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Measuring economic growth: GDP, GNI and living standards Theme 2

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A-level Paper 2 (and Paper 3); AS Paper 2
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AS and A level
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Section 2.1, 1 statement
Since 2016
40 question parts: 0 essays, 5 levels-marked responses, 12 multiple-choice items

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June 2025 · Paper 2 · Q1(b) 4 marks AO1=2, AO2=1, AO3=1 Short answer
Data and extracts for question 11 Selected economic data on Morocco and Pakistan, 2021, constant values. Gross national income Gross domestic product Human development (GNI) per capita (GDP) per capita index (HDI) (2017 PPP US$) (US$) Morocco 0.683 7 303 3 290.6 Pakistan 0.544 4 624 1 473.9 (Source adapted from: https://hdr.undp.org)
(b) With reference to the data provided, explain one limitation of using GDP to compare living standards between countries. (4)
June 2025 · Paper 2 · Q3(a) 1 mark Multiple choice
Data and extracts for question 33 UK real GDP percentage growth, quarter 1 (Q1) 2022 to quarter 1 (Q1) 2023. 0.75 % 0.50 0.25 0 –0.25 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 (Source adapted from: https://www.ons.gov.uk/economy/grossdomesticproductgdp/ bulletins/quarterlynationalaccounts/januarytomarch2023)
(a) With reference to the chart above, which one of the following is correct? (1) A The UK economy grew the fastest in quarter 3 2022 B The UK was in recession in quarter 2 2022 C Total UK real GDP was larger in quarter 4 2022 than in quarter 1 2022 D Total UK real GDP was the same in quarter 4 2022 as in quarter 1 2023
June 2025 · AS Paper 2 · Q6(a) 4 marks AO1=2, AO2=2 Short answer
Data and extracts for question 6Sources for use with SECTION B Read Figures 1 and 2 and Extract A before answering Question 6. UK living standards and supply‑side policies Figure 1: UK rate of economic growth, 2010 to 2028 10.0 % 7.5 5.0 2.5 0 –2.5 –5.0 –7.5 –10.0 * Data from 2023 to 2028 are forecast figures (Source: adapted from https://www.statista.com/statistics/375195/gdp-growth-forecast-uk/) Figure 2: UK inflation rate* and base interest rate, January 2022 to October 2023 12 % 10 8 6 4 2 0 inflation rate base interest rate * Measured by Consumer Prices Index (CPI). This is the year-on-year inflation rate calculated monthly. (Source: adapted from www.statista.com and www.tradingeconomics.com) Extract A Economic reforms Economists forecast that the UK will experience a slower rate of economic growth between 2024 and 2028. They also expect a high rate of inflation due to rising import prices of food, fuel and energy, and a strong demand for consumer goods. As a result, real income per household is estimated to decrease by around 0.9% in 2024. 5 This decrease would be the largest reduction in living standards since the Office for National Statistics records began in the 1950s. However, the UK government argues that there are some limitations of using GDP to compare living standards over time. One main reason is the fact that GDP figures are in nominal terms. The government questions the reliability of inflation data as it 10 believes that the Monetary Policy Committee (MPC) of the Bank of England will keep a high base interest rate to control inflation. The government also claims that the forecast by economists fails to consider the market-based supply-side policies it introduced in November 2023 to improve living standards. The government’s £10.4 billion cut to National Insurance contributions for employees 15 is the most significant policy, expected to increase employment and living standards. It is forecast to bring additional people into work and encourage more people to work longer hours. This is likely to result in an extra 94 000 full-time workers. The government has also taken measures to encourage more out-of-work benefits claimants into jobs. It introduced stricter benefit rules for people who can work but 20 do not take a job offered to them. This includes stopping people’s benefits if they do not actively engage in seeking employment in six months. This is likely to result in a further increase in employment figures. But economists claim that its impact on GDP will be relatively insignificant. This is because most of those affected by this policy will take on work with limited hours and very low pay. 25 These market-based supply-side policies, combined with measures centred on childcare subsidies for working parents, are expected to increase total employment by 200 000 between 2024 and 2028. The government argues that the expected increase highlights that it is better to “unlock the potential we have at home”, rather than encouraging migration. However, several economists suggest that 30 a rise in net migration is contributing more to an increase in the UK’s potential economic growth. Furthermore, the UK government’s decision to offer 100% tax relief on investment in capital machinery will increase overall investment by 0.5% by 2028. The benefits of 35 this effective tax cut for firms are estimated to increase over time, as technology advances and productivity improves. However, this tax cut will not prevent business investment falling in the short term, as higher interest rates are making it more expensive for firms to borrow. Economists suggest that this tax cut can only be funded by decreasing government 40 expenditure on public services in the long run. Government expenditure will need to decrease by a third, as a proportion of GDP, between 2024 and 2028. (Source: adapted from https://www.ft.com/content/5ff3538b-aed2-4898-b423- f0c61da728ff)
(a) With reference to Figure 1, explain the term ‘rate of economic growth’. (4)
June 2025 · AS Paper 2 · Q6(b) 5 marks AO1=1, AO2=2, AO3=2 Short answer
Data and extracts for question 6Sources for use with SECTION B Read Figures 1 and 2 and Extract A before answering Question 6. UK living standards and supply‑side policies Figure 1: UK rate of economic growth, 2010 to 2028 10.0 % 7.5 5.0 2.5 0 –2.5 –5.0 –7.5 –10.0 * Data from 2023 to 2028 are forecast figures (Source: adapted from https://www.statista.com/statistics/375195/gdp-growth-forecast-uk/) Figure 2: UK inflation rate* and base interest rate, January 2022 to October 2023 12 % 10 8 6 4 2 0 inflation rate base interest rate * Measured by Consumer Prices Index (CPI). This is the year-on-year inflation rate calculated monthly. (Source: adapted from www.statista.com and www.tradingeconomics.com) Extract A Economic reforms Economists forecast that the UK will experience a slower rate of economic growth between 2024 and 2028. They also expect a high rate of inflation due to rising import prices of food, fuel and energy, and a strong demand for consumer goods. As a result, real income per household is estimated to decrease by around 0.9% in 2024. 5 This decrease would be the largest reduction in living standards since the Office for National Statistics records began in the 1950s. However, the UK government argues that there are some limitations of using GDP to compare living standards over time. One main reason is the fact that GDP figures are in nominal terms. The government questions the reliability of inflation data as it 10 believes that the Monetary Policy Committee (MPC) of the Bank of England will keep a high base interest rate to control inflation. The government also claims that the forecast by economists fails to consider the market-based supply-side policies it introduced in November 2023 to improve living standards. The government’s £10.4 billion cut to National Insurance contributions for employees 15 is the most significant policy, expected to increase employment and living standards. It is forecast to bring additional people into work and encourage more people to work longer hours. This is likely to result in an extra 94 000 full-time workers. The government has also taken measures to encourage more out-of-work benefits claimants into jobs. It introduced stricter benefit rules for people who can work but 20 do not take a job offered to them. This includes stopping people’s benefits if they do not actively engage in seeking employment in six months. This is likely to result in a further increase in employment figures. But economists claim that its impact on GDP will be relatively insignificant. This is because most of those affected by this policy will take on work with limited hours and very low pay. 25 These market-based supply-side policies, combined with measures centred on childcare subsidies for working parents, are expected to increase total employment by 200 000 between 2024 and 2028. The government argues that the expected increase highlights that it is better to “unlock the potential we have at home”, rather than encouraging migration. However, several economists suggest that 30 a rise in net migration is contributing more to an increase in the UK’s potential economic growth. Furthermore, the UK government’s decision to offer 100% tax relief on investment in capital machinery will increase overall investment by 0.5% by 2028. The benefits of 35 this effective tax cut for firms are estimated to increase over time, as technology advances and productivity improves. However, this tax cut will not prevent business investment falling in the short term, as higher interest rates are making it more expensive for firms to borrow. Economists suggest that this tax cut can only be funded by decreasing government 40 expenditure on public services in the long run. Government expenditure will need to decrease by a third, as a proportion of GDP, between 2024 and 2028. (Source: adapted from https://www.ft.com/content/5ff3538b-aed2-4898-b423- f0c61da728ff)
(b) With reference to the first paragraph of Extract A, explain the likely relationship between real incomes and subjective happiness. (5)
June 2025 · AS Paper 2 · Q6(c) 10 marks AO1=2, AO2=2, AO3=2, AO4=4 10-mark response
Data and extracts for question 6Sources for use with SECTION B Read Figures 1 and 2 and Extract A before answering Question 6. UK living standards and supply‑side policies Figure 1: UK rate of economic growth, 2010 to 2028 10.0 % 7.5 5.0 2.5 0 –2.5 –5.0 –7.5 –10.0 * Data from 2023 to 2028 are forecast figures (Source: adapted from https://www.statista.com/statistics/375195/gdp-growth-forecast-uk/) Figure 2: UK inflation rate* and base interest rate, January 2022 to October 2023 12 % 10 8 6 4 2 0 inflation rate base interest rate * Measured by Consumer Prices Index (CPI). This is the year-on-year inflation rate calculated monthly. (Source: adapted from www.statista.com and www.tradingeconomics.com) Extract A Economic reforms Economists forecast that the UK will experience a slower rate of economic growth between 2024 and 2028. They also expect a high rate of inflation due to rising import prices of food, fuel and energy, and a strong demand for consumer goods. As a result, real income per household is estimated to decrease by around 0.9% in 2024. 5 This decrease would be the largest reduction in living standards since the Office for National Statistics records began in the 1950s. However, the UK government argues that there are some limitations of using GDP to compare living standards over time. One main reason is the fact that GDP figures are in nominal terms. The government questions the reliability of inflation data as it 10 believes that the Monetary Policy Committee (MPC) of the Bank of England will keep a high base interest rate to control inflation. The government also claims that the forecast by economists fails to consider the market-based supply-side policies it introduced in November 2023 to improve living standards. The government’s £10.4 billion cut to National Insurance contributions for employees 15 is the most significant policy, expected to increase employment and living standards. It is forecast to bring additional people into work and encourage more people to work longer hours. This is likely to result in an extra 94 000 full-time workers. The government has also taken measures to encourage more out-of-work benefits claimants into jobs. It introduced stricter benefit rules for people who can work but 20 do not take a job offered to them. This includes stopping people’s benefits if they do not actively engage in seeking employment in six months. This is likely to result in a further increase in employment figures. But economists claim that its impact on GDP will be relatively insignificant. This is because most of those affected by this policy will take on work with limited hours and very low pay. 25 These market-based supply-side policies, combined with measures centred on childcare subsidies for working parents, are expected to increase total employment by 200 000 between 2024 and 2028. The government argues that the expected increase highlights that it is better to “unlock the potential we have at home”, rather than encouraging migration. However, several economists suggest that 30 a rise in net migration is contributing more to an increase in the UK’s potential economic growth. Furthermore, the UK government’s decision to offer 100% tax relief on investment in capital machinery will increase overall investment by 0.5% by 2028. The benefits of 35 this effective tax cut for firms are estimated to increase over time, as technology advances and productivity improves. However, this tax cut will not prevent business investment falling in the short term, as higher interest rates are making it more expensive for firms to borrow. Economists suggest that this tax cut can only be funded by decreasing government 40 expenditure on public services in the long run. Government expenditure will need to decrease by a third, as a proportion of GDP, between 2024 and 2028. (Source: adapted from https://www.ft.com/content/5ff3538b-aed2-4898-b423- f0c61da728ff)
