Edexcel Practise AS Paper - Theme 2 Mark Scheme

PRACTICE EXAM PAPER
Edexcel
Economics (AS)
Practice Paper
MARK SCHEME
Paper 2: Number 1

Edexcel Economics (AS) – Paper 2: Number 1
Mark scheme - Section A
Q1 The data below shows the UK’s GDP per capita using Purchasing Power Parity (PPP).
2008 2009 2010 2011 2012 2013 2014 2015
GDP per
capita at
PPP (£)
38 164 37 739 35 840 36 240 36 549 36 535 36 908 37 614
(a) Explain what is meant by GDP at “Purchasing Power Parity” [2 marks]
Knowledge 2
The level of output in an economy (1) adjusted for the relative cost of living (1), converted to international dollars
(1) taking into account the different prices of goods and services in different countries (1)
(b) Explain one limitation of using GDP to assess living standards. [1 mark]
Knowledge 1
Limitations include (but not limited to):
N GDP does not account for work in the shadow economy
N GDP excludes domestic unpaid work such as childcare
N GDP ignores the value from subsistence farming
N Living standards are broader than just income e.g. environmental quality, hours of leisure etc
c) Which one of the following statements can be inferred from the table above? [1 mark]
A Living standards fell consistently in the period 2008 to 2015
B There was zero inflation in the time period shown
C GDP per capita (PPP) fell by around 5% between 2008 and 2011
D GDP per capita (PPP) rose by around 0.02% between 2014 and 2015
Answer C
(Total for Question 1 = 4 marks)

Edexcel Economics (AS) – Paper 2: Number 1 Page 3
Q2
(a) Explain one factor that could cause demand-pull inflation. [1 mark]
Knowledge 1
Possible answers could include (but not limited to):
N factors that cause consumer spending to rise e.g. lower interest rates, lower rates of income tax, increased
consumer confidence, rising asset prices causing the wealth effect
N factors that cause investment spending to rise e.g. lower interest rates, lower rates of corporation tax,
increased business confidence, rising consumer spending causing the accelerator effect
N rising government spending e.g. due to increased spending on benefits
N factors that cause net exports to rise e.g. improved quality, depreciation of the exchange rate
(b) Annotate the diagram below to illustrate the effect of an increase in the rate of VAT on the equilibrium level of
real national output and the average price level of the economy. [2 marks]
Knowledge 1, Application 1
(c) Which one of the following statements is true? [1 mark]
A An increase in the rate of corporation tax will cause the average price level to fall because the
LRAS will shift to the right
B A fall in the rate of interest is likely to cause the average price level to rise because AD will shift
to the right
C A fall in the price of oil will cause SRAS to shift to the left and therefore cause the average price
level to rise
D A depreciation of the currency will cause the price of imported raw materials to fall and will
reduce the average price level
Answer B
Jobless total
Unemployment and Jobseeker's Allowance in the UK 1992-2015
Number, millions
Unemployment (1
March 1.83m
Jobseeker's Allow
April 0.76m
Source: ONS
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 0
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Averagepricelevel
Real GDP
P
P
2
SRAS 2
SRAS
Y Y2
AD
LRAS

Q3
(a) Define the term net investment. [2 marks]
Knowledge 1
The total addition to an economy’s capital stock taking into account the level of depreciation of capital
(b) Business confidence is regarded as a key factor in explaining the level of investment in an economy.

Study the chart above, which shows quarterly levels of business confidence, and then decide which of the
statements below is true. [1 mark]
A Business confidence was lowest in the fourth quarter of 2012
B Business confidence was lowest in the last quarter of 2011
C Business confidence has been high throughout the period shown
D Business confidence was high for just one quarter in 2010
Answer B
(c) The table below shows the value of quarterly gross investment in the UK, along with associated index numbers,
where Q3 2014 = 100. Complete the table. [2 marks]

Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
Gross in-
vestment
(£m)
68 487 70 061 72 468 73 243 74 459 74 628 76 099 76 799
Index
number
(Q3 2014
= 100)
89.98 94.09 97.33 98.37 100.00 100.23 102.2 103.14
%change
1000000
1.2
1.0
0.8
0.6
0.4
0.2
0.
-0.2
2012 2013 2013 2014 2014 2015 2015
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015
40
30
20
10
0
-10
-20
-30
-40
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2010 2011 2012 2013 2014 2015
%

Q4
(a) Define the term “economic inactivity” [1 mark]
Knowledge 1
A person is economically inactive if they are either not of working age (between the ages of 18 and 65), or
unable to work (due to disability), or choose not to work (for example, a stay-at-home parent), or are in full-time
education. In other words, they do not have a job but are not regarded as unemployed because they are either
unwilling or unable to work.
(b) The chart below shows the level of unemployment in the UK, using both the Claimant Count (blue line) and
the Labour Force Survey (yellow line) methods.
State and explain one reason why the Claimant Count measure is usually below the Labour Force Survey
measure. [2 marks]
Reasons include, but are not limited to:
N Not everyone who is unemployed is eligible to claim JSA e.g. those with a partner in work earning above a
certain amount, people with savings, people who have been unemployed for fewer than 6 weeks, people
under the age of 18
N The Labour Force Survey counts everyone who wants a job but who does not have one
N It has become more difficult to claim benefits; some people now claim Disability Living Allowance instead of
JSA which causes the CC numbers to be lower
(c) Which of the following statements is true? [1 mark]
A Structural unemployment exists when wages cannot fall to clear the labour market
B A person is regarded as under-employed if they have a job in which the required skill levels are lower
than their actual skill levels
C Demand-deficient unemployment is usually experienced in an economic boom
D Frictional unemployment occurs when seasonal workers are in-between jobs
Answer B
Jobless total
Unemployment and Jobseeker's Allowance in the UK 1992-2015
Number, millions
Unemployment (16+)
March 1.83m
Jobseeker's Allowance (18+)
April 0.76m
Source: ONS
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Averagepricelevel
Real GDP
P
P
2
SRAS 2
SRAS
Y Y2
AD
LRAS

