2017 AS paper

Question 1

define deflation

Answer 1

• A decrease in the general level of prices
• Negative change in average prices
• Negative inflation / inflation below zero

Question 2

causes of deflation

Answer 2

1) fall in AD (e.g. global recession, fiscal austerity, decline in confidence, fall in money supply)
2) rightward shift of AS - lower costs of production (e.g. fall in oil prices, improved technology, appreciation - falling import prices)

Question 3

explain ‘under-employment’

Answer 3

Knowledge/understanding
definition of under-employment:
 When a worker is working fewer hours than they would like to work
 When a worker is under-utilised in terms of ability

Application
1 mark for reference to data provided
 Has nearly doubled from 76 482 to 142 788
 Increased by over 66 000 or 86% (accept 85% -100%)
 Unemployment fell to 5.7% but
underemployment increased

Analysis
 Reasons for increase:
o Recession/lack of demand in the market
o Increase in zero-hours/part-time/flexible contracts offered by employers
o Increased mechanisation/use of technology in the workplace
 Underemployment makes the unemployment figure look better than it is
 Comment on impact of lower pay e.g. standard of living

Question 4

reason for fall in the unemployment rate

Answer 4

increasing consumer spending

Question 5

define real GDP

Answer 5

1 mark for definition of GDP
 Value of the total output
 Accept amount of final goods and services
 Total income / total expenditure

1 mark for definition of real
 Taking inflation into account
 Adjusted for changes in the price level

Question 6

likely impact of an increase in personal allowance on UK’s price level and real output

Answer 6

 rightward shift in AD

 new equilibrium point showing higher price level and higher real output

Question 7

define ‘direct tax’

Answer 7

 Tax on income / earnings

 Tax on business profits

Question 8

reason for the change in consumer confidence between 2012 and 2015

Answer 8

Knowledge/understanding
 Falling unemployment
 Rising incomes / economic growth
 Lower inflation rates

Application
1 mark for identifying an improvement in consumer confidence or other single use of figures from the chart e.g. a low of -25 in 2012

Analysis
1 mark for linked development of reason e.g. economic growth leads to more predictable job security

Question 9

explain ‘net trade’

Answer 9

Knowledge/understanding
 Exports – imports / X – M (1)

2 marks for e.g.
 Difference between total value of a country’s exports and imports (2)

Application
2 marks for e.g.
 The UK net trade was -2% (1)
 The UK has a trade deficit (1)
 China has a trade surplus (1)
 China’s net trade was 3% (1)
e.g. Germany had a trade surplus of 6% = 2 marks

Question 10

likely causes of the UK’s trade deficit (KAA)

Answer 10

 Data reference to figure 1 of -2% for net trade
 Strong value of the pound
 Rising real income
 Slow growth in the world economy
 Low productivity in the UK e.g. around 20 percentage points below the G7 average

Question 11

likely causes of the UK’s trade deficit (Ev)

Answer 11

 Export of services has grown
 Productivity difficult to measure e.g. especially large service sector
 Investment is increasing so productivity may rise in the future
 Time period under consideration e.g. the pound is weakening against various currencies

Question 12

likely influence on UK investment

Answer 12

Knowledge
 Business confidence
 Interest rates
 Access to credit
 Rise in demand for UK exports 

Application
2 marks for relevant references to context or one reference to context plus development, e.g.
 5% growth in investment
 Output rising at the fastest rate in the G7
 GDP growth has remained strong
 Unemployment continued to drop

Analysis
Linked development (1+1), e.g.
 Lower interest rates reduces cost of borrowing incentivising firms to invest

Question 13

likely reasons why the growth of the UK’s nominal GDP per capita at PPPs was slower than that of Germany after 2010

Answer 13

Knowledge/understanding
Identification of two reasons (1+1)
 Rising UK population (66m) relative to Germany’s (83m)
 Falling productivity in UK
 Lack of exports in UK
 Increased imports in UK (largely due to increased domestic consumption)
 Change in relative cost of living
 Different inflation rates in UK and Germany
 Changes to PPP method of calculation, e.g. items in basket of goods
 Change in value of US Dollar used for PPP calculations

Application
2 marks for two data references from Figure 2 and/or extract A, or application of a diagram (1+1), e.g.
 UK current account deficit 6% of GDP in third quarter 2014 (1)
 Identify difference in growth of GDP per capita in Figure 2 e.g. 7 percentage points between 2010 and 2013 for the UK (1)

