October 2020: Paper 2

Mark scheme

Notes from the mark scheme and report

• growth in 2017 was 1.7%: £200 000m x 1.017 = £203 400m
• report: "students found this a fairly difficult calculation" and scored much lower than on the Q4(a) calculation

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

Notes from the mark scheme and report

• 1 mark for 'real' (adjusted for inflation, constant prices) and 1 mark for GDP (total output, income or expenditure of the economy)

Answer

C

Mark scheme

Notes from the mark scheme and report

• the tallest bar is 2014 (2.9%), so growth was fastest then (C)
• no population data for per capita (A)
• no inflation data (B)
• growth was positive in 2015, so no recession (D)

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

Answer

C

Mark scheme

Examiner's comment

Question 2 was focused on the multiplier effect and whilst the majority of students could correctly answer the multiple-choice question, they found it harder to put the multiplier effect into words using the case study provided. Having said that, most students were able to demonstrate some understanding of what the multiplier process is and how it works. In question 3 students were asked to explain the role of the IMF in providing financial assistance. Similar to question 2, most students had some understanding of how the IMF could assist countries such as Argentina but some struggled to fully articulate it in order to achieve full marks. Having said that, there were some good answers that did this very effectively. Whilst the majority of students did correctly answer this multiple-choice question about capital flight and exchange rate systems, this multiple-choice question was the one students found hardest out of the 5. The first part of question 4 asks students to calculate the percentage change, and they scored significantly higher on this question compared to the calculation in question 1. In part b, most students could identify a relevant reason, and the majority were also able to earn the second mark for explaining their reason.

Notes from the mark scheme and report

• final increase = multiplier x injection = 1.8 x £115m = £207m (C)
• A divides by 1.8, B is just the initial £115m, D doubles it

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

Mark scheme

Examiner's comment

Question 2 was focused on the multiplier effect and whilst the majority of students could correctly answer the multiple-choice question, they found it harder to put the multiplier effect into words using the case study provided. Having said that, most students were able to demonstrate some understanding of what the multiplier process is and how it works. In question 3 students were asked to explain the role of the IMF in providing financial assistance. Similar to question 2, most students had some understanding of how the IMF could assist countries such as Argentina but some struggled to fully articulate it in order to achieve full marks. Having said that, there were some good answers that did this very effectively. Whilst the majority of students did correctly answer this multiple-choice question about capital flight and exchange rate systems, this multiple-choice question was the one students found hardest out of the 5. The first part of question 4 asks students to calculate the percentage change, and they scored significantly higher on this question compared to the calculation in question 1. In part b, most students could identify a relevant reason, and the majority were also able to earn the second mark for explaining their reason.

Notes from the mark scheme and report

• initial injection passes round the circular flow: one person's spending is another's income
• apply to Dover (construction workers spending in local cafés, new jobs, £115m x 1.8 = £207m)
• a diagram with two rightward AD shifts can earn 2
• report: many found it hard to put the multiplier process into words

Mark scheme

Notes from the mark scheme and report

• IMF provides temporary loans to promote stability, prevent default and stabilise the currency
• apply with the $57bn to Argentina
• analysis e.g. markets too risky to lend, IMF insists on reforms as a condition

Answer

B

Mark scheme

Notes from the mark scheme and report

• capital flight increases supply of the peso on the forex market, so under a floating system it depreciates (B)
• devaluation and revaluation refer to fixed systems
• appreciation is a rise
• report: the hardest of the five MCQs

Mark scheme

Notes from the mark scheme and report

• (910 - 894) / 894 x 100 = 1.79% (accept 1.78 to 1.8)
• divide by the April 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)

Mark scheme

Notes from the mark scheme and report

• identify a reason (Brexit uncertainty, high street closures, automation, slower growth) then develop it (firms stop expanding, jobs lost as sales move online, lower consumption means less derived demand for labour)

Answer

D

Mark scheme

Notes from the mark scheme and report

• technological change makes skills obsolete in an industry, causing structural unemployment (D)
• cyclical and seasonal unemployment are not caused by technology
• real wage unemployment is from real wage inflexibility

Mark scheme

Examiner's comment

Question 5 consists mainly of a draw question, and the vast majority of students demonstrated a very good understanding of what an AD/AS diagram should look like, and what should be happening on it in this case study- i.e. an increase in either aggregate supply and/or aggregate demand. Section B, the data response section, is based on information provided in the exam paper about trade and development issues in Africa. This includes 2 figures and 2 extracts on different issues.