Q5 The chart below shows the UK’s saving ratio from 1997 to 2015.
(a) Savings and Imports are both leakages from the circular flow of income. What is the other leakage? [1 mark]
Knowledge 1
Taxation
(b) Using the information in the chart provided above, calculate the percentage point change in the UK’s savings
ratio between the Quarter 1 1997 (the starting point of the data) and Quarter 1 2015 (the end point of the
data).
Application 1
13.2 – 5 = 8.2 percentage points (allow 13 – 5 = 8)
(c) Define the term “marginal propensity to consume”. [1 mark]
Knowledge 1
The proportion of any extra/additional income earned that is spent on consumer goods
(d) The following table shows some estimated data for the UK economy. [1 mark]
Marginal Propensity to Consume (MPC) 0.4
Marginal Propensity to Save (MPS) 0.2
Marginal Propensity to Import (MPM) 0.2
Marginal Propensity to Tax (MPT) 0.2
What is the estimated value of the multiplier in the UK?
A 2.5
B 0.4
C 1.67
D 1.25
Answer C
TOTAL FOR SECTION A = 20 MARKS
Jobless total
Unemployment and Jo
Number, millions
Source: ONS
92 93 94 95 9
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Averagepricelevel
P
P
2
Y Y2
LR
Averagepricelevel
Real GDP
P
SRAS
Y
LRAS
AD

Mark scheme - Section B
(a) With reference to Figure 1, explain what has happened to the number of employees attending training
courses, since 1995. [4 marks]

Knowledge:
N Definition of human capital (the education, experience, abilities and capability of a human) (2)
N Recognition that training courses will increase the level of education / skill of employees (1)
Application:
N The number of employees attending training courses has fallen (1)
N Data reference e.g. 140 000 per week in 1995 down to 20 000 per week in 2014
(b) With reference to Figure 3, explain the impact of the trends shown on the trade balance [5 marks]
Knowledge 1, Application 2, Analysis 2
Knowledge:
N Definition of trade balance (e.g. the difference in value of export to value of imports)
Application:
N 2 marks for 2 data references from Figure 3, for example, greater trade deficit for vehicles in 2014 than
2013, medicine/pharmaceuticals has moved from a trade surplus to a deficit, surplus in power generation
equipment but shrinking, slightly large deficit on petroleum products in 2014, large deficit on telecoms
Analysis:
N Overall trade balance looks like a larger deficit / fewer exports overall / more imports overall
(c) With reference to Extract A, explain two reasons why youth unemployment in the UK is so high. [6 marks]
Knowledge 2, Application 2, Analysis 2 (2 x 3)
Knowledge:
N identification of two reasons (1 + 1) e.g. no qualifications, poor literacy / numeracy / technology skills,
geographical immobility, entrenched poverty, poor careers advice

Application:
link to Extract A for each of the reasons mentioned (1 + 1)
Analysis:
Linked development of why each reason leads to higher youth unemployment (1 + 1) (n.b. do not simply accept
reasoning linked to higher unemployment in general), for example:
N leaving school with no qualifications means that you have minimal skill level and therefore not desirable to
employers who will choose more qualified young workers
N geographical immobility caused by lack of access to social housing and/or poor transport links means that
young people are less likely to be able to access jobs in other towns / cities / regions
N entrenched poverty leading to higher crime means that young people may be more likely to get a criminal record
and then not be able to get a job
(d) Assess the impact of the 2015 Budget measures referred to in Extract A on the size of the output gap in
the UK economy. [10 marks]
Possible points for inclusion:
N Definition of output gap; diagram (AD/AS or PPF) to illustrate
N Reference to UK’s recent prolonged recession and link with negative output gap
N Explanation of Budget / fiscal policy
N Use of extract e.g. budget measures include higher “living wage”, cut in housing benefit for young people
N Analysis of budget measures e.g. higher living wage for most people boosts disposable income, therefore
increasing consumer spending and increasing AD, which moves the economy closer to full employment and
reduces the size of the negative output gap, or cut in housing benefit means less government spending therefore
reduction in AD
Level Mark Descriptor
0 Completely inaccurate response
1 1 -3 Displays isolated or imprecise knowledge and understanding of key terms, concepts, theories
and models. Uses generic or irrelevant information or examples. Descriptive approach with no
link between causes and consequences.
2 4 - 6 Displays elements of knowledge and understanding of economic principles, concepts
and theories. Applies economic ideas and relates them to economic problems in context,
although does not focus on the broad elements of the question. A narrow response; chains of
reasoning may be developed but the answer may lack balance.
4 7 - