A-level Economics Tutor

October 2020: Paper 3

100 marks · 10 question parts · Paper, mark scheme and report on Pearson's site · The October 2020 papers are the papers printed for the cancelled summer 2020 exams

Question by question

QTopicMarksAOType
1(a) Exchange rates 5AO1=2,AO2=2,AO3=1Short answer
1(b) Exchange rates 8AO1=2,AO2=2,AO3=2,AO4=2Extended response
1(c) Government intervention in markets, Market failure and externalities 12AO1=2,AO2=2,AO3=4,AO4=4Extended response
1(d) Demand-side policies: fiscal and monetary policy, Revenues, costs and profits 25AO1=4,AO2=4,AO3=8,AO4=9Essay
1(e) Supply-side policies, Market failure and externalities 25AO1=4,AO2=4,AO3=8,AO4=9Essay
2(a) Measuring economic growth: GDP, GNI and living standards 5AO1=2,AO2=2,AO3=1Short answer
2(b) Aggregate supply 8AO1=2,AO2=2,AO3=2,AO4=2Extended response
2(c) Revenues, costs and profits 12AO1=2,AO2=2,AO3=4,AO4=4Extended response
2(d) International competitiveness, Supply-side policies 25AO1=4,AO2=4,AO3=8,AO4=9Essay
2(e) Aggregate supply, The labour market 25AO1=4,AO2=4,AO3=8,AO4=9Essay

The questions

1(a)1(b)1(c)1(d)1(e)2(a)2(b)2(c)2(d)2(e)
October 2020 · Paper 3 · Q1(a) 5 marks AO1=2, AO2=2, AO3=1 Short answer exchange rates
Data and extracts for question 1Turkey – an emerging economy Figure 1: Turkey’s central bank lending rate, percent, 2013–2018 25 20 15 % 10 5 0 2014 2015 2016 2017 2018 Figure 2: Selected emerging economy exchange rates, percentage change against the US dollar: January 2018 compared to January 2016. Russian rouble South African rand Polish zloty Hong Kong dollar Chinese renminbi Indian rupee Turkish lira Argentine peso -60 -40 -20 0 20 Percentage changes (Source adapted from: FT.com) Extract A Can Turkey’s central bank avoid another rate rise? At an annual rate of 25%, Turkey’s inflation is alarming. However, it may have peaked. This may be a turning point for the economically struggling country, whose currency (the Turkish lira) has lost nearly a third of its value against the US dollar in 2018. The central bank may be able to avoid tightening monetary policy further, as a severe economic 5 adjustment is already well under way. Turkey is highly indebted in foreign currency. The Turkish government takes measures against excessive appreciation or depreciation of the Turkish lira to reduce financial stability risks. The financial market faces difficulties in trying to restore foreign investors’ confidence. Consumer prices increased by 2.7% in October 2018, a much lower rate than the 6.3% 10 recorded in September 2018. The lira has stabilised, having risen 16% since the central bank raised interest rates by 6.25 percentage points. However, the government wants lower borrowing costs to fuel credit growth and economic expansion. Timothy Ash at a London investment bank says at this point it’s “illogical” to raise interest rates again in Turkey. That’s because Turkey’s economy is already experiencing a severe slowdown. 15 In the long term Turkey’s economic growth is expected to be above that of other emerging markets such as Brazil, Russia and China. Turkey’s private sector is resilient. Between 2018–50 we expect Turkey to grow by an annual average of 3.1%. Brazil is expected to grow by an annual average of 2.1%, Russia by 1.6% and China by 2.8%. GDP growth will nevertheless be well below that recorded in 2004–07 and 2010–15. Average 20 growth in GDP per head will be substantially lower, mainly reflecting the expected rise in the total population. (Source adapted from: https://ftalphaville.ft.com/2018/11/06/1541508141000/Can‑Turkey‑s-central‑bank- avoid‑another‑rate‑hike‑/. 6 Nov 2018 Colby Smith and one sentence The president wants lower borrowing costs to fuel credit growth and economic expansion from https://www.theguardian.com/world/2018/aug/07/turkey‑urged‑to‑announce-emergency-interest‑rate‑hike Larry Elliott 7/8/18 and http://country.eiu.com/article.aspx?articleid=157174199&Country=Turkey&topic=Economy&subtopic= Long-term+outlook&subsubtopic=Summary) Extract B Turkey aims to bin the plastic bag You get a free plastic bag whenever you go to a shop, even if it is just to buy a loaf of bread or a chocolate bar. In Turkey, plastic bags are everywhere, with millions being thrown away, and their use is causing a growing environmental problem. In Istanbul, the country’s biggest city with about 12 million people, around 10 000 tonnes 5 of waste are being collected every day. Plastic bags and other plastic waste make up 950 tonnes, or almost 10%, of the total waste. The Turkish government said it was looking at ways to discourage the consumption of single‑use plastic bags. One possible step currently under review is a ban of the black bags that are said to contain carcinogens. Another is that the state may raise taxes 10 on plastic products, which could lead to supermarkets charging consumers for the bags. In Corlu, a town north‑west of Istanbul, a local environmental group distributed 20 000 canvas bags to shoppers in one month. In some parts of Turkey, plastic bags are completely banned, with heavy fines for both firms and consumers who use them. (Source adapted from: tseibert@thenational.ae https://www.thenational.ae/world/europe/turkey‑aims‑to‑bin‑the‑plastic‑bag‑1.530059 accessed 11/11/18) Extract C Istanbul’s third airport set to be the busiest in the world Istanbul’s third airport is being constructed over an area of 76.5 million square metres, to the north of Istanbul. When complete, the new airport will have six runways and have an annual passenger capacity of up to 200 million people, making it potentially the world’s busiest airport. “This airport is going to be the most important hub between Asia and 5 Europe,” said one business leader. The airport design includes high vaulted ceilings and spacious, modern and efficient design – and its tulip‑shaped air traffic control tower won the 2016 International Architecture Award. It uses mobile applications and artificial intelligence for customers, is energy efficient and has a high‑tech security system. The site employs 36 000 people and 10 is estimated to cost the equivalent of £10 billion. However, the rush to meet the deadline set by the Turkish government is a major cause of accidents on the construction site, according to the construction workers’ union. (Source adapted from: https://www.lonelyplanet.com/news/2018/08/08/istanbuls‑huge‑new‑airport/ and https://www.voanews.com/a/istanbul‑to‑unveil‑new‑airport‑seeks‑to‑be‑world‑s‑biggest/4632308.html)
