June 2019: AS Paper 2

Mark scheme

Examiner's comment

This question requires a short but precise definition of injection. It is important that candidates are clear in their answers. Candidates could access marks through a range of approaches.

Notes from the mark scheme and report

• money entering the circular flow of income (investment, government spending, exports)
• in this context the £9.3 billion runway investment

Mark scheme

Examiner's comment

This is a multiplier calculation question that candidates were able to answer relatively easily, and the majority were able to do this. Candidates also need to be careful to read the question and the data carefully, as some candidates lost marks because they didn’t understand the requirements of the question.

Notes from the mark scheme and report

• multiplier = change in GDP / injection = £44.1bn / £9.3bn = 4.74
• report: some misread what the question required

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

Answer

D

Mark scheme

Notes from the mark scheme and report

• a higher MPM raises the leakages (MPW) so the multiplier 1/MPW falls (D)
• A, B and C each raise the multiplier

Mark scheme

Examiner's comment

This question requires candidates to illustrate the shape of the Keynesian long-run AS curve. A few candidates were not able to distinguish between the classical and the Keynesian AS curves.

Notes from the mark scheme and report

• Keynesian LRAS is horizontal at low output, upward sloping, then vertical at full capacity
• report: a few drew the classical vertical LRAS instead

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

Mark scheme

Examiner's comment

This question required candidates to explain the explanation of spare capacity. Many candidates were able to identify a point but often did not explain the point they had identified.

Notes from the mark scheme and report

• output below the full-capacity (full employment) level, unemployed resources, a negative output gap
• may use the elastic section of Keynesian LRAS
• report: many identified a point but did not explain it

Answer

D

Mark scheme

Notes from the mark scheme and report

• a change in AD causes a movement along the AS curve (D)
• A and B shift LRAS
• C shifts SRAS

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 identifying one effect, the application for explaining the data, and analysis for development building on the knowledge. Most candidates were able to access application marks.

Notes from the mark scheme and report

• quote the fall from about 8.3% in 2012 to about 4.3% in 2018 (4 percentage points)
• one effect (higher tax revenue, lower benefit spending, more income and consumption) with linked development

Quantitative skills: QS 10 (distinguish between changes in the level of a variable, and the rate of change); QS 12 (understand the meaning of seasonally adjusted figures); QS 9 (interpret, apply and analyse information in written, graphical tabular and numerical forms)

Answer

A

Mark scheme

Notes from the mark scheme and report

• lower corporation tax raises the incentive to invest and hire, cutting unemployment (A)
• B less QE and D a higher base rate reduce AD
• C higher benefits reduce the incentive to work

Mark scheme

Examiner's comment

This question requires a clear definition of price level. Many were not able to provide an accurate definition and hence did not get the mark for this question.

Notes from the mark scheme and report

• the average level of prices of goods and services in the economy (measured by CPI or RPI)
• "inflation" is not accepted
• report: "Many were not able to provide an accurate definition"

Mark scheme

Examiner's comment

This question requires candidates to draw the likely impact of government policy to promote business competition in context of an AD/AS diagram. Marks were awarded as 1 mark for the rightward shift in LRAS and 1 mark for a new equilibrium showing lower price level and higher real output. Most candidates achieved the 2 marks on this question.

Notes from the mark scheme and report

• competition policy shifts LRAS right
• the new equilibrium has a lower price level and higher real output

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

Answer

A

Mark scheme

Notes from the mark scheme and report

• improving infrastructure is an interventionist supply-side policy (A)
• B and C are contractionary demand-side policies
• D more regulation is not market-based deregulation

Answer

A

Mark scheme

Notes from the mark scheme and report

• higher house prices give homeowners a positive wealth effect (A)
• B house prices raise wealth, not income
• C and D wrongly predict lower confidence or spending

Mark scheme

Examiner's comment

This question asked candidates to calculate index numbers for 2015 and 2016. Many candidates were able to answer this question relatively easily. However, some candidates lost marks because they selected the wrong two pieces of data.

Notes from the mark scheme and report

• 2015: 200 141 / 189 709 x 100 = 105.5
• 2016: 215 127 / 189 709 x 100 = 113.4
• report: some used the wrong pieces of data

Quantitative skills: QS 5 (calculate and interpret index numbers)

Mark scheme

Examiner's comment

This question requires a definition of an index number. Few candidates were not able to provide an accurate definition, as they confused index number with the base year, and hence did not get the mark for this question.

