June 2024: AS Paper 2

Answer

A

Mark scheme

Notes from the mark scheme and report

• a rise in real GDP is actual economic growth (A)
• B and C are output gaps (actual below or above potential)
• D potential growth is a rise in productive capacity

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 impact, the application for explaining the data, and analysis for development building on the knowledge. Most candidates were able to access knowledge and application marks but were unable to develop the point identified.

Notes from the mark scheme and report

• one limitation (exchange rates vs PPP, population growth, informal/subsistence economy, income distribution) then develop it
• data e.g. 4.6% vs 1.7% growth (2.9 percentage points)
• most failed to develop the point

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

Mark scheme

Examiner's comment

This question requires a precise definition of marginal propensity to consume. It is important that candidates are clear in their answers. Candidates could access marks through a range of approaches. Not many students accessed the knowledge mark for the definition.

Notes from the mark scheme and report

• the proportion of each extra pound of income spent on consumption (change in C / change in Y)
• report: "Not many students accessed the knowledge mark for the definition"

Mark scheme

Examiner's comment

This question requires candidates to explain one likely factor that could increase the level of consumption of UK households. Candidates were able to answer this question relatively easily.

Notes from the mark scheme and report

• one factor with its reason, e.g. lower interest rates cut the cost of borrowing and reward for saving, or higher disposable income, confidence, wealth effects

Answer

D

Mark scheme

Notes from the mark scheme and report

• multiplier = 1 / (1 - MPC) = 1 / 0.2 = 5 (D)
• A is 1 - 0.8, B is the MPC, C is 1 / 0.8

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

Answer

C

Mark scheme

Notes from the mark scheme and report

• net migration fell from about 300 000 to about 220 000 after the referendum (C)
• A more people entered than left
• B migration affects LRAS, not a fall in SRAS
• D emigration was fairly stable

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

Mark scheme

Examiner's comment

In this question the marks are split as 1 for knowledge, 1 for application, and 1 for analysis. This is a net migration question that candidates were able not to answer accurately and the majority were unable to relate it to employment. Candidates also need to be careful to read the question and the data carefully, as some candidates lost marks because they did not understand the requirements of the question.

Notes from the mark scheme and report

• link migration to employment: more labour supply fills vacancies, and more spending creates jobs
• quote the chart (immigration fell after the 2016 referendum, emigration rose from 350 000 to 400 000)
• report: the majority "were unable to relate it to employment"

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

Mark scheme

Examiner's comment

This question requires a clear definition of the term investment. Many provided accurate definitions and hence attained the one mark available for this question.

Notes from the mark scheme and report

• spending by firms on capital goods (addition to the capital stock), an injection into the circular flow
• not buying shares

Mark scheme

Examiner's comment

This question requires candidates to show/draw the likely impact of a fall in business investment in the context of an AD/AS diagram. Marks were awarded as 1 mark for leftward shift in AD and 1 mark for equilibrium showing new price level and new real output. Most candidates achieved the 2 marks on this question.

Notes from the mark scheme and report

• shift AD left and mark the new equilibrium with lower price level and lower 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

• weaker business expectations (animal spirits) cut investment (A)
• less regulation, more export demand and faster growth would all raise investment

Mark scheme

Examiner's comment

This question requires a clear definition of the term budget deficit. Many provided an accurate definition and hence attained the one mark available for this question.

Notes from the mark scheme and report

• government spending greater than tax revenue in a year
• not the national debt

Mark scheme

Examiner's comment

This question asked candidates to calculate percentage decrease in budget deficit. Many candidates found this question a little challenging to answer. These candidates lost marks because they did not use the correct formula.

Notes from the mark scheme and report

• (83.6 - 38.7) / 83.6 x 100 = 53.7% decrease (accept 54)
• many used the wrong formula, e.g. dividing by the 2019 figure

Quantitative skills: QS 2 (calculate, use and understand percentages, percentage changes and percentage point changes)

Answer

B

Mark scheme

Notes from the mark scheme and report

• higher taxes and lower spending narrow the budget deficit (B)
• A widens it
• C and D are about the current account, not the budget

Mark scheme

Examiner's comment

The four marks for this question are split in half between knowledge and application. Candidates achieved 2 marks for explanation of the term inflation rate and 2 marks for relevant application from Figure 1 only.

Notes from the mark scheme and report

• the percentage change in the average price level over a year
• application from Figure 1 only, e.g. 0% in 2016 rising by nearly 2 percentage points by 2017, peak of 5% in 2012

Quantitative skills: QS 10 (distinguish between changes in the level of a variable, and the rate of change); 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 assess the likely impact of an increase in real wages on the UK economy 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 covers 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 AD/AS diagram with AD shifting right (higher consumption, real output and price level, lower unemployment)
• evaluate with spare capacity, saving, imports, cost-push effects on SRAS

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

Mark scheme

Examiner's comment

This question asks candidates to explain two characteristics of a recession. It is important candidates focus specifically on characteristics and answer the question in terms of a recession. Too much time was wasted on explaining the effects of a recession, which was not the requirement of the question. Each reason needed to be identified and analysed. There are marks available for application, which most candidates attained through the use of data from Extract A.

Notes from the mark scheme and report

• characteristics, not effects, of a recession: falling real GDP (Q2 2008 to Q3 2009), rising unemployment (8.5% in 2009), falling inflation, falling investment
• one data reference each

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 ‘the fall in the exchange rate of the British pound’ is likely to increase inflation. Therefore it is important for candidates to make the most of their time in the exam and not explain the effects of inflation. Many possibilities could be explained here. Application required use of Extract A to explain answers. Candidates should remember that in these shorter questions examiners are looking for two specific pieces of application.

Notes from the mark scheme and report

• a weaker pound makes imports dearer (cost-push via SRAS) and exports cheaper (AD rises, demand-pull)
• two application marks from Extract A e.g. Brexit uncertainty
• do not explain the effects of inflation

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question required the candidates to discuss factors, apart from changes in real wages, which the MPC may have considered when changing the base interest rate. Candidates needed to ensure they answered the question being asked, as there were a few answers which listed the impact of changes in interest rates and did not answer the question. Those who made an attempt could identify their factors, but they were not able to receive analysis marks. Evaluation was weak and most points were only listed. Many did not make any use of data and often found it hard to access application.

Notes from the mark scheme and report

• factors other than real wages: output gap and growth (Figure 2), inflation forecasts (Figure 1), confidence and Brexit uncertainty, unemployment at 4%, exchange rate, house prices
• answer about why rates change, not the effects of changing them
• report: evaluation was weak and most points only listed, with little data use

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question required candidates to evaluate whether expansionary demand- side policies lead to conflicts between macroeconomic objectives. Many candidates were able to effectively answer this question and were able to identify policies and explain the conflicts. They linked this to an AD/AS diagram in context of their explanations. One of the key issues was that many candidates discussed solutions to solving the conflict as evaluation and this was not credited. Those who effectively answered this question explained their arguments in context.

Notes from the mark scheme and report

• expansionary fiscal and monetary policy raise growth and employment but may conflict with inflation, the current account, a balanced budget and the environment (AD/AS diagram)
• evaluate with spare capacity and short-run Phillips curve, not solutions to the conflicts

Mark scheme, including the levels grid and indicative content

Examiner's comment

This question required candidates to evaluate whether the MPC has been successful in meeting the UK’s macroeconomic objectives. Candidates argued why the MPC has not been successful as analysis and the opposite as evaluation. Although candidates were able to analyse most of their arguments, they were not able to discuss them in detail. There were several other evaluative comments made, but they lacked chains of reasoning to access higher levels.

Notes from the mark scheme and report

• success: rate cut of 4.75 points and £375 billion QE averted depression, unemployment fell to 4%, inflation mostly near target
• failure: inflation above target at times, rising household debt, weak growth and real wages
• develop each argument