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AS
ECONOMICS
Paper 2 The National Economy in a Global Context

Time allowed: 1 hour 30 minutes

Materials
For Examiner’s Use
For this paper you must have:
• the Insert Section Mark
• a calculator.
A

Instructions B
• Use black ink or black ball-point pen. Pencil should only be used for drawing. TOTAL
• Fill in the boxes at the top of this page.
• Answer all questions in Section A.
• Answer either Context 1 or Context 2 in Section B.
• You will need to refer to the Insert provided to answer Section B.
• You must answer the questions in the spaces provided. Do not write outside
the box around each page or on blank pages.
• If you need extra space for your answer(s), use the lined pages at the end of
this book. Write the question number against your answer(s).
• Do all rough work in this book. Cross through any work you do not want to be
marked.

Information
• The maximum mark for this paper is 70.
• The marks for questions are shown in brackets.
• No deductions will be made for wrong answers.

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Section A box

Answer all questions in this section.

Only one answer per question is allowed.

For each question completely fill in the circle alongside the appropriate answer.

CORRECT METHOD WRONG METHODS

If you want to change your answer you must cross out your original answer as shown.

If you wish to return to an answer previously crossed out, ring the answer you now wish to select
as shown.

0 1 Which one of the following is most likely to be an objective of government

economic policy?

A A low level of employment

B A lower price level

C An equal distribution of income

D An increase in productive potential

[1 mark]

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0 2 Figure 1 shows the aggregate demand (AD) and short-run aggregate supply (SRAS) box

curves for an economy.

Figure 1

Which one of the following combinations of events is most likely to cause the curves to
shift from AD1 to AD2 and from SRAS1 to SRAS2?

A A higher rate of savings and faster labour productivity growth

B Faster economic growth abroad and lower world commodity prices

C Higher money wages and more household consumption

D Lower interest rates and a higher rate of indirect taxes

[1 mark]

0 3 The main reason that economic statistics are often expressed as index numbers is to

A allow easier comparison of data.

B calculate cost of living data.

C convert nominal data to real data.

D even out fluctuations in raw data.

[1 mark]

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0 4 Unemployment rose in an economy despite overall economic growth. This is most likely to box

be explained by an increase in

A cyclical unemployment.

B job vacancies.

C structural unemployment.

D the school leaving age.

[1 mark]

0 5 An economy experiences an increasing negative output gap. Which one of the following
combinations of outcomes most accurately describes the likely effects of this?

Inflationary
Imports Unemployment
pressure

A Falling Falling Rising

B Falling Rising Falling

C Rising Falling Rising

D Rising Rising Falling

[1 mark]

0 6 A deflationary policy is designed to

A avoid deflation.

B increase aggregate demand.

C lead to deflation.

D reduce aggregate demand.

[1 mark]

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0 7 Index numbers for real GDP per head for Country X and Country Y, are shown in Table 1. box

Table 1

Year Country X Country Y

2016 100 100

2017 102 104

2018 101 103

2019 105 107

From Table 1 it can be concluded that real GDP per head

A grew at the same rate between 2018 and 2019 in both countries.

B grew every year throughout the period in both countries.

C rose faster in Country X between 2017 and 2019.

D was higher in Country Y than in Country X from 2017 to 2019.

[1 mark]

0 8 Nominal GDP for an economy fell from £318 billion to £310 billion. Average prices also fell
over the same period. It can be concluded that

A deflation resulted in a recession.

B output fell, but by less than £8billion.

C real GDP was lower at the end of the period.

D real incomes may have risen or fallen.

[1 mark]

Turn over for the next question

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0 9 An economy has a positive output gap and the government decides to increase interest box

rates. Which one of the following outcomes is most likely to result from the higher interest
rates?

Investment Output gap Savings

A Decrease Decrease Increase

B Decrease Increase Decrease

C Increase Decrease Decrease

D Increase Increase Increase

[1 mark]

1 0 Faster growth in national income caused investment in an economy to increase.

This means that the increase in investment resulted from

A an increase in spare capacity.

B lower interest rates.

C the action of the accelerator.

D the action of the multiplier.

[1 mark]

1 1 An indirect tax is a tax levied on

A firms’ profits.

B income.

C savings.

D spending.
[1 mark]

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1 2 The Bank of England decides to raise interest rates to bring inflation back to its target rate. box

This policy is less likely to be effective if at the same time

A firms’ profits and investment fall.

B income tax rates are reduced.

C labour productivity grows more quickly.

D other countries reduce their demand for UK exports.

[1 mark]

Turn over for the next question

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1 3 A small island economy suffers extensive damage from a hurricane. The following box

diagrams show aggregate demand (AD), short-run aggregate supply (SRAS) and long-run
aggregate supply (LRAS) for the economy. Equilibrium before the hurricane is at E1.

Which one of the following diagrams shows the most likely position of E2, the equilibrium
reached after the hurricane?
[1 mark]

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1 4 Which one of the following is an example of expansionary fiscal policy? box

A reduction in the

A budget deficit.

B budget surplus.

C trade deficit.

D trade surplus.
[1 mark]

1 5 Table 2 shows the components of aggregate demand in an economy which is

in equilibrium.