Notes from the mark scheme and report

• labels on axes (price level, real output) and curves for 2 marks
• government-funded infrastructure can shift AD right, LRAS right or both
• show the new price level and real output

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

Answer

C

Mark scheme

Examiner's comment

Question 5 consists mainly of a draw question, and the vast majority of students demonstrated a very good understanding of what an AD/AS diagram should look like, and what should be happening on it in this case study- i.e. an increase in either aggregate supply and/or aggregate demand. Section B, the data response section, is based on information provided in the exam paper about trade and development issues in Africa. This includes 2 figures and 2 extracts on different issues.

Notes from the mark scheme and report

• spending on public transport is a domestic injection that raises AD and closes a negative output gap (C)
• World Bank funding and foreign aid leave the domestic circular flow
• a higher income tax reduces AD

Mark scheme

Examiner's comment

Question 6a was generally fairly well-answered, with students able to offer a range of impacts of a Fairtrade scheme on agricultural communities. For example the extra spending on things such as improving business administration and infrastructure or social services in the community as referenced in figure 1. Where students sometimes struggled was in being clear in their understanding of how the Fairtrade scheme works in terms of providing this extra support for agricultural communities.

Notes from the mark scheme and report

• guaranteed minimum price and Fairtrade premium reduce income volatility
• apply with Figure 1 (44% on business administration and infrastructure, 45% on equipment and training) or the US$2 600 median income in Extract A
• some were unclear how the scheme actually works

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

Question 6b asks students for two ways, apart from Fairtrade schemes, that cocoa farmers could boost their incomes despite cocoa prices falling. Some students unfortunately did not read the question properly and discussed Fairtrade schemes. This highlights the importance of properly reading the question through and making sure it is understood. Students also need to remember that in an 8 mark question there are two marks for each of the four assessment objectives- knowledge, application, analysis, and evaluation. Students often don’t have clear application and/or forget to evaluate, thereby making it impossible for them to achieve all the marks on this question. In terms of relevant answers, there are a wide range of possible ways to discuss, many of which are found in extract A. For example, diversifying into other crops or livestock, or investing in new machinery.

Notes from the mark scheme and report

• two ways apart from Fairtrade (diversification, machinery and fertiliser to raise yields, processing beans to add value)
• apply with Extract A (prices fell by over a third, yields half of potential)
• evaluate e.g. higher yields push cocoa prices down further
• discussing Fairtrade scores nothing

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

Question 6c is a 12-mark question. This is the first question on the paper marked using a levels marking system, and all the rest of the questions on this paper are marked in this way. The focus with this markscheme is very much on the quality and detail of the answer in clearly and convincingly answering the question. This question focuses on the problems for countries such as the Ivory coast of being heavily dependent on exports of cocoa, as shown by figure 2. Students don’t have to refer to Ivory Coast, but most chose to as they have been given information on the cocoa industry there. Students also needed to make sure they referred to figure 2, as asked to in the question, in order to access the level 3 mark band. There were a wide range of answers provided for this question, with the majority focusing on the issue of fluctuating prices making it hard to plan ahead- e.g. investing for the future. Answers also considered the impact on terms of trade and the current account for countries such as Ivory Coast.

Notes from the mark scheme and report

• volatile prices deter investment and planning
• falling cocoa prices worsen the terms of trade and current account
• Level 3 needs specific reference to Figure 2 (cocoa 54% of exports)
• evaluate with comparative advantage in cocoa, Fairtrade