Notes from the mark scheme and report

• a figure showing the value of a variable relative to a base year set at 100, so it shows the percentage change from the base
• do not confuse with the base year itself

Quantitative skills: QS 5 (calculate and interpret index numbers)

Mark scheme

Examiner's comment

The marks for this question are split in half between knowledge and application. Candidates achieved 2 marks for an explanation of how the change in the exchange rate of the pound has ‘contributed to rising inflation’ and 2 marks for relevant application from Figure 1 or Extract A.

Notes from the mark scheme and report

• a fall in the pound makes imports dearer (cost-push) and exports cheaper (demand-pull)
• two data references, e.g. CPI above the 2% target after Jan 2017, food prices up 3.5 percentage points

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

Mark scheme

Examiner's comment

This question asks candidates to explain two likely economic effects of the higher rate of UK inflation. It is important that candidates focus specifically on their effects and answer the question in terms of inflation. Too much time was wasted on explaining the causes of inflation, which was not the requirement of the question. Each reason needed to be identified and analysed. There are marks for application, which most candidates attained through the use of data from Extract A.

Notes from the mark scheme and report

• two EFFECTS of inflation (falling real wages, lower real value of debt, Bank Rate rise to 0.5%, hits low fixed incomes, worse current account) each with data and development
• report: much time wasted on causes of inflation

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 to explain one reason why it is necessary to regularly update the CPI basket of goods and services. Therefore, it is important for candidates to make the most of their time in the exam and not explain two factors. Several possibilities could be explained here. Popular application included the use of Figure 2 to explain answers. Candidates should remember that in these shorter questions examiners are looking for specific pieces of application.

Notes from the mark scheme and report

• the basket must reflect current spending patterns and weights so CPI measures the cost of living accurately
• quote Figure 2 items in and out (non-dairy milk in, basic mobile phones out)
• explain only one reason

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 required candidates to assess the likely impact of the change in the value of exports, on the economic growth of the UK using an AD/AS diagram. 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 of the impact. This would cover the exam skills of knowledge, application, and analysis. There are 4 marks available here for evaluation.

Notes from the mark scheme and report

• Level 3 needs an accurate AD/AS diagram with AD shifting right
• exports rose from about £43bn to £50bn a month after the 2016 depreciation, an injection with multiplier effects raising real GDP
• evaluate with import content, spare capacity and size relative to GDP

Quantitative skills: 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, including the levels grid and indicative content

Examiner's comment

This question required the candidates to discuss limitations of using GDP data to compare living standards between the UK and developing countries. Candidates needed to ensure they answered the question being asked, as there were a few answers which listed the limitations and did not develop their arguments. They were not able to receive higher analysis marks. Evaluation was fairly weak and most points were only listed. Many did not make any use of data in this question and often found it hard to access application.

Notes from the mark scheme and report

• limitations: growth rates without the level of GDP, informal economy (five times larger in developing countries), income distribution, PPP and exchange rates, population, quality of life
• report: limitations only listed, evaluation weak, many ignored the data

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)

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question required candidates to evaluate use of interest rate changes as a means of controlling UK inflation. Many candidates were able to effectively answer this question and provided arguments on impact on consumption and investment. They linked this to inflation using an AD/AS diagram in context of their explanations. One of the key issues was that many candidates discussed the reverse effect on these factors as evaluation and this was not credited. Those who were able to effectively answer this question explained their arguments in context of recent UK trends.

Notes from the mark scheme and report

• Bank Rate changes work through borrowing, saving, mortgages, investment and the exchange rate to shift AD
• use Figure 1 (CPI above 3%, Bank Rate raised to 0.5%)
• evaluate time lags, cost-push imported inflation, low rates already, confidence
• report: the reverse effect was not credited as 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 question required candidates the potential conflicts between the objective of economic growth and two other UK macroeconomic objectives. Although candidates were able to identify conflicts, they were not able to analyse why that conflict has occurred. Some candidates discussed the negative impacts of the other macroeconomic objectives, for example inflation but did not often explain why economic growth leads to inflation. There were some evaluative comments but they lacked chains of reasoning to access higher levels.

Notes from the mark scheme and report

• growth can conflict with low inflation (bottlenecks near capacity), the current account (high MPM), income equality and the environment
• explain WHY growth causes each conflict
• evaluate with supply-side growth and spare capacity
• report: candidates "were not able to analyse why that conflict has occurred" and evaluation lacked chains of reasoning