(c) With reference to Extract A and your own knowledge, assess the limitations of using GDP to compare living standards over time. (10)
June 2024 · AS Paper 2 · Q1(b) 3 marks AO1=1, AO2=1, AO3=1 Short answer
Data and extracts for question 11 In 2019 the average annual percentage increase in real Gross Domestic Product (GDP) was 1.7% in developed countries and it was 4.6% in developing countries. (Source: adapted from IMF, World Economic Outlook 2019)
(b) Explain one limitation of using GDP data to compare living standards between developed and developing countries. (3)
June 2023 · AS Paper 2 · Q2(a) 1 mark AO1=1 Definition
Data and extracts for question 22 The table below shows the UK’s real GDP per capita, in US dollars, measured at Purchasing Power Parities, 2018 to 2020. Year GDP per capita, US$ 2018 46 853 2019 47 369 2020 42 536 (Source: https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.KD?locations=GB)
(a) Define the term ‘GDP per capita’. (1)
June 2023 · AS Paper 2 · Q2(b) 1 mark Multiple choice
Data and extracts for question 22 The table below shows the UK’s real GDP per capita, in US dollars, measured at Purchasing Power Parities, 2018 to 2020. Year GDP per capita, US$ 2018 46 853 2019 47 369 2020 42 536 (Source: https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.KD?locations=GB)
(b) Which one of the following is the most likely effect of the change in real GDP per capita between 2019 and 2020? (1) A Decrease in living standards B Decrease in unemployment C Higher consumer confidence D Higher price level
June 2023 · AS Paper 2 · Q2(c) 2 marks AO1=2 Short answer
Data and extracts for question 22 The table below shows the UK’s real GDP per capita, in US dollars, measured at Purchasing Power Parities, 2018 to 2020. Year GDP per capita, US$ 2018 46 853 2019 47 369 2020 42 536 (Source: https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.KD?locations=GB)
(c) Explain one reason why Purchasing Power Parities (PPPs) are used. (2)
June 2023 · Paper 2 · Q3(a) 2 marks AO2=2 Calculation
Data and extracts for question 33 UK real GDP, 2020–2022 Annual percentage change on Total (£ millions) previous year 2020 –9.9% 2 045 091 2021 7.5% 2 198 473 2022* 3.5% *2022 figures are forecast (Source: adapted from https://www.ons.gov.uk/economy/grossdomesticproductgdp)
(a) Calculate the value of the total forecast GDP in 2022. (2)
June 2023 · AS Paper 2 · Q5(a) 1 mark Multiple choice
Data and extracts for question 55 The chart below shows UK real GDP growth rate (%), Quarter 1 (Q1) 2019 to Quarter 3 (Q3) 2021. 20 17.6 % 10 5.4 1.5 1.1 0.6 0.5 0.1 0 0 -1.3 -2.6 -10 -19.4 -20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 (Source adapted from: https://tradingeconomics.com/united-kingdom/gdp-growth)
(a) Which one of the following can be deduced from the chart? (1) A In Q4 2020 the level of real GDP fell by 16.1 percentage points B The price level was rising at a slower rate between Q1 2019 and Q2 2019 C The UK economy experienced a boom between Q3 2019 and Q1 2020 D The UK economy experienced a recession in the first six months of 2020
June 2022 · AS Paper 2 · Q2(a) 1 mark AO1=1 Definition
Data and extracts for question 22 The table below shows the UK’s nominal Gross Domestic Product (GDP) and population, 2016 to 2018. GDP Population Year (£ millions) (millions) 2016 1 995 478 65.6 2017 2 033 234 66.0 2018 2 061 408 66.4 (Source: ONS, https://www.ons.gov.uk/)
(a) Define the term ‘nominal’. (1)
June 2022 · AS Paper 2 · Q2(b) 1 mark Multiple choice
Data and extracts for question 22 The table below shows the UK’s nominal Gross Domestic Product (GDP) and population, 2016 to 2018. GDP Population Year (£ millions) (millions) 2016 1 995 478 65.6 2017 2 033 234 66.0 2018 2 061 408 66.4 (Source: ONS, https://www.ons.gov.uk/)
(b) Using the above GDP data, which one of the following represents the index number for 2016, if 2017 is the base year? (1) A 96.8 B 98.1 C 101.9 D 103.3
June 2022 · AS Paper 2 · Q2(c) 2 marks AO2=2 Calculation
Data and extracts for question 22 The table below shows the UK’s nominal Gross Domestic Product (GDP) and population, 2016 to 2018. GDP Population Year (£ millions) (millions) 2016 1 995 478 65.6 2017 2 033 234 66.0 2018 2 061 408 66.4 (Source: ONS, https://www.ons.gov.uk/)
(c) Calculate the UK’s nominal GDP per capita in 2018. You are advised to show your working. (2)
June 2022 · AS Paper 2 · Q3(a) 1 mark Multiple choice
Data and extracts for question 33 UK average weekly earnings, January 2007 to January 2019 550 500 £ per week Key 450 real earnings 400 nominal earnings 350 0 2007 2010 2013 2016 2019 (Source adapted from: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/ employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/march2019)
(a) Which one of the following can be inferred from the above chart? Between 2007 and 2019, (1) A earnings adjusted for interest rates were lower than earnings not adjusted for interest rates B nominal earnings increased by nearly 125 percentage points C the increase in earnings not adjusted for inflation was greater than earnings adjusted for inflation D there were significant increases in real earnings each year
June 2022 · AS Paper 2 · Q3(b) 3 marks AO1=1, AO2=1, AO3=1 Short answer
Data and extracts for question 33 UK average weekly earnings, January 2007 to January 2019 550 500 £ per week Key 450 real earnings 400 nominal earnings 350 0 2007 2010 2013 2016 2019 (Source adapted from: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/ employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/march2019)
(b) With reference to the chart, explain the likely relationship between real incomes and subjective happiness. (3)
June 2022 · AS Paper 2 · Q6(c) 10 marks AO1=2, AO2=2, AO3=2, AO4=4 10-mark response