(a) Explain how the Turkish central bank intervenes in the currency market to prevent ‘excessive appreciation or depreciation of the Turkish lira’ (Extract A, lines 7–8). (5)
October 2020 · Paper 3 · Q1(b) 8 marks AO1=2, AO2=2, AO3=2, AO4=2 8-mark response exchange rates
Data and extracts for question 1Turkey – an emerging economy Figure 1: Turkey’s central bank lending rate, percent, 2013–2018 25 20 15 % 10 5 0 2014 2015 2016 2017 2018 Figure 2: Selected emerging economy exchange rates, percentage change against the US dollar: January 2018 compared to January 2016. Russian rouble South African rand Polish zloty Hong Kong dollar Chinese renminbi Indian rupee Turkish lira Argentine peso -60 -40 -20 0 20 Percentage changes (Source adapted from: FT.com) Extract A Can Turkey’s central bank avoid another rate rise? At an annual rate of 25%, Turkey’s inflation is alarming. However, it may have peaked. This may be a turning point for the economically struggling country, whose currency (the Turkish lira) has lost nearly a third of its value against the US dollar in 2018. The central bank may be able to avoid tightening monetary policy further, as a severe economic 5 adjustment is already well under way. Turkey is highly indebted in foreign currency. The Turkish government takes measures against excessive appreciation or depreciation of the Turkish lira to reduce financial stability risks. The financial market faces difficulties in trying to restore foreign investors’ confidence. Consumer prices increased by 2.7% in October 2018, a much lower rate than the 6.3% 10 recorded in September 2018. The lira has stabilised, having risen 16% since the central bank raised interest rates by 6.25 percentage points. However, the government wants lower borrowing costs to fuel credit growth and economic expansion. Timothy Ash at a London investment bank says at this point it’s “illogical” to raise interest rates again in Turkey. That’s because Turkey’s economy is already experiencing a severe slowdown. 15 In the long term Turkey’s economic growth is expected to be above that of other emerging markets such as Brazil, Russia and China. Turkey’s private sector is resilient. Between 2018–50 we expect Turkey to grow by an annual average of 3.1%. Brazil is expected to grow by an annual average of 2.1%, Russia by 1.6% and China by 2.8%. GDP growth will nevertheless be well below that recorded in 2004–07 and 2010–15. Average 20 growth in GDP per head will be substantially lower, mainly reflecting the expected rise in the total population. (Source adapted from: https://ftalphaville.ft.com/2018/11/06/1541508141000/Can‑Turkey‑s-central‑bank- avoid‑another‑rate‑hike‑/. 6 Nov 2018 Colby Smith and one sentence The president wants lower borrowing costs to fuel credit growth and economic expansion from https://www.theguardian.com/world/2018/aug/07/turkey‑urged‑to‑announce-emergency-interest‑rate‑hike Larry Elliott 7/8/18 and http://country.eiu.com/article.aspx?articleid=157174199&Country=Turkey&topic=Economy&subtopic= Long-term+outlook&subsubtopic=Summary) Extract B Turkey aims to bin the plastic bag You get a free plastic bag whenever you go to a shop, even if it is just to buy a loaf of bread or a chocolate bar. In Turkey, plastic bags are everywhere, with millions being thrown away, and their use is causing a growing environmental problem. In Istanbul, the country’s biggest city with about 12 million people, around 10 000 tonnes 5 of waste are being collected every day. Plastic bags and other plastic waste make up 950 tonnes, or almost 10%, of the total waste. The Turkish government said it was looking at ways to discourage the consumption of single‑use plastic bags. One possible step currently under review is a ban of the black bags that are said to contain carcinogens. Another is that the state may raise taxes 10 on plastic products, which could lead to supermarkets charging consumers for the bags. In Corlu, a town north‑west of Istanbul, a local environmental group distributed 20 000 canvas bags to shoppers in one month. In some parts of Turkey, plastic bags are completely banned, with heavy fines for both firms and consumers who use them. (Source adapted from: tseibert@thenational.ae https://www.thenational.ae/world/europe/turkey‑aims‑to‑bin‑the‑plastic‑bag‑1.530059 accessed 11/11/18) Extract C Istanbul’s third airport set to be the busiest in the world Istanbul’s third airport is being constructed over an area of 76.5 million square metres, to the north of Istanbul. When complete, the new airport will have six runways and have an annual passenger capacity of up to 200 million people, making it potentially the world’s busiest airport. “This airport is going to be the most important hub between Asia and 5 Europe,” said one business leader. The airport design includes high vaulted ceilings and spacious, modern and efficient design – and its tulip‑shaped air traffic control tower won the 2016 International Architecture Award. It uses mobile applications and artificial intelligence for customers, is energy efficient and has a high‑tech security system. The site employs 36 000 people and 10 is estimated to cost the equivalent of £10 billion. However, the rush to meet the deadline set by the Turkish government is a major cause of accidents on the construction site, according to the construction workers’ union. (Source adapted from: https://www.lonelyplanet.com/news/2018/08/08/istanbuls‑huge‑new‑airport/ and https://www.voanews.com/a/istanbul‑to‑unveil‑new‑airport‑seeks‑to‑be‑world‑s‑biggest/4632308.html)