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

Question 6d is a 10-mark question, and students found this slightly more difficult than the previous question. This was in many instances down to students not reading the question carefully and thinking about the context they have been given. This question is about Nigeria joining the African Continental Free Trade Agreement. The key thing here is, if Nigeria did decide to join, what policies the government could put in place to alleviate the concerns of the country’s manufacturers and trade unions. If Nigeria did decide to join this trade bloc, then it would involve the country agreeing to ‘removing tariffs on 90% of goods and to liberalise services’ (Extract B lines 4-5). As such answers suggesting that Nigeria could impose protectionist policies such as tariffs or quotas against imports from other African countries simply don’t make logical sense. You can’t join a trade bloc and remove tariffs, then put those tariffs back again. This highlights the importance of students making sure their answers are sensible and plausible in light of the context of the question. The last question in Section B, question 6e, is about the benefits of increased economic integration for sub-Saharan African countries. In order to access level 3 for Knowledge, Application, and Analysis students needed to make sure they referred specifically to benefits for sub-Saharan African countries, as asked to in the question. Better answers often discussed the benefits resulting from trade creation, and the downsides (as evaluation) being caused by trade diversion. But there were other good answers on topics such as increased employment or rising incomes. In evaluation points students sometimes failed to clearly explain how it was a downside of increased economic integration, and there was sometimes a tendency to mention several different evaluative ideas rather than offer a clear explanation of a specific point. The last part of this exam paper, Section C, provides students with two essay questions. They have to choose to answer one of them. In this exam paper question 7 proved to be significantly more popular than question 8, with only around 10% of students sitting the paper choosing to answer question 8. Students, on average, did perform better on question 7, but then the numbers are so low for question 8 that this isn’t really statistically significant.

Notes from the mark scheme and report

• policies to make manufacturers competitive inside the bloc (supply-side education and healthcare, deregulation, infrastructure, temporary subsidies, lower business taxes)
• tariffs or quotas on bloc members make no sense once Nigeria has joined and removed tariffs on 90% of goods
• evaluate time lags, opportunity cost

Mark scheme, including the levels grid and indicative content

Notes from the mark scheme and report

• trade creation, specialisation by comparative advantage, larger market, more jobs and higher wages
• Level 3 needs specific reference to sub-Saharan African countries
• evaluate with trade diversion, contagion of recessions and financial crises, competition from lower-wage members

Mark scheme, including the levels grid and indicative content

Examiner's comment

Question 7 focused on fiscal policy and the impact of cutting tax rates as a policy to increase economic growth. Many students did use the information provided about the United States cutting corporation tax and income tax, but it was good to see students also bringing in their own examples from their own knowledge. Students discussed a range of positive and negative impacts, for example reduced corporation tax allowing firms to keep more profits would hopefully encourage them to reinvest into their business, helping to boost productivity. However, to evaluate that, many students suggested that firms might simply increase payments to their shareholders rather than reinvest the money. Most answers were able to provide a reasonable answer to the question, but often lacked something to reach the higher marks. This was sometimes a lack of ‘logical and coherent chains of reasoning’ (from the level 4 criteria on the markscheme). The other thing that was often missing from answers was application- being ‘applied appropriately to economic issues and problems’ (also from the markscheme). Students needed to consider both positive and negative impacts on the economy (for KAA and Evaluation, either way around). Weaker answers sometimes focused only on either benefits or downsides. Sometimes evaluation also became more of a list rather than developed and well-articulated points.

Notes from the mark scheme and report

• lower corporation tax raises retained profit for investment, lower income tax raises disposable income and incentives
• evaluate with saving, payouts to shareholders instead of investment, higher government debt and crowding out, less spending on infrastructure and education
• one side KAA and the other evaluation
• answers often lacked application and developed chains

Mark scheme, including the levels grid and indicative content

Examiner's comment

Question 8 is about the causes of income and wealth inequalities within a country such as Brazil. As with question 7, students often chose to discuss Brazil as they have been given some information on it in the exam paper, but better answers often included information from the students’ own knowledge. Students also needed to make sure they fully answered the question- i.e. that they discussed causes of both income and wealth inequalities. Discussion of both was required in order to be awarded a level 4 mark for KAA. Evaluation on this question required students to critique the causes they have discussed, i.e. why they might not be very important or significant causes of income or wealth inequalities. KAA points on this question could include causes such as corruption, a lack of a redistributive fiscal policy, or high levels of inheritance without much in the way of taxes on it. Evaluation tended to focus on magnitude or time factors. Evaluation could also be considering which of the causes students have discussed in their answer is the most significant.

Notes from the mark scheme and report

• causes of income and wealth inequality (corruption, little redistributive fiscal policy, regressive indirect taxes, unequal education and healthcare, rural-urban divide, weak unions, untaxed inheritance)
• Level 4 KAA requires causes of BOTH income and wealth inequality
• evaluate magnitude and time