Data and extracts for question 6UK investment and productivity Figure 1: UK investment, annual percentage change, 2014 to 2019 10 % 8 6 4 2 0 -2 -4 2014 2015 2016 2017 2018 2019 (Source adapted from: https://www.ft.com/content/5e12351e-baaf-11e9-96bd-8e884d3ea203) Figure 2: UK labour productivity, annual percentage change, 2014 to 2019 2 % 1 0 -1 -2 2014 2015 2016 2017 2018 2019 (Source adapted from: https://www.theguardian.com/business/2019/oct/08/uk-productivity- brexit-boris-johnson-labour) Extract A Another recession? For the first time in nearly seven years, the UK economy contracted by 0.2% in the second quarter of 2019. This was as a result of a significantly weaker than expected performance in almost every part of the UK economy. Business investment has been weak across the world, but it is particularly low in the UK. 5 Firms are reluctant to commit to capital spending while there is economic uncertainty. Growth in investment, in areas such as transport and machinery, has slowed. Global trade tensions are also affecting investment decisions. Labour productivity decreased by 0.5% in the second quarter of 2019, the worst performance since mid-2014. Declining productivity is a concern especially as it 10 comes at a time when the unemployment rate has been one of the lowest. The rate of unemployment decreased from 6% in July 2014 to 3.8% in July 2019. The UK’s economic growth has been held back by low investment and productivity since the Global Financial Crisis of 2008. Moreover, the uncertainty over the UK’s future trade relationship with the EU has discouraged companies from investing in productivity- 15 boosting technology. This has decreased the prospects for increases in workers’ pay. Without business investment and improvements in productivity, short-term growth in real GDP is likely to slow further and reduce living standards. However, the UK Government expects the UK economy to perform better than Germany and Italy. These export-focused countries are highly exposed to the slowdown in world 20 trade and the fall in average global incomes. The UK economy is seeing continued strength in consumer spending. Consumption will support growth, provided there is no sudden shock to the UK labour market. Household incomes are strong, primarily due to high employment. Government expenditure has also been rising since the end of 2018. The UK Government has promised more money 25 for schools and infrastructure improvements. Despite this, some economists believe that the UK economy is likely to experience another recession. They claim that low income households cannot cope with a new downturn. The overall picture for the UK economy does not look promising because most businesses are reluctant to invest, productivity is low and economic growth relies on 30 continued consumption. (Source adapted from: ‘On the brink: Britain’s economy braced for Brexit shock’, FT, https:// www.ft.com/ content/40c604d2-c01c-11e9-89e2-41e555e96722; ‘Recession threat hangs over UK economy ahead of Brexit, FT, https://www.ft.com/content/5e12351e-baaf- 11e9-96bd-8e884d3ea203; ‘UK productivity falls at fastest pace in five years as Brexit dents investment, The Guardian, https://www.theguardian.com/ business/2019/oct/08/ uk-productivity-brexit-boris-johnson-labour)
(c) With reference to the fourth paragraph of Extract A, assess the limitations of using GDP to compare living standards over time. (10)
June 2022 · Paper 2 · Q6(c) 10 marks AO1=2, AO2=2, AO3=2, AO4=4 10-mark response
Data and extracts for question 6UK Government spending and inequality Figure 1: UK regional gross disposable household income per capita, 2018 £ per capita 19 000 to 21 000 17 000 to 18 999 16 000 to 16 999 15 000 to 15 999 14 500 to 14 999 14 000 to 14 499 13 000 to 13 999 North East South East (Source: adapted from University of Sheffield/Office for National Statistics: https://www.sheffield.ac.uk/news/nr/uk-higher-regional-inequality-large-wealthy-country-1.862262) Figure 2: UK subjective happiness by income, April 2021 Answer to the question: ‘On a scale of 1–10, how happy did you feel after yesterday?' (0 = not at all, 10 = completely) Less than £10 000 £10 000–£20 000 £20 000–£40 000 More than £40 000 7.31 7.02 7.13 7.29 (Source: adapted from https://www.ons.gov.uk/peoplepopulationandcommunity/wellbeing/ datasets/incomegroupsplitestimatesonpersonalandeconomicwellbeingacrosstime) Extract A Regional inequality in the UK Geographically, the UK is highly unequal in incomes. According to research from the University of Sheffield, the estimate of the Gini coefficient is 0.34. There are a number of different reasons for this. First, labour in poor places tend to develop too few skills, with a lack of education holding people back. In Rotherham in the north of England, for 5 example, 21% of disadvantaged 18-year-olds from state schools and colleges go on to higher education compared to 41% in London. Secondly, there is a lack of infrastructure spending in northern cities compared to London. In 2017–18, 28% of public expenditure on transport – and 46% of capital expenditure on railways – was spent in London. The argument for this is that London gets a lot of public money because a lot of people take 10 public transport. This has angered many people in the North. These problems cannot be solved quickly. They compound each other. Just as people are rarely poor for one reason, regions do not fall behind only because they have poor transport, poor schools or poor policy making, but for all those reasons and more. Ideally, the UK would develop a bold plan for regional development that could be followed 15 by future governments, as Germany did for its eastern part. Tera Allas of McKinsey, a consultancy firm, argues that improving education is crucial, even if the returns are not immediately obvious. It is easier to improve schools than to persuade businesses to move to a poorer part of the country. (Source: adapted from https://www.economist.com/britain/2020/07/30/ why-britain-is-more-geographically-unequal-than-any-other-rich-country) Extract B Public sector spending on infrastructure Economic differences across the UK are large and have grown. The government is looking at reducing this inequality partly through spending on transport infrastructure. Public sector capital spending is due to rise from just over 2% of GDP to 3%. That amounts to around £20 billion of additional spending per year on new capital projects. The 5 government is looking to take advantage of current low interest rates to finance the expansion without worsening its fiscal position. The government is determined to focus this spending on the north of England, Wales and the Midlands. Planned schemes include a new Trafford Park tram line in Manchester and reopening train lines and stations closed back in the 1960s, including stations in 10 Haxby in Yorkshire and Blyth in Northumberland. Progress has already been made in Wales with the reopening of Bow Street station near Aberystwyth. This project has taken 11 years to become a reality and cost £8m. It is estimated that it will generate a boost to the economy of £24m through boosting local trade, creating new jobs in the local area, and easing pressure on congested roads heading into Aberystwyth. 15 (Source: adapted from https://www.economist.com/britain/2020/01/09/the-coming- splurge-on-northern-infrastructure and https://www.wales247.co.uk/transport-for-wales- delivers-new-bow-street-station) Extract C Options for UK tax rises in the future There are a number of options for raising additional tax revenue in the future. These include: • increasing council tax on houses: this annual charge paid to local government is currently based on estimated house prices in 1991 and so is very out of date. This 5 would negatively affect areas where house prices have risen the most since 1991 • a one-off wealth tax: a 5% tax on property and pension wealth of more than £500 000 would raise £260 billion to help pay for the global health crisis in five years, according to proposals from the Wealth Commission • increasing corporation tax: at the 2021 Budget the Chancellor announced that 10 the top rate of UK corporation tax would be increased to 25% by 2023. This will remain the lowest rate in the G7 group of the world's largest advanced countries, but will raise £17.2 billion in 2025–26. (Source: adapted from https://www.telegraph.co.uk/tax/income-tax/five-tax-rises-rishi- sunak-considering-chances-happening-budget/, and https://home.kpmg/uk/en/home/ insights/2021/03/tmd-corporation-tax-rate-to-increase-to-25-percent.html)
(c) With reference to Figure 2, assess whether an increase in real income improves subjective happiness within the UK. (10)
November 2021 · Paper 2 · Q5(a) 1 mark Multiple choice
Data and extracts for question 55 GDP at Purchasing Power Parities, Germany and France (nominal, trillions of US dollars) 2010–2017. 4.50 3 . 90 4.00 3 . 76 3 . 75 3 . 69 3 . 54 3 . 50 3 . 41 3 . 38 3.50 2 . 86 3.00 2 . 85 2 . 81 2. 64 2 . 68 2 . 58 2 . 47 2 . 43 2.50 US$ trillions 2.00 1.50 1.00 0.50 0.00 2010 2011 2012 2013 2014 2015 2016 2017 Germany France (Source: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2017&locations=DE&st art=1970&view=chart)
(a) From the data in the graph above, which one of the following may be deduced? (1) A France’s rate of inflation was lower than Germany’s in 2017 B Germany’s GDP is smaller than France’s in every year shown C In every year that France’s GDP fell compared to the previous year, Germany’s GDP did too D The GDP of both Germany and France fell between 2015 and 2016
November 2021 · Paper 2 · Q5(b) 2 marks AO2=2 Calculation
Data and extracts for question 55 GDP at Purchasing Power Parities, Germany and France (nominal, trillions of US dollars) 2010–2017. 4.50 3 . 90 4.00 3 . 76 3 . 75 3 . 69 3 . 54 3 . 50 3 . 41 3 . 38 3.50 2 . 86 3.00 2 . 85 2 . 81 2. 64 2 . 68 2 . 58 2 . 47 2 . 43 2.50 US$ trillions 2.00 1.50 1.00 0.50 0.00 2010 2011 2012 2013 2014 2015 2016 2017 Germany France (Source: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2017&locations=DE&st art=1970&view=chart)
(b) Calculate the percentage change in Germany’s nominal GDP from 2016 to 2017. (2)
November 2021 · Paper 2 · Q5(c) 2 marks AO1=1, AO3=1 Short answer Hard
Data and extracts for question 55 GDP at Purchasing Power Parities, Germany and France (nominal, trillions of US dollars) 2010–2017. 4.50 3 . 90 4.00 3 . 76 3 . 75 3 . 69 3 . 54 3 . 50 3 . 41 3 . 38 3.50 2 . 86 3.00 2 . 85 2 . 81 2. 64 2 . 68 2 . 58 2 . 47 2 . 43 2.50 US$ trillions 2.00 1.50 1.00 0.50 0.00 2010 2011 2012 2013 2014 2015 2016 2017 Germany France (Source: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2017&locations=DE&st art=1970&view=chart)
(c) Explain one reason why Purchasing Power Parities are used. (2)
October 2020 · Paper 2 · Q1(a) 2 marks AO2=2 Calculation Hard
Data and extracts for question 11 UK real Gross Domestic Product (GDP), annual percentage change 2014–2017 2.9% 3 2.3% 2 1.8% 1.7% % 1 0 2014 2015 2016 2017 (Source: https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/ihyp/qna)
(a) Total real UK GDP in 2016 was £200 000 million. With reference to the chart above, calculate the total real UK GDP for 2017. You are advised to show your working. (2)
October 2020 · Paper 2 · Q1(b) 2 marks AO1=2 Short answer
Data and extracts for question 11 UK real Gross Domestic Product (GDP), annual percentage change 2014–2017 2.9% 3 2.3% 2 1.8% 1.7% % 1 0 2014 2015 2016 2017 (Source: https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/ihyp/qna)
(b) Explain the term ‘real gross domestic product’. (2)
October 2020 · Paper 2 · Q1(c) 1 mark AO2=1 Multiple choice
Data and extracts for question 11 UK real Gross Domestic Product (GDP), annual percentage change 2014–2017 2.9% 3 2.3% 2 1.8% 1.7% % 1 0 2014 2015 2016 2017 (Source: https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/ihyp/qna)
(c) With reference to the chart on page 2, which one of the following is correct over the period shown? (1) A GDP per capita was highest in 2014 B Inflation rose in 2015 C The UK economy grew at the fastest rate in 2014 D The UK economy was in recession in 2015
October 2020 · AS Paper 2 · Q5(a) 1 mark AO1=1 Definition
Data and extracts for question 55 The table below shows the UK’s Gross National Income (GNI) between 2014 and 2017. Gross National Year Income (£ million) 2014 1 806 468 2015 1 852 845 2016 1 920 116 2017 2 008 593 (Source: adapted from www.ons.gov.uk/economy/ © Crown Copyright)
(a) Define the term ‘Gross National Income’. (1)
October 2020 · AS Paper 2 · Q5(b) 1 mark Multiple choice
Data and extracts for question 55 The table below shows the UK’s Gross National Income (GNI) between 2014 and 2017. Gross National Year Income (£ million) 2014 1 806 468 2015 1 852 845 2016 1 920 116 2017 2 008 593 (Source: adapted from www.ons.gov.uk/economy/ © Crown Copyright)
(b) Which one of the following represents the ratio of Gross National Income in 2015 to Gross National Income in 2017? (1) A 1 : 1.03 B 1 : 1.05 C 1 : 1.08 D 1 : 1.11
October 2020 · AS Paper 2 · Q5(c) 2 marks AO2=2 Calculation
Data and extracts for question 55 The table below shows the UK’s Gross National Income (GNI) between 2014 and 2017. Gross National Year Income (£ million) 2014 1 806 468 2015 1 852 845 2016 1 920 116 2017 2 008 593 (Source: adapted from www.ons.gov.uk/economy/ © Crown Copyright)