(b) Examine two reasons why the Turkish government may want to avoid a significant fall in the exchange rate of the Turkish lira. (8)
October 2020 · Paper 3 · Q1(c) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response government intervention in marketsexternalities
Data and extracts for question 1Turkey – an emerging economy Figure 1: Turkey’s central bank lending rate, percent, 2013–2018 25 20 15 % 10 5 0 2014 2015 2016 2017 2018 Figure 2: Selected emerging economy exchange rates, percentage change against the US dollar: January 2018 compared to January 2016. Russian rouble South African rand Polish zloty Hong Kong dollar Chinese renminbi Indian rupee Turkish lira Argentine peso -60 -40 -20 0 20 Percentage changes (Source adapted from: FT.com) Extract A Can Turkey’s central bank avoid another rate rise? At an annual rate of 25%, Turkey’s inflation is alarming. However, it may have peaked. This may be a turning point for the economically struggling country, whose currency (the Turkish lira) has lost nearly a third of its value against the US dollar in 2018. The central bank may be able to avoid tightening monetary policy further, as a severe economic 5 adjustment is already well under way. Turkey is highly indebted in foreign currency. The Turkish government takes measures against excessive appreciation or depreciation of the Turkish lira to reduce financial stability risks. The financial market faces difficulties in trying to restore foreign investors’ confidence. Consumer prices increased by 2.7% in October 2018, a much lower rate than the 6.3% 10 recorded in September 2018. The lira has stabilised, having risen 16% since the central bank raised interest rates by 6.25 percentage points. However, the government wants lower borrowing costs to fuel credit growth and economic expansion. Timothy Ash at a London investment bank says at this point it’s “illogical” to raise interest rates again in Turkey. That’s because Turkey’s economy is already experiencing a severe slowdown. 15 In the long term Turkey’s economic growth is expected to be above that of other emerging markets such as Brazil, Russia and China. Turkey’s private sector is resilient. Between 2018–50 we expect Turkey to grow by an annual average of 3.1%. Brazil is expected to grow by an annual average of 2.1%, Russia by 1.6% and China by 2.8%. GDP growth will nevertheless be well below that recorded in 2004–07 and 2010–15. Average 20 growth in GDP per head will be substantially lower, mainly reflecting the expected rise in the total population. (Source adapted from: https://ftalphaville.ft.com/2018/11/06/1541508141000/Can‑Turkey‑s-central‑bank- avoid‑another‑rate‑hike‑/. 6 Nov 2018 Colby Smith and one sentence The president wants lower borrowing costs to fuel credit growth and economic expansion from https://www.theguardian.com/world/2018/aug/07/turkey‑urged‑to‑announce-emergency-interest‑rate‑hike Larry Elliott 7/8/18 and http://country.eiu.com/article.aspx?articleid=157174199&Country=Turkey&topic=Economy&subtopic= Long-term+outlook&subsubtopic=Summary) Extract B Turkey aims to bin the plastic bag You get a free plastic bag whenever you go to a shop, even if it is just to buy a loaf of bread or a chocolate bar. In Turkey, plastic bags are everywhere, with millions being thrown away, and their use is causing a growing environmental problem. In Istanbul, the country’s biggest city with about 12 million people, around 10 000 tonnes 5 of waste are being collected every day. Plastic bags and other plastic waste make up 950 tonnes, or almost 10%, of the total waste. The Turkish government said it was looking at ways to discourage the consumption of single‑use plastic bags. One possible step currently under review is a ban of the black bags that are said to contain carcinogens. Another is that the state may raise taxes 10 on plastic products, which could lead to supermarkets charging consumers for the bags. In Corlu, a town north‑west of Istanbul, a local environmental group distributed 20 000 canvas bags to shoppers in one month. In some parts of Turkey, plastic bags are completely banned, with heavy fines for both firms and consumers who use them. (Source adapted from: tseibert@thenational.ae https://www.thenational.ae/world/europe/turkey‑aims‑to‑bin‑the‑plastic‑bag‑1.530059 accessed 11/11/18) Extract C Istanbul’s third airport set to be the busiest in the world Istanbul’s third airport is being constructed over an area of 76.5 million square metres, to the north of Istanbul. When complete, the new airport will have six runways and have an annual passenger capacity of up to 200 million people, making it potentially the world’s busiest airport. “This airport is going to be the most important hub between Asia and 5 Europe,” said one business leader. The airport design includes high vaulted ceilings and spacious, modern and efficient design – and its tulip‑shaped air traffic control tower won the 2016 International Architecture Award. It uses mobile applications and artificial intelligence for customers, is energy efficient and has a high‑tech security system. The site employs 36 000 people and 10 is estimated to cost the equivalent of £10 billion. However, the rush to meet the deadline set by the Turkish government is a major cause of accidents on the construction site, according to the construction workers’ union. (Source adapted from: https://www.lonelyplanet.com/news/2018/08/08/istanbuls‑huge‑new‑airport/ and https://www.voanews.com/a/istanbul‑to‑unveil‑new‑airport‑seeks‑to‑be‑world‑s‑biggest/4632308.html)
(c) Discuss the likely success of policies to reduce the consumption of single‑use plastic bags in cities such as Istanbul. (12)
October 2020 · Paper 3 · Q1(d) 25 marks AO1=4, AO2=4, AO3=8, AO4=9 25-mark essay Either/or fiscal and monetary policyrevenues costs and profits
Data and extracts for question 1Turkey – an emerging economy Figure 1: Turkey’s central bank lending rate, percent, 2013–2018 25 20 15 % 10 5 0 2014 2015 2016 2017 2018 Figure 2: Selected emerging economy exchange rates, percentage change against the US dollar: January 2018 compared to January 2016. Russian rouble South African rand Polish zloty Hong Kong dollar Chinese renminbi Indian rupee Turkish lira Argentine peso -60 -40 -20 0 20 Percentage changes (Source adapted from: FT.com) Extract A Can Turkey’s central bank avoid another rate rise? At an annual rate of 25%, Turkey’s inflation is alarming. However, it may have peaked. This may be a turning point for the economically struggling country, whose currency (the Turkish lira) has lost nearly a third of its value against the US dollar in 2018. The central bank may be able to avoid tightening monetary policy further, as a severe economic 5 adjustment is already well under way. Turkey is highly indebted in foreign currency. The Turkish government takes measures against excessive appreciation or depreciation of the Turkish lira to reduce financial stability risks. The financial market faces difficulties in trying to restore foreign investors’ confidence. Consumer prices increased by 2.7% in October 2018, a much lower rate than the 6.3% 10 recorded in September 2018. The lira has stabilised, having risen 16% since the central bank raised interest rates by 6.25 percentage points. However, the government wants lower borrowing costs to fuel credit growth and economic expansion. Timothy Ash at a London investment bank says at this point it’s “illogical” to raise interest rates again in Turkey. That’s because Turkey’s economy is already experiencing a severe slowdown. 15 In the long term Turkey’s economic growth is expected to be above that of other emerging markets such as Brazil, Russia and China. Turkey’s private sector is resilient. Between 2018–50 we expect Turkey to grow by an annual average of 3.1%. Brazil is expected to grow by an annual average of 2.1%, Russia by 1.6% and China by 2.8%. GDP growth will nevertheless be well below that recorded in 2004–07 and 2010–15. Average 20 growth in GDP per head will be substantially lower, mainly reflecting the expected rise in the total population. (Source adapted from: https://ftalphaville.ft.com/2018/11/06/1541508141000/Can‑Turkey‑s-central‑bank- avoid‑another‑rate‑hike‑/. 6 Nov 2018 Colby Smith and one sentence The president wants lower borrowing costs to fuel credit growth and economic expansion from https://www.theguardian.com/world/2018/aug/07/turkey‑urged‑to‑announce-emergency-interest‑rate‑hike Larry Elliott 7/8/18 and http://country.eiu.com/article.aspx?articleid=157174199&Country=Turkey&topic=Economy&subtopic= Long-term+outlook&subsubtopic=Summary) Extract B Turkey aims to bin the plastic bag You get a free plastic bag whenever you go to a shop, even if it is just to buy a loaf of bread or a chocolate bar. In Turkey, plastic bags are everywhere, with millions being thrown away, and their use is causing a growing environmental problem. In Istanbul, the country’s biggest city with about 12 million people, around 10 000 tonnes 5 of waste are being collected every day. Plastic bags and other plastic waste make up 950 tonnes, or almost 10%, of the total waste. The Turkish government said it was looking at ways to discourage the consumption of single‑use plastic bags. One possible step currently under review is a ban of the black bags that are said to contain carcinogens. Another is that the state may raise taxes 10 on plastic products, which could lead to supermarkets charging consumers for the bags. In Corlu, a town north‑west of Istanbul, a local environmental group distributed 20 000 canvas bags to shoppers in one month. In some parts of Turkey, plastic bags are completely banned, with heavy fines for both firms and consumers who use them. (Source adapted from: tseibert@thenational.ae https://www.thenational.ae/world/europe/turkey‑aims‑to‑bin‑the‑plastic‑bag‑1.530059 accessed 11/11/18) Extract C Istanbul’s third airport set to be the busiest in the world Istanbul’s third airport is being constructed over an area of 76.5 million square metres, to the north of Istanbul. When complete, the new airport will have six runways and have an annual passenger capacity of up to 200 million people, making it potentially the world’s busiest airport. “This airport is going to be the most important hub between Asia and 5 Europe,” said one business leader. The airport design includes high vaulted ceilings and spacious, modern and efficient design – and its tulip‑shaped air traffic control tower won the 2016 International Architecture Award. It uses mobile applications and artificial intelligence for customers, is energy efficient and has a high‑tech security system. The site employs 36 000 people and 10 is estimated to cost the equivalent of £10 billion. However, the rush to meet the deadline set by the Turkish government is a major cause of accidents on the construction site, according to the construction workers’ union. (Source adapted from: https://www.lonelyplanet.com/news/2018/08/08/istanbuls‑huge‑new‑airport/ and https://www.voanews.com/a/istanbul‑to‑unveil‑new‑airport‑seeks‑to‑be‑world‑s‑biggest/4632308.html)
(d) Evaluate the likely microeconomic and macroeconomic effects of a rise in interest rates in Turkey. (25)
October 2020 · Paper 3 · Q1(e) 25 marks AO1=4, AO2=4, AO3=8, AO4=9 25-mark essay Either/or supply side policiesexternalities
Data and extracts for question 1Turkey – an emerging economy Figure 1: Turkey’s central bank lending rate, percent, 2013–2018 25 20 15 % 10 5 0 2014 2015 2016 2017 2018 Figure 2: Selected emerging economy exchange rates, percentage change against the US dollar: January 2018 compared to January 2016. Russian rouble South African rand Polish zloty Hong Kong dollar Chinese renminbi Indian rupee Turkish lira Argentine peso -60 -40 -20 0 20 Percentage changes (Source adapted from: FT.com) Extract A Can Turkey’s central bank avoid another rate rise? At an annual rate of 25%, Turkey’s inflation is alarming. However, it may have peaked. This may be a turning point for the economically struggling country, whose currency (the Turkish lira) has lost nearly a third of its value against the US dollar in 2018. The central bank may be able to avoid tightening monetary policy further, as a severe economic 5 adjustment is already well under way. Turkey is highly indebted in foreign currency. The Turkish government takes measures against excessive appreciation or depreciation of the Turkish lira to reduce financial stability risks. The financial market faces difficulties in trying to restore foreign investors’ confidence. Consumer prices increased by 2.7% in October 2018, a much lower rate than the 6.3% 10 recorded in September 2018. The lira has stabilised, having risen 16% since the central bank raised interest rates by 6.25 percentage points. However, the government wants lower borrowing costs to fuel credit growth and economic expansion. Timothy Ash at a London investment bank says at this point it’s “illogical” to raise interest rates again in Turkey. That’s because Turkey’s economy is already experiencing a severe slowdown. 15 In the long term Turkey’s economic growth is expected to be above that of other emerging markets such as Brazil, Russia and China. Turkey’s private sector is resilient. Between 2018–50 we expect Turkey to grow by an annual average of 3.1%. Brazil is expected to grow by an annual average of 2.1%, Russia by 1.6% and China by 2.8%. GDP growth will nevertheless be well below that recorded in 2004–07 and 2010–15. Average 20 growth in GDP per head will be substantially lower, mainly reflecting the expected rise in the total population. (Source adapted from: https://ftalphaville.ft.com/2018/11/06/1541508141000/Can‑Turkey‑s-central‑bank- avoid‑another‑rate‑hike‑/. 6 Nov 2018 Colby Smith and one sentence The president wants lower borrowing costs to fuel credit growth and economic expansion from https://www.theguardian.com/world/2018/aug/07/turkey‑urged‑to‑announce-emergency-interest‑rate‑hike Larry Elliott 7/8/18 and http://country.eiu.com/article.aspx?articleid=157174199&Country=Turkey&topic=Economy&subtopic= Long-term+outlook&subsubtopic=Summary) Extract B Turkey aims to bin the plastic bag You get a free plastic bag whenever you go to a shop, even if it is just to buy a loaf of bread or a chocolate bar. In Turkey, plastic bags are everywhere, with millions being thrown away, and their use is causing a growing environmental problem. In Istanbul, the country’s biggest city with about 12 million people, around 10 000 tonnes 5 of waste are being collected every day. Plastic bags and other plastic waste make up 950 tonnes, or almost 10%, of the total waste. The Turkish government said it was looking at ways to discourage the consumption of single‑use plastic bags. One possible step currently under review is a ban of the black bags that are said to contain carcinogens. Another is that the state may raise taxes 10 on plastic products, which could lead to supermarkets charging consumers for the bags. In Corlu, a town north‑west of Istanbul, a local environmental group distributed 20 000 canvas bags to shoppers in one month. In some parts of Turkey, plastic bags are completely banned, with heavy fines for both firms and consumers who use them. (Source adapted from: tseibert@thenational.ae https://www.thenational.ae/world/europe/turkey‑aims‑to‑bin‑the‑plastic‑bag‑1.530059 accessed 11/11/18) Extract C Istanbul’s third airport set to be the busiest in the world Istanbul’s third airport is being constructed over an area of 76.5 million square metres, to the north of Istanbul. When complete, the new airport will have six runways and have an annual passenger capacity of up to 200 million people, making it potentially the world’s busiest airport. “This airport is going to be the most important hub between Asia and 5 Europe,” said one business leader. The airport design includes high vaulted ceilings and spacious, modern and efficient design – and its tulip‑shaped air traffic control tower won the 2016 International Architecture Award. It uses mobile applications and artificial intelligence for customers, is energy efficient and has a high‑tech security system. The site employs 36 000 people and 10 is estimated to cost the equivalent of £10 billion. However, the rush to meet the deadline set by the Turkish government is a major cause of accidents on the construction site, according to the construction workers’ union. (Source adapted from: https://www.lonelyplanet.com/news/2018/08/08/istanbuls‑huge‑new‑airport/ and https://www.voanews.com/a/istanbul‑to‑unveil‑new‑airport‑seeks‑to‑be‑world‑s‑biggest/4632308.html)
(e) Evaluate the microeconomic and macroeconomic impact of large infrastructure projects such as the building of a third airport in Istanbul. (25)
October 2020 · Paper 3 · Q2(a) 5 marks AO1=2, AO2=2, AO3=1 Short answer measuring economic growth
Data and extracts for question 2The UK economy Figure 3: GDP per hour worked, nominal values at PPPs, percentage above or below UK level, 2018 Japan Italy US France Germany -10 0 10 20 30 40 Percentages (Source adapted from: ONS.gov.uk) Figure 4: UK index of output per hour worked, base year 2016 = 100 130 120 110 100 Index 90 80 70 60 50 2000 2005 2010 2015 2018 Key Productivity if pre-crisis trend had continued Actual UK productivity (Source adapted from: ONS.gov.uk) Figure 5: Proportion of adults with low literacy and/or numeracy skills, by age, selected countries Aged 16-24 Aged 55-65 Italy US England Spain N. Ireland France Canada Germany Japan S Korea 0 10 20 30 40 50 60 (Source adapted from: OECD.org) (Figures 3, 4 and 5 Source: FT.com 2016 data published https://www.ft.com/content/6ada0002‑9a57‑11e8‑9702‑5946bae86e6d 2018) Extract D The end of the High Street? Homebase, the UK’s second‑largest do‑it‑yourself (DIY) retailer, made £20–40 million a year profit up to 2016. The Australian conglomerate Wesfarmers bought Homebase for £340 million in 2016, and began to rebrand 24 stores under its own name. It scaled back on curtain, cushion and other homeware sales in favour of power tools and building materials. 5 In 2018 Wesfarmers sold the DIY chain for £1, in the face of “extremely challenging” market conditions and excess store space. The chain was bought by restructuring specialist Hilco, which had also rescued the music chain HMV in 2013, and the stores have gone back to using the Homebase name. Over 70% of Homebase stores are currently losing money and the new owner wants to exit loss‑making stores and agree to rent reductions, as sales 10 fell 10% in 2018. Homebase has gone back to popular products and brands dropped by its previous owner Wesfarmers. The closures will add to the mounting job losses on Britain’s high streets. About 25 000 jobs have gone in the first seven months of 2018, according to analysis by an economics thinktank. A further 8 300 jobs are under threat at suppliers, with the multiplier effect 15 meaning that GDP is £1.5 billion less than projected. Several Marks & Spencer clothing stores closed their doors for the last time as the high‑street chain pushes ahead with a transformation plan. It plans to close 100 stores by 2022. Toys R Us, Poundworld and Maplin have shut down completely, while New Look, Mothercare and Carpetright have plans to close hundreds of stores as losses rise sharply. 20 Increasing rents and higher business rates have occurred at the same time as falling consumer confidence. Meanwhile, House of Fraser employees and pensioners are nervously awaiting more details about their future. The £90 million rescue deal by Sports Direct, the sportswear chain controlled by Mike Ashley, will protect 16 000 jobs for the time being. (Source adapted from: https://www.ft.com/content/00d0bb9e‑a6ee‑11e8‑8ecf‑a7ae1beff35b 24 August 2018 and https://www.theguardian.com/business/2018/aug/13/homebase‑close‑80‑stores‑high‑street‑job‑losses‑mount Patrick Collinson 13 Aug 2018)
(a) With specific reference to Figure 3, explain why productivity is measured by ‘GDP per hour worked, nominal values at PPPs’. (5)
October 2020 · Paper 3 · Q2(b) 8 marks AO1=2, AO2=2, AO3=2, AO4=2 8-mark response aggregate supply
Data and extracts for question 2The UK economy Figure 3: GDP per hour worked, nominal values at PPPs, percentage above or below UK level, 2018 Japan Italy US France Germany -10 0 10 20 30 40 Percentages (Source adapted from: ONS.gov.uk) Figure 4: UK index of output per hour worked, base year 2016 = 100 130 120 110 100 Index 90 80 70 60 50 2000 2005 2010 2015 2018 Key Productivity if pre-crisis trend had continued Actual UK productivity (Source adapted from: ONS.gov.uk) Figure 5: Proportion of adults with low literacy and/or numeracy skills, by age, selected countries Aged 16-24 Aged 55-65 Italy US England Spain N. Ireland France Canada Germany Japan S Korea 0 10 20 30 40 50 60 (Source adapted from: OECD.org) (Figures 3, 4 and 5 Source: FT.com 2016 data published https://www.ft.com/content/6ada0002‑9a57‑11e8‑9702‑5946bae86e6d 2018) Extract D The end of the High Street? Homebase, the UK’s second‑largest do‑it‑yourself (DIY) retailer, made £20–40 million a year profit up to 2016. The Australian conglomerate Wesfarmers bought Homebase for £340 million in 2016, and began to rebrand 24 stores under its own name. It scaled back on curtain, cushion and other homeware sales in favour of power tools and building materials. 5 In 2018 Wesfarmers sold the DIY chain for £1, in the face of “extremely challenging” market conditions and excess store space. The chain was bought by restructuring specialist Hilco, which had also rescued the music chain HMV in 2013, and the stores have gone back to using the Homebase name. Over 70% of Homebase stores are currently losing money and the new owner wants to exit loss‑making stores and agree to rent reductions, as sales 10 fell 10% in 2018. Homebase has gone back to popular products and brands dropped by its previous owner Wesfarmers. The closures will add to the mounting job losses on Britain’s high streets. About 25 000 jobs have gone in the first seven months of 2018, according to analysis by an economics thinktank. A further 8 300 jobs are under threat at suppliers, with the multiplier effect 15 meaning that GDP is £1.5 billion less than projected. Several Marks & Spencer clothing stores closed their doors for the last time as the high‑street chain pushes ahead with a transformation plan. It plans to close 100 stores by 2022. Toys R Us, Poundworld and Maplin have shut down completely, while New Look, Mothercare and Carpetright have plans to close hundreds of stores as losses rise sharply. 