gives them a total of 2/6 marks.

Notes from the mark scheme and report

• two reasons (faster UK population growth, falling productivity, weak exports, different inflation or PPP changes) each developed with data from Figure 2 or Extract A
• do not spend time defining GDP per capita at PPPs
• current account deficit is not the budget deficit

Quantitative skills: QS 5 (calculate and interpret index numbers); 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 should be a straightforward question, with candidates simply needing to explain supply-side policies to improve productivity. Again candidates needed to ensure they answered the question being asked, as there are quite a few answers where the focus was on 'policies'. Candidates hadn't stopped to consider what types of policies would be suitable as a means to improve productivity. The other key issue with any question about productivity is that candidates too often confuse it with production – the aim here isn't to specifically produce more, it is to produce more efficiently. This is a high quality answer. The candidate discusses education, but thinks about the context here by specifically referring to the manufacturing industry. They also have some well-considered evaluation of this point and analyse and evaluate deregulation as a measure to increase productivity. There is also some discussion of changing income tax bands to improve incentives for workers. With highly developed points that are clearly focused on productivity as well as evaluation that clearly critiques these analysis points this answer is worthy of the top Level 3 for both KAA and evaluation. Ensure you understand key economic concepts such as productivity. This answer focuses on the same topics as the previous example, education and regulation. However, the analysis is much briefer and lacking fully coherent chains of reasoning. The points are correctly identified and there is an attempt to explain their link to productivity but it isn't developed sufficiently. The evaluation of education is also confused. Overall this is a low Level 2 for KAA and a Level 1 for evaluation. There is no need for a conclusion in this question, remember to focus your time only on what is going to get you marks.

Notes from the mark scheme and report

• Level 3 needs clear links to productivity (output per worker), not just more production
• education and apprenticeships, infrastructure, planning reform from Extract A
• evaluate with cost, time lags, opportunity cost

Mark scheme, including the levels grid and indicative content

Examiner's comment

This should be a straightforward question, with candidates simply needing to explain supply-side policies to improve productivity. Again candidates needed to ensure they answered the question being asked, as there are quite a few answers where the focus was on 'policies'. Candidates hadn't stopped to consider what types of policies would be suitable as a means to improve productivity. The other key issue with any question about productivity is that candidates too often confuse it with production – the aim here isn't to specifically produce more, it is to produce more efficiently. This answer starts by briefly explaining how unemployment will grow because of economic growth but there is definitely room for a more detailed explanation of this as a benefit of economic growth. The candidate then goes on to suggest that inflation is a downside of this. And here the answer gets a little confusing as they now immediately follow this up by talking about how economic growth will lead to less inflation and all the benefits of this. They are referring to economic growth in the form of increasing aggregate supply, but this is not very clear from what they have written. This is developed further with a link to less inflation making the UK more competitive. Overall there is some good economics in this answer which is accurate and does address the broad elements of the question. However, it is somewhat confusing to understand and there is significant room for more detailed explanation of the points being made. This is therefore KAA Level 3 and evaluation Level 2. Try to make sure you don't contradict yourself between different points without a clear justification of the point you are making. This is a more able response which clearly fits the criteria for the top levels of both KAA and evaluation. There is a thorough explanation of how lower unemployment occurs as a result of rising GDP, along with an AD/AS diagram to illustrate the point. There is also a clear explanation of why this is a benefit with reference to rising living standards. This is followed by a well-developed evaluative argument about the problem of rising inflation and the resultant impact on the current account deficit. Their second point is similarly well-argued and evaluated, focusing this time on the government's finances and whether they will improve or not. Make sure your answers are fully related back to the question – in this case make sure you explain why/how it's a benefit/downside of economic growth, don't just state that it is.

Notes from the mark scheme and report

• benefits: living standards, employment, tax revenue, profits and investment, LRAS growth lowering inflation
• Level 4 needs explicit reference to the 'concerns' (current account deficit, low export growth, household debt)
• evaluate with costs of growth

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question was significantly less popular than 6(f). Despite that the candidates who did answer it were perfectly capable of producing high quality answers. Candidates who achieved highly on this question developed their answers clearly and with high quality chains of reasoning in both their KAA and evaluation. The very best answers included a 'substantiated judgement'. Many good answers also integrated AD/AS diagrams into their arguments to further illustrate and explain the point they were making. As a broad question there are a wide variety of arguments that can be made on both sides of the question. This is a more able response which achieves top levels for both KAA and evaluation (Levels 4 and 3 respectively). The candidate starts off with a very long and detailed explanation of why a further recession is inevitable, encompassing net trade, unemployment, and the government's finances. This is further enhanced by an AD/AS diagram. This argument is clearly and convincingly countered in the following evaluation point. Both of these points have good context to back them up. The next KAA point is not so good and does have a few issues, but the broad thrust of the argument is very sound. This means in terms of an overall mark we would be looking at the lower half of the Level 4 marks. It is also clearly evaluated. Where relevant, always try to include diagrams to aid the argument you are making. Make sure you refer to these as part of your written answer. This candidate has made a reasonable attempt to answer the question but has failed to fully develop their answer and as such is unable to access the higher levels of the mark scheme. They correctly explain the problem of a current account deficit, although it is slightly simplistic and lacks any context. They then evaluate by suggesting that maybe the government will intervene and solve the problem – a somewhat implausible and simple argument. The next point correctly identifies the problem of rising household debt but seems somewhat confused in terms of what the impact of this would be, focusing on it somehow leading to more debt both for consumers and firms. Following on from this is some more relatively straightforward evaluation. Overall this answer is a low Level 3 for KAA (mainly thanks to the first part) and a low Level 2 for the evaluation. You have been given a case study to help you – make the most of it to ensure your answer is applied to the UK economy.

Notes from the mark scheme and report

• for: consumption-led growth (66% of AD), rising household debt, weak exports and the missed £1 trillion target
• against: strong growth, falling unemployment, policy responses
• one side is KAA and the other evaluation
• best answers reach a substantiated judgement