(c) Using 2014 as the base year, calculate the index number for 2016. You are advised to show your working. (2)
October 2020 · Paper 3 · Q2(a) 5 marks AO1=2, AO2=2, AO3=1 Short answer
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)
June 2019 · Paper 2 · Q6(c) 10 marks AO1=2, AO2=2, AO3=2, AO4=4 10-mark response
Data and extracts for question 6The UK economy since the financial crisis Figure 1: Pound sterling to US$ exchange rate, 2016-17 $ per £ 1.50 UK votes to leave the EU 1.40 UK general election announced 1.30 Price of £1 in US dollars 1.20 1.10 1.00 0 (Source: adapted from https://www.ft.com/content/ d50ce580-3968-11e7-ac89-b01cc67cfeec) Extract A UK companies use forward currency market The Norfolk-based picture frames maker Nielsen Bainbridge recently made forward contracts in the foreign exchange market to reduce the impact of currency fluctuations. The pound’s post-Brexit referendum depreciation has been a test of nerve for Nielsen Bainbridge and many other importers. At present the company’s suppliers are located 5 in Europe or China. “Currency therefore has a big impact on our business and the margins we can obtain,” says Ms Burdett, the Finance Director. Forward contracts enable institutions, businesses and individuals to lock in an exchange rate over a certain period of time regardless of how the rate moves during that time. Ms Burdett buys currency as soon as Nielsen Bainbridge confirms a large order as a way to fix costs. One third of UK 10 business managers are considering shifting from EU to UK suppliers. (Source: adapted from ’UK companies use pound strength to hedge forex risk’ by Roger Blitz, Markets, © FT.com, 16 May 2017. https://www.ft.com/content/ d50ce580-3968-11e7-ac89-b01cc67cfeec) Extract B Bank of England seeking to prevent future bank bailouts The Bank of England has ordered big lenders in the UK to find £116 billion of funding to ensure that taxpayers will never again have to bail out the banking sector. The Bank intends to publish details of how each of the big lenders would cope in the event they find themselves in a situation similar to Royal Bank of Scotland and Lloyds Banking 5 Group, which needed £65 billion of taxpayer bailouts during the 2008 Global Financial Crisis. This had a significant negative impact on the UK government’s national debt and, many would argue, increased the need for contractionary fiscal policy. Having said that, the UK government sold all its shares in Lloyds Banking Group in 2017 and, according to the Chancellor of the Exchequer, “recovered every penny of its investment in Lloyds”. 10 Sir Jon Cunliffe, the deputy governor at the Bank responsible for financial stability, said regulators needed to let banks fail in a similar way that traditional companies collapse. This has not been possible in the past because of the risk that savers lose their money and because a system did not exist to allow banks to be put into insolvency. “Just like when other businesses fail, losses arising from bank failure would be imposed 15 on shareholders and investors. This protects the public from loss and incentivises banks to operate more prudently,” said Cunliffe. (Source: adapted from ‘Bank of England tells lenders to find £116bn to help prevent bailouts’, by Jill Treanor, 02 October 2017, Copyright The Guardian News and Media Ltd https://www.theguardian.com/business/2017/oct/02 /bank-of-england-bailouts-rbs-lloyds and ‘Lloyds bank bailout repaid in full, Philip Hammond claims’, by Jill Treanor, Larry Elliott, 21 April 2017, Copyright Guardian News & Media Ltd 2017 https://www.theguardian.com/business/ 2017/apr/21/lloyds-bank-bailout-repaid-in-full-philip-hammond-claims) Extract C Bank of England tells lenders to increase capital reserves The Bank of England has told lenders they will need to build a special reserve worth £11.4 billion by the end of 2018 as it tries to make banks more resilient to the risk posed by mounting consumer debt. This reserve of assets that can be readily turned into cash is a way of forcing banks to set aside capital reserves in good times in order to keep lending 5 to the wider economy at a steady level, even during an economic downturn. In 2017 the Bank of England told UK banks it would raise the reserve ratio, relative to all assets, from zero to 0.5% and also forecast a further increase to 1% by the end of 2017. The move is not intended to directly reduce consumer demand for credit, which in 2017 grew by 10.3% on an annual basis, but it may well lead to banks becoming less willing 10 to lend to consumers. Since the Bank of England has recently become increasingly concerned about consumer borrowing, including rising car loans and credit card debt, this may be no bad thing as far as the Bank of England is concerned, even if it does have a negative impact on the wider economy. Analysts are concerned about the impact on consumer confidence of rising inflation, 15 partly caused by a falling pound. With falling real incomes consumers could become more vulnerable to falling behind with their credit card and personal loan repayments. Despite these concerns the UK economy recently recorded the lowest rate of unemployment since 1975. (Source: adapted from ‘Bank of England tells lenders to increase capital buffers by £11.4bn’ by Caroline Binham, Gemma Tetlow and Martin Arnold © Financial Times 2017 https://www.ft.com/content/9bc99294-5b1b-11e7-9bc8-8055f264aa8b)
(c) With reference to the last paragraph in Extract C, assess the impact of a fall in real incomes on subjective happiness. (10)
June 2019 · AS Paper 2 · Q6(e) 15 marks AO1=3, AO2=3, AO3=3, AO4=6 15-mark response