Analysis
Linked development of reasons (1+1). e.g.
 falling UK productivity increases average cost of UK exports, making them more expensive relative to Germany’s

Question 14

evaluate policies the gov could use to increase the UK’s productivity (KAA)

Answer 14

Policies may include:
 Improved education/training to increase skill level of workforce
 Increase in provision and quality of apprenticeships
 Improved healthcare to ensure workers take less time off/are healthier at work
 Improved infrastructure, e.g. roads, railways, ports, airports, to reduce delays in transporting goods around the country / abroad
 Improved telecommunications infrastructure (e.g. faster broadband internet) so businesses can work quicker, communicate with foreign firms better, etc.
 Relaxing the planning system to improve house-building and efficiency in construction industry; improve labour mobility
NB For a Level 3 response, answers must make clear links to increases in productivity rather than production or output

Question 15

evaluate policies the gov could use to increase the UK’s productivity (Ev)

Answer 15

 Many of these policies will have quite a long time lag
e.g. nursery school vouchers will have short term and long term impacts on different stakeholders
 Magnitude of the impact of the policies e.g. Crossrail just affects London
 Opportunity cost of the policies
 Conflicts between objectives e.g. impact on the environment
 Conflicts between policies e.g. increased spending on
apprenticeships may have fiscal implications

Question 16

evaluate the benefits of economic growth to the UK given that ‘a number of concerns remain’ in the UK economy (KAA) BENEFITS

Answer 16

 Explicit or implicit understanding of economic growth – a measure 
of the increase in either real GDP or real GDP per head or potential GDP
 Relevant diagram e.g. AD/AS diagram showing rightward shift in AD and/or AS curve
 Increased tax revenues for the government which may be used to improve public services or redistribute incomes
 Higher profits for companies which may be used to improve quality products or to produce new products
 Consumers’ living standards improve e.g. can afford to buy more goods and services and/or have more leisure time
 More employment opportunities/lower unemployment
 If there is export–led growth, then the current account of the Balance of Payments would improve
 Real economic growth increases LRAS and could
lower inflation
 An increase in business confidence which may lead to
increase in investment
 Investment in sustainable technology can have
environmental benefits

Question 17

evaluate the benefits of economic growth to the UK given that ‘a number of concerns remain’ in the UK economy (KAA) “A NUMBER OF CONCERNS”

Answer 17

 current account deficit
 decline in rate of return on UK investments
 low export growth
 growth lower than target
 struggling goods industries
 output falling in construction/manufacturing
 growing household debt
 imbalance of consumer driven growth
 low productivity
 skills shortage
 house shortages
 burdens on UK manufacturers

Question 18

evaluate the benefits of economic growth to the UK given that ‘a number of concerns remain’ in the UK economy (Ev)

Answer 18

 Demand pull inflation – may be shown by a rightward/upward shift in AD curve
 Greater inequality e.g. companies may not invest but distribute profits to shareholders
 Growth might involve depletion of natural resources
 External costs of growth
 Lack of sustainability
 Short run/long run effects e.g. technological unemployment
 Growth could cause a deterioration in the Balance of
payments since Britain has a high marginal propensity to import
 Growth from supply side improvements may reduce
inflationary pressure
 Social impact of increased economic activity e.g.
work-life balance

Question 19

evaluate the view that another recession is ‘inevitable’ in the UK (KAA)

Answer 19

 High percentage of consumption in UK’s aggregate demand in contrast to other countries in Figure 1
 Lack of export-led growth, resulting from the state of the global economy so the UK government’s £1 trillion target is unrealistic
 Falling rate of return on investments abroad
 Rising consumer indebtedness
 Dependence of consumer confidence on rising house
prices which may not be sustainable
 Size of UK government budget deficit/national debt
may create problems as interest rates start to rise
 Relevant diagram e.g. trade cycle
 Fall in real incomes

Question 20

evaluate the view that another recession is ‘inevitable’ in the UK (Ev)

Answer 20

 UK has generally been a very consumer-driven economy
 UK has persistently had a current account deficit/trade deficit and the economy has continued to grow
 Financial reforms and increased oversight by the Bank of England have made a financial crisis less likely in the future
 Falling commodity prices/low inflation generally benefits the UK economy as it is a net importer
 Government is committed to a plan to get government debt under control in the long-term. This also increases confidence of UK government’s lenders.
 Macro policies, well timed, could prevent recession
 Investment increasing 5% could counteract any
recessionary pressures
 Impact of Brexit / fall in the pound since 2016
 Global growth would have positive impact on UK
especially service sector exports