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Question 1

Explain ways in which globalisation could help reduce the UK national debt.

Answer 1

UK firms may access new/larger markets (ID) which may result in increased tax revenue from tariffs

UK firms may earn more profit (ID) which will increase corporation tax revenue

increased FDI may be attracted (ID) which raises corporation tax revenue/income tax revenue through job creation

more consumption of goods (ID) means higher VAT revenues

Question 2

Describe the roles of:

i) World Trade Organisation (2)

Answer 2

aims to promote free trade (1)
attempts to remove barriers to trade (1)
 hold trade rounds (1)
 mediates in trade disputes (1)
 enforces members’ adherence to agreements (1)
 can impose penalties/compensation (1)

Question 3

International Monetary Fund (2

Answer 3

aims to promote international economic co-operation (1)
lends money to governments (1)
give monetary/fiscal/exchange rate policy advice (1)

Question 4

Other than freedom of movement of labour, describe 3 main economic features of the EU.(3)

Answer 4

The removal of tariffs and quotas on imports and exports. This means countries can trade with each other freely with no limits, and helps to lower the costs of production

Countries have to contribute membership fees into the EU

There is a european central bank for the eurozone (countries that have adopted the euro as their form of currency)

Farmers within the EU are provided with subsidies which allows them to keep prices for crops steady and also makes sure that there aren’t any shortages of crops.

Question 5

Explain the effects of the relatively slow recovery in the Eurozone on:

• uk businesses
• uk economy

Answer 5

The EU accounts for a large proportion of the UK’s exports. As a result, this may see a decrease in demand and ultimately profits for uk firms will fall. To ensure firms continue to make profit, some of them may cut some of their costs of production such as labourers, causing unemployment to rise. Due to the lack of employment, aggregate demand within the economy may fall, leading to a negative multiplier effect, which will have a negative impact on businesses due to the decrease in demand.

Uk firms which depend mainly on exports for making profit, may decrease production costs by making workers unemployed, in order to maintain profits. Thus leading to a negative multiplier effect as there will be less spending in the economy.
Uk firms that depend on EU exports for their main source of revenue, may have to cut back on production costs by making workers unemployed. This will have a negative impact on the uk economy as GDP and national income will fall as a result of the decrease in output within the economy.
Due to eu nations in a period of recovery, the demand for uk exports will most likely decrease. This will negatively impact the uk’s balance of payments as its imports will be much higher than their export levels.

Question 6

Explain the impact of rising inflation on the Balance of Trade. 2

Answer 6

Inflation increases prices (ID) which makes exports less attractive/competitive (1).
The volume of exports/demand for exports will fall (ID) which has a negative effect on the Balance of Trade (1).
In comparison to high UK prices, imports will appear more attractive (ID) so demand for/volume of imports will increase (1). The Balance of Trade will worsen (DEV) (1)

Question 7

Other than the Balance of Trade, describe 3 components of the UK Balance of Payments. 3

Answer 7

Current Account
 Trade in services records the value of services traded between countries (1).

 Investment income/net primary income shows the net interest, profits and dividends between the UK and other countries (1).

 Current transfers/net secondary income shows government and private transfers between the UK and other countries/items such as overseas development aid (1).

Capital/Financial Account

 The transfer of ownership of fixed assets (1).

 FDI, eg investment in land, premises and equipment
by UK companies setting up branches overseas and
vice versa (1).

 Portfolio investment shows flows of money between
countries to buy stocks and shares overseas (1).

 Other investment eg ‘hot money’ (1).

Question 8

Describe recent trends in the UK Balance of Payments.

Answer 8

Examples referring to current situation include:
Trade in goods deficit.
Trade in services surplus.
Current account/BoP deficit.

Recent trends:
Trade on goods deficit widening (1).
Balance of payments deficit is increasing (1).
Increase in exports (due to weak sterling) (1).
Deficit on trade in goods increasingly outweighs the
surplus on trade in services (1).
Current account deficit is widening (1).
Trade in services surplus is narrowing (1).