Data and extracts for question 6UK inflation and economic growth Figure 1: UK inflation rate as measured by annual percentage changes in the Consumer Price Index (CPI), January 2014 to January 2018 3.5 3.0 % 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 (Source: www.bankofengland.co.uk/publications/Pages/inflationreport/2017/aug.aspx) Figure 2: Selected changes to the CPI basket of goods and services, 2017 IN OUT Non-dairy milk Apple cider Jigsaw puzzles Menthol cigarettes Child scooters Child swings Cycling helmets Basic mobile phones (Source: www.theguardian.com/business/2017/mar/14/uk-inflation- ons-basket-goods-gin-cycling-helmets) Figure 3: UK exports, £ billions per month, January 2014 to January 2018 52 50 £ billions 48 46 44 42 40 0 (Source: Trading Economics, ONS - https://tradingeconomics.com/united-kingdom/exports) Figure 4: Annual percentage change in real Gross Domestic Product (GDP), 2014-2017 2014 2015 2016 2017 United Kingdom 3.1 2.2 1.8 2.0 Developing countries (average) 4.7 4.2 4.1 4.5 (Source: IMF, World Economic Outlook 2017) Extract A Rising inflation After January 2017, the inflation rate, as measured by the Consumer Price Index (CPI), in the UK has exceeded the Bank of England’s 2% target. Sharp increases in food prices as a result of the fall in the exchange rate of the pound have contributed to rising inflation. Between January and September 2017, food prices have increased by 3.5 percentage 5 points. The Office for National Statistics (ONS) has identified that the rapid increase in food prices affected people on low fixed incomes the most. It leaves them with very little money to spend on relatively more expensive items. Moreover, the Bank of England has observed a rise in the size of personal debt relative to income. In order to maintain their standard of 10 living, many consumers on low fixed incomes are using their credit cards and taking out short-term loans to fund their spending. Inflation rose to over 3% at the end of 2017 leading to the Monetary Policy Committee increasing the base rate of interest by 0.25 percentage points to 0.5% in November 2017. Wage growth has been lagging behind price rises and this is expected to continue. 15 Basic wage increases are expected to be only around 1%. This has heaped considerable pressure on households. The ONS has updated the shopping basket that is used in the measurement of UK inflation, to reflect the lifestyle of households in the country. Technological advancements, changes in consumer tastes and a move towards health, fitness and 20 gluten-free products have made it essential to revise the 2017 basket. (Source: adapted from ‘UK inflation tipped to rise again with wages forecast to stagnate’, The Guardian, https://www.theguardian.com/business/2017/aug/13/ uk-inflation-tipped-to-rise-again-with-wages-forecast-to-stagnate#img-1) Extract B Economic growth and living standards Economic growth is expected to accelerate again as foreign demand for UK exports increases due to the global economic recovery. According to some economists, consumer spending is no longer the engine of growth for the UK. The increase in exports, which is largely due to the fall in the exchange rate of the pound, is expected to be the most 5 significant driver of the UK’s economic growth. Some economists have proposed that the quality of economic growth needs to be measured and not just the quantity. This will allow governments to understand how GDP growth affects the living standards of its citizens. They want governments to publish data on the quality of life alongside GDP data as economic growth varies across the country 10 with jobs and wages distributed unevenly. Economic growth figures also hide differences that are not considered in GDP calculations. In 2017, it was estimated that the relative size of the informal economy of developing countries was nearly five times greater than that of the UK. (Source: adapted from ‘Growth to accelerate as UK economy bounces back’, The Telegraph, http://www.telegraph.co.uk /business/2017/08/01/ growth-accelerate-uk-economy-bounces-back/; ‘GDP is not enough: economists and businesses demand new measure of inclusive growth’, The Telegraph, http://www.telegraph.co.uk/business/2017/03/07/gdp-not- enough-economists-businesses-demand-new-measure-inclusive/)
(e) With reference to Figure 4, Extract B and your own knowledge, discuss the limitations of using GDP data to compare living standards between the UK and developing countries. (15)
June 2018 · AS Paper 2 · Q1(a) 1 mark AO1=1 Definition
Data and extracts for question 11 The table below shows the UK Gross Domestic Product (GDP) and population, 2013 to 2015. GDP Population Year (£ millions) (millions) 2013 1 739 563 64.1 2014 1 822 480 64.6 2015 1 872 714 65.1 (Source: ONS, https://www.ons.gov.uk/)
(a) Define the term ‘Gross Domestic Product’. (1)
June 2018 · AS Paper 2 · Q1(b) 2 marks AO2=2 Calculation
Data and extracts for question 11 The table below shows the UK Gross Domestic Product (GDP) and population, 2013 to 2015. GDP Population Year (£ millions) (millions) 2013 1 739 563 64.1 2014 1 822 480 64.6 2015 1 872 714 65.1 (Source: ONS, https://www.ons.gov.uk/)
(b) Calculate the UK’s GDP per capita in 2015. You are advised to show your working. (2)
June 2018 · AS Paper 2 · Q1(c) 1 mark Multiple choice
Data and extracts for question 11 The table below shows the UK Gross Domestic Product (GDP) and population, 2013 to 2015. GDP Population Year (£ millions) (millions) 2013 1 739 563 64.1 2014 1 822 480 64.6 2015 1 872 714 65.1 (Source: ONS, https://www.ons.gov.uk/)
(c) Which one of the following is the most likely effect of an increase in real GDP per capita? (1) A Increase in living standards B Increase in unemployment C Lower consumer confidence D Lower purchasing power
June 2017 · AS Paper 2 · Q3(a) 1 mark Multiple choice
Data and extracts for question 33 Real GDP in selected economies (the base year 2008=100) 110 108 106 104 102 Index 100 98 96 94 92 0 2009 2010 2011 2012 2013 2014 France Italy United Kingdom (Source: http://www.ons.gov.uk/ons/rel/elmr/gdp-and-the-labour-market/q1-2014- -may-gdp-update/sty-gdp-g7-economies.html?format=print)
(a) Which one of the following can be inferred from the chart? (1) A The UK’s real GDP is smaller in 2014 than it was in 2008 B Between 2008 and 2014 France’s real GDP growth rate was higher than Italy’s C Between 2008 and 2014 inflation was lower in France than in the UK D France experienced a greater fall in real GDP than the UK in 2014
June 2017 · AS Paper 2 · Q3(b) 2 marks AO1=2 Definition
Data and extracts for question 33 Real GDP in selected economies (the base year 2008=100) 110 108 106 104 102 Index 100 98 96 94 92 0 2009 2010 2011 2012 2013 2014 France Italy United Kingdom (Source: http://www.ons.gov.uk/ons/rel/elmr/gdp-and-the-labour-market/q1-2014- -may-gdp-update/sty-gdp-g7-economies.html?format=print)
(b) Define the term ‘real GDP’. (2)
June 2017 · Paper 2 · Q5(a) 1 mark Multiple choice
Data and extracts for question 55 The table shows the selected economic data in 2014 for Vietnam and India. Gross National Human Income per Development capita Index (HDI) value (2011 PPPs) Vietnam 5 092 0.666 India 5 497 0.609 (Source: www.hdr.undp.org/en/composite/HDI)
(a) Which one of the following statements can be deduced from the data in the table? (1) A Average incomes are higher in India than in Vietnam. B Levels of absolute poverty are higher in Vietnam. C Life expectancy is higher in India than in Vietnam. D Provision of healthcare and education is less effective in Vietnam than in India.
June 2017 · AS Paper 2 · Q6(d) 6 marks AO1=2, AO2=2, AO3=2 Short answer
Data and extracts for question 6UK economic recovery Figure 1: Components of aggregate demand in selected countries 2014 Government Exports - Country Consumption Investment spending Imports UK 66% 14% 21% –2% Germany 57% 17% 19% 6% France 57% 20% 25% –2% China 34% 49% 14% 3% NB: Figures may not add up to 100% due to rounding calculations. (Source: World Bank 2014) Figure 2: Nominal GDP per capita at Purchasing Power Parities (PPPs) (the base year 2000=100) 150 140 130 120 110 100 90 0 2000 2002 2004 2006 2008 2010 2012 2014 France Germany United Kingdom (Source: https://www.imf.org) Extract A The UK economy – a strange recovery At the Autumn Statement in November 2015, the Chancellor of the Exchequer had good reason to cheer his economic record. The UK economy appeared to have returned towards its long-term trend in the rate of economic growth. GDP growth has remained strong, with output rising at the highest rate in the G7 group of seven major industrialised countries. Unemployment continued to drop and business 5 investment grew by 5%. However, a number of concerns remain, particularly in relation to the UK’s current account deficit, which reached a record high of 6% of GDP in the third quarter of 2014. This was primarily a result of a sharp decline in the rate of return on UK investments overseas. Low export growth meant that the UK’s trade deficit persisted. 10 In 2012, the Chancellor had announced a target for the UK to export £1 trillion of goods and services by 2020, which would require an annual growth rate of 8%. However, the annual growth in UK exports had reached just 2.7%. The Office for Budget Responsibility (OBR) forecast that UK exports will only reach £630 billion by 2020 – a third lower than the government’s target. 15 Exports in services continued to grow in 2015, but the UK’s goods industries were struggling. It was particularly concerning that data showed output in the UK’s construction and manufacturing industries falling. Indeed, the output of the manufacturing sector remained 6.3% below its pre-recession peak. Households, meanwhile, are set to become even more indebted over the coming years. 20 It is projected that the household gross debt to income ratio will rise by 26 percentage points between 2015 to 2020, returning to levels last seen before the Global Financial Crisis. The economy did not appear to be rebalancing away from consumer driven growth towards export-led growth, making another recession almost inevitable. Fundamental to this problem is the UK’s low productivity, which in 2015 remains 25 around 20 percentage points below the average for the rest of the G7. It is vital that the government tackles this problem, particularly in the sectors that are currently facing difficulties. This will require relaxing the planning system to promote more house-building, the removal of burdens on UK manufacturers such as carbon taxes, finally getting shale gas exploration going, and reforming apprenticeships to rapidly 30 improve skills in construction, manufacturing and technology. (Source: adapted from http://www.cityam.com/229481/chancellor-beware- uk-not-out-woods-yet, 25 November 2015 by Daniel Mahoney)
(d) With reference to Figure 2 and Extract A, explain two likely reasons why the growth of the UK’s nominal GDP per capita at PPPs was slower than that of Germany after 2010. (6)
June 2016 · AS Paper 2 · Q2(a) 2 marks AO1=2 Definition Hard
Data and extracts for question 22 The table below shows GDP per capita at purchasing power parities (PPPs) for a selection of European countries in 2013. GDP per capita Country (US$, at PPPs, 2013, rounded) UK 38 500 Spain 33 000 Italy 35 500 (Source: http://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD)
(a) Define the term ‘purchasing power parities’. (2)
June 2016 · AS Paper 2 · Q2(b) 1 mark Multiple choice
Data and extracts for question 22 The table below shows GDP per capita at purchasing power parities (PPPs) for a selection of European countries in 2013. GDP per capita Country (US$, at PPPs, 2013, rounded) UK 38 500 Spain 33 000 Italy 35 500 (Source: http://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD)
(b) The Office for National Statistics estimates that the UK population was 64 million in 2013. Using the data, what was the UK’s total GDP in 2013? (1) A $2 464 000 million B $2 272 000 million C $1 662 000 million D $2 112 000 million
June 2016 · AS Paper 2 · Q6(a) 4 marks AO1=2, AO2=2 Short answer
Data and extracts for question 6UK incomes, inflation and monetary policy Figure 1 – UK average weekly household real income 700 680 660 640 £ 620 600 580 2006 2007 2008 2009 2010 2011 2012 2013 (Source: http://www.ons.gov.uk/ons/rel/family-spending/family-spending/ 2014-edition/rft-a44-final-2013.xls) Figure 2 – UK inflation rate as measured by percentage changes in the Consumer Price Index (CPI) 6.0 5.0 4.0 % 3.0 2.0 1.0 0.0 (Source: http://www.bankofengland.co.uk/publications/Pages/inflationreport/2015/feb.aspx) Extract A Britons should not fear rise in interest rates The Monetary Policy Committee (MPC) of the Bank of England is prepared to raise interest rates “in the near future” if inflation increases, one of its senior policymakers has warned. Kristin Forbes, a member of the MPC, said a rise in borrowing costs would also be necessary should household debt reach unhealthy levels. However, she stressed that this was not yet a cause for concern. 5 With the UK’s base rate of interest at 0.5% and inflation at a record low and expected to be negative, the MPC is currently under no pressure to raise interest rates, despite Britain’s economic recovery. UK inflation is being driven lower by the slump in global oil prices, which have roughly halved since summer 2014, and the Bank’s governor Mark Carney warned earlier this 10 month that a strong domestic economy would translate into higher UK inflation over the medium term. “The most likely next move in monetary policy is an increase in interest rates. The message is clear,” Carney said. Forbes said that “even the more lagged effects of the rise in the value of the pound will likely peak in the first part of this year and also gradually fade. Inflation will then most 15 likely bounce back. “Since interest rates take well over a year to be fully effective, they should be adjusted to respond to inflationary risks at that time horizon – when all of these effects have diminished – rather than respond to today’s inflation.” (Source: adapted from http://www.theguardian.com/money/2015/feb/24/ britons-should-not-fear-rise-in-interest-rates- when-they-come-says-boe-member) Extract B Deflation is bad news The problem with deflation is that once you have it you can’t get rid of it. Central banks know what to do about inflation but they do not have the policy tools to deal with deflation when interest rates are almost as low as they can go. Just look at Japan, which had deflation in nine separate years from 1999-2012, with two additional years at zero, averaging minus 0.3%. The highest in any single year was minus 1.3% in 2013. 5 In the European Union (EU) in 2008, at the start of the financial crisis, there were fears of deflation but at that time central banks had the ability to cut interest rates by nearly 5 percentage points. Those fears may now be coming true, with the EU experiencing deflation of 0.5% in 2015. This was driven primarily by declines in energy prices, but there was also deflation 10 in non-energy industrial goods and telecommunications. The collapse in the cost of shipping goods potentially suggests something deeper is going on and may lead to a more persistent form of deflation than Mark Carney has currently claimed. (Source: adapted from http://www.independent.co.uk/news/business/comment/david-blanchflower/ david-blanchflower-deflation-is-bad-news--and-britain-is-likely-to-be-next-to-get-it-10078832.html)
(a) With reference to Figure 1, explain the term ‘real income’. (4)

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