20 Increasing rents and higher business rates have occurred at the same time as falling consumer confidence. Meanwhile, House of Fraser employees and pensioners are nervously awaiting more details about their future. The £90 million rescue deal by Sports Direct, the sportswear chain controlled by Mike Ashley, will protect 16 000 jobs for the time being. (Source adapted from: https://www.ft.com/content/00d0bb9e‑a6ee‑11e8‑8ecf‑a7ae1beff35b 24 August 2018 and https://www.theguardian.com/business/2018/aug/13/homebase‑close‑80‑stores‑high‑street‑job‑losses‑mount Patrick Collinson 13 Aug 2018)
(b) Apart from literacy and numeracy skills in young workers, examine one reason for the trend in productivity in the UK, over the period shown in Figure 4. (8)
October 2020 · Paper 3 · Q2(c) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response revenues costs and profits
Data and extracts for question 2The UK economy Figure 3: GDP per hour worked, nominal values at PPPs, percentage above or below UK level, 2018 Japan Italy US France Germany -10 0 10 20 30 40 Percentages (Source adapted from: ONS.gov.uk) Figure 4: UK index of output per hour worked, base year 2016 = 100 130 120 110 100 Index 90 80 70 60 50 2000 2005 2010 2015 2018 Key Productivity if pre-crisis trend had continued Actual UK productivity (Source adapted from: ONS.gov.uk) Figure 5: Proportion of adults with low literacy and/or numeracy skills, by age, selected countries Aged 16-24 Aged 55-65 Italy US England Spain N. Ireland France Canada Germany Japan S Korea 0 10 20 30 40 50 60 (Source adapted from: OECD.org) (Figures 3, 4 and 5 Source: FT.com 2016 data published https://www.ft.com/content/6ada0002‑9a57‑11e8‑9702‑5946bae86e6d 2018) Extract D The end of the High Street? Homebase, the UK’s second‑largest do‑it‑yourself (DIY) retailer, made £20–40 million a year profit up to 2016. The Australian conglomerate Wesfarmers bought Homebase for £340 million in 2016, and began to rebrand 24 stores under its own name. It scaled back on curtain, cushion and other homeware sales in favour of power tools and building materials. 5 In 2018 Wesfarmers sold the DIY chain for £1, in the face of “extremely challenging” market conditions and excess store space. The chain was bought by restructuring specialist Hilco, which had also rescued the music chain HMV in 2013, and the stores have gone back to using the Homebase name. Over 70% of Homebase stores are currently losing money and the new owner wants to exit loss‑making stores and agree to rent reductions, as sales 10 fell 10% in 2018. Homebase has gone back to popular products and brands dropped by its previous owner Wesfarmers. The closures will add to the mounting job losses on Britain’s high streets. About 25 000 jobs have gone in the first seven months of 2018, according to analysis by an economics thinktank. A further 8 300 jobs are under threat at suppliers, with the multiplier effect 15 meaning that GDP is £1.5 billion less than projected. Several Marks & Spencer clothing stores closed their doors for the last time as the high‑street chain pushes ahead with a transformation plan. It plans to close 100 stores by 2022. Toys R Us, Poundworld and Maplin have shut down completely, while New Look, Mothercare and Carpetright have plans to close hundreds of stores as losses rise sharply. 20 Increasing rents and higher business rates have occurred at the same time as falling consumer confidence. Meanwhile, House of Fraser employees and pensioners are nervously awaiting more details about their future. The £90 million rescue deal by Sports Direct, the sportswear chain controlled by Mike Ashley, will protect 16 000 jobs for the time being. (Source adapted from: https://www.ft.com/content/00d0bb9e‑a6ee‑11e8‑8ecf‑a7ae1beff35b 24 August 2018 and https://www.theguardian.com/business/2018/aug/13/homebase‑close‑80‑stores‑high‑street‑job‑losses‑mount Patrick Collinson 13 Aug 2018)
(c) Discuss factors that are causing many high street retailers in the UK to close some branches or shut down completely. Use a cost and revenue diagram to support your answer. (12)
October 2020 · Paper 3 · Q2(d) 25 marks AO1=4, AO2=4, AO3=8, AO4=9 25-mark essay Either/or international competitivenesssupply side policies