Table 2

£ billion

Consumer expenditure 1000

Investment 200

Government expenditure 350

Exports 150

Imports 200

If imports increase to £230 billion and the multiplier is 1.5, then the new level of national
income would be

A £1155 billion

B £1455 billion

C £1545 billion

D £1845 billion
[1 mark]

Turn over for the next question

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1 6 A government cuts the rate of corporation tax from 30% to 15%. box

This policy is most likely intended to

A decrease the level of savings.

B improve labour mobility.

C reduce investment from overseas companies.

D stimulate supply-side improvements.

[1 mark]

1 7 An economy has a deficit on the current account of its balance of payments.

Which one of the following sets of circumstances is most likely to cause the deficit
to increase?

A A depreciating exchange rate and lower unemployment

B Better supply-side policies and lower interest rates

C Expansionary fiscal policy and a stronger exchange rate

D Increased labour productivity and lower interest rates

[1 mark]

1 8 An economy experiencing a high rate of short-run economic growth is likely to have an

increase in

A firms’ spare capacity.

B job vacancies.

C spending on unemployment benefits.

D the real value of money.

[1 mark]

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1 9 In the short run, an increase in government borrowing is most likely to result in lower box

A consumer expenditure.

B government expenditure.

C national debt.

D unemployment.
[1 mark]

2 0 A government wanting to use monetary policy to reduce deflation could decrease the

A exchange rate.

B minimum wage.

C money supply.

D rate of indirect tax. 20

[1 mark]

END OF SECTION A

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Section B box

Look at the Insert and choose to answer EITHER Context 1 OR Context 2.

Answer EITHER Questions 21 to 26 in the spaces below

OR
Questions 27 to 32 on pages 23 to 32 of this answer booklet.

There is a total of 50 marks for either context.

Shade the circle below to indicate which context you have answered.

Context 0 1 Context 0 2

WRONG METHODS CORRECT METHOD

EITHER

Context 1 Total for this context: 50 marks

ECONOMIC GROWTH

Use the Insert provided to study Questions 21 to 26 and Extracts A, B and C, and then answer the
questions in the spaces which follow.

2 1 Define ‘price stability’ Extract B (line 3).

[3 marks]

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2 2 If UK GDP was equal to £2073 billion in 2017, use Extract A to calculate, to the nearest box

billion, the value of UK GDP in 2018.

[4 marks]

Turn over for the next question

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2 3 Use Extract A to identify two significant points of comparison between the growth rates of box

the UK and Germany over the period shown.

[4 marks]

Comparison 1

Extra space

Comparison 2

Extra space

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2 4 Extract C (lines 16–17) states: ‘An increase in the funds available for education and box

training should help to improve factor mobility’.

Draw an AD/AS diagram to show the long-run impact of improved factor mobility on the
price level and national income.
[4 marks]

Turn over for the next question

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2 5 Extract B (line 2) states: ‘…there were signs that economies were in the midst of a box

global slowdown’.

Explain how a global slowdown can affect employment in the UK.

[10 marks]

Extra space

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2 6 Extract C (lines 2–4) states: ‘…the Prime Minister, Boris Johnson, had promised to make box

the 2020s a “decade of prosperity and opportunity”. If this is to be achieved, it will be

essential to find ways to boost both short-run and long-run growth’.

Use the extracts and your knowledge of economics to evaluate different policies that can
be used to increase the long-run rate of growth of the UK economy.
[25 marks]

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50

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Do NOT answer Context 2 if you have answered Context 1. box

OR

Context 2 Total for this context: 50 marks

GOVERNMENT SPENDING AND TAXATION

Use the Insert provided to study Questions 27 to 32 and Extracts D, E and F, and then answer the
questions in the spaces which follow.

2 7 Define ‘unemployment rate’ Extract E (line 18).

[3 marks]

2 8 If the government allocated £275 billion to social security spending in 2018–19, use
Extract D to calculate, to the nearest billion, the total amount of government spending in
2018–19.
[4 marks]

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2 9 Use Extract D to identify two significant points of comparison regarding the composition of box

government spending between 1997–98 and 2018–19.

[4 marks]

Comparison 1

Extra space

Comparison 2

Extra space

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3 0 Extract E (line 15) states: ‘Government spending acts as an injection into the circular flow box

of income’.

Draw an AD/AS diagram to show the effect of an increase in injections on the price level
and national income.
[4 marks]

Turn over for the next question

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3 1 Extract F (lines 1–2 and 8) states: ‘As part of fiscal policy, government spending can be
used to allocate resources to different regions and sectors of the economy and
consequently, change the pattern of economic activity...Taxation also has a role to play in
affecting the pattern of activity’.

Explain ways in which a government can use fiscal policy to affect the pattern of
economic activity.
[10 marks]

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3 2 Extract E (lines 4–6) states: ‘…the report suggested that significant increases in spending
would be required to help improve the wellbeing of the UK population’.

Use the extracts and your knowledge of economics to assess the view that a long-term,
significant increase in government spending would be beneficial for the UK economy.
[25 marks]

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50

END OF QUESTIONS

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ANSWER IN THE SPACES PROVIDED

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Question Additional page, if required.
number Write the question numbers in the left-hand margin.

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Question Additional page, if required.
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Question Additional page, if required.
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