Data and extracts for question 2The UK economy Figure 3: GDP per hour worked, nominal values at PPPs, percentage above or below UK level, 2018 Japan Italy US France Germany -10 0 10 20 30 40 Percentages (Source adapted from: ONS.gov.uk) Figure 4: UK index of output per hour worked, base year 2016 = 100 130 120 110 100 Index 90 80 70 60 50 2000 2005 2010 2015 2018 Key Productivity if pre-crisis trend had continued Actual UK productivity (Source adapted from: ONS.gov.uk) Figure 5: Proportion of adults with low literacy and/or numeracy skills, by age, selected countries Aged 16-24 Aged 55-65 Italy US England Spain N. Ireland France Canada Germany Japan S Korea 0 10 20 30 40 50 60 (Source adapted from: OECD.org) (Figures 3, 4 and 5 Source: FT.com 2016 data published https://www.ft.com/content/6ada0002‑9a57‑11e8‑9702‑5946bae86e6d 2018) Extract D The end of the High Street? Homebase, the UK’s second‑largest do‑it‑yourself (DIY) retailer, made £20–40 million a year profit up to 2016. The Australian conglomerate Wesfarmers bought Homebase for £340 million in 2016, and began to rebrand 24 stores under its own name. It scaled back on curtain, cushion and other homeware sales in favour of power tools and building materials. 5 In 2018 Wesfarmers sold the DIY chain for £1, in the face of “extremely challenging” market conditions and excess store space. The chain was bought by restructuring specialist Hilco, which had also rescued the music chain HMV in 2013, and the stores have gone back to using the Homebase name. Over 70% of Homebase stores are currently losing money and the new owner wants to exit loss‑making stores and agree to rent reductions, as sales 10 fell 10% in 2018. Homebase has gone back to popular products and brands dropped by its previous owner Wesfarmers. The closures will add to the mounting job losses on Britain’s high streets. About 25 000 jobs have gone in the first seven months of 2018, according to analysis by an economics thinktank. A further 8 300 jobs are under threat at suppliers, with the multiplier effect 15 meaning that GDP is £1.5 billion less than projected. Several Marks & Spencer clothing stores closed their doors for the last time as the high‑street chain pushes ahead with a transformation plan. It plans to close 100 stores by 2022. Toys R Us, Poundworld and Maplin have shut down completely, while New Look, Mothercare and Carpetright have plans to close hundreds of stores as losses rise sharply. 20 Increasing rents and higher business rates have occurred at the same time as falling consumer confidence. Meanwhile, House of Fraser employees and pensioners are nervously awaiting more details about their future. The £90 million rescue deal by Sports Direct, the sportswear chain controlled by Mike Ashley, will protect 16 000 jobs for the time being. (Source adapted from: https://www.ft.com/content/00d0bb9e‑a6ee‑11e8‑8ecf‑a7ae1beff35b 24 August 2018 and https://www.theguardian.com/business/2018/aug/13/homebase‑close‑80‑stores‑high‑street‑job‑losses‑mount Patrick Collinson 13 Aug 2018)
(d) Evaluate possible microeconomic and macroeconomic policies which could be used to improve UK competitiveness. (25)
October 2020 · Paper 3 · Q2(e) 25 marks AO1=4, AO2=4, AO3=8, AO4=9 25-mark essay Either/or aggregate supplylabour market
Data and extracts for question 2The UK economy Figure 3: GDP per hour worked, nominal values at PPPs, percentage above or below UK level, 2018 Japan Italy US France Germany -10 0 10 20 30 40 Percentages (Source adapted from: ONS.gov.uk) Figure 4: UK index of output per hour worked, base year 2016 = 100 130 120 110 100 Index 90 80 70 60 50 2000 2005 2010 2015 2018 Key Productivity if pre-crisis trend had continued Actual UK productivity (Source adapted from: ONS.gov.uk) Figure 5: Proportion of adults with low literacy and/or numeracy skills, by age, selected countries Aged 16-24 Aged 55-65 Italy US England Spain N. Ireland France Canada Germany Japan S Korea 0 10 20 30 40 50 60 (Source adapted from: OECD.org) (Figures 3, 4 and 5 Source: FT.com 2016 data published https://www.ft.com/content/6ada0002‑9a57‑11e8‑9702‑5946bae86e6d 2018) Extract D The end of the High Street? Homebase, the UK’s second‑largest do‑it‑yourself (DIY) retailer, made £20–40 million a year profit up to 2016. The Australian conglomerate Wesfarmers bought Homebase for £340 million in 2016, and began to rebrand 24 stores under its own name. It scaled back on curtain, cushion and other homeware sales in favour of power tools and building materials. 5 In 2018 Wesfarmers sold the DIY chain for £1, in the face of “extremely challenging” market conditions and excess store space. The chain was bought by restructuring specialist Hilco, which had also rescued the music chain HMV in 2013, and the stores have gone back to using the Homebase name. Over 70% of Homebase stores are currently losing money and the new owner wants to exit loss‑making stores and agree to rent reductions, as sales 10 fell 10% in 2018. Homebase has gone back to popular products and brands dropped by its previous owner Wesfarmers. The closures will add to the mounting job losses on Britain’s high streets. About 25 000 jobs have gone in the first seven months of 2018, according to analysis by an economics thinktank. A further 8 300 jobs are under threat at suppliers, with the multiplier effect 15 meaning that GDP is £1.5 billion less than projected. Several Marks & Spencer clothing stores closed their doors for the last time as the high‑street chain pushes ahead with a transformation plan. It plans to close 100 stores by 2022. Toys R Us, Poundworld and Maplin have shut down completely, while New Look, Mothercare and Carpetright have plans to close hundreds of stores as losses rise sharply. 20 Increasing rents and higher business rates have occurred at the same time as falling consumer confidence. Meanwhile, House of Fraser employees and pensioners are nervously awaiting more details about their future. The £90 million rescue deal by Sports Direct, the sportswear chain controlled by Mike Ashley, will protect 16 000 jobs for the time being. (Source adapted from: https://www.ft.com/content/00d0bb9e‑a6ee‑11e8‑8ecf‑a7ae1beff35b 24 August 2018 and https://www.theguardian.com/business/2018/aug/13/homebase‑close‑80‑stores‑high‑street‑job‑losses‑mount Patrick Collinson 13 Aug 2018)
(e) Evaluate the microeconomic and macroeconomic effects of a decline in the literacy and numeracy skills of a country’s young workers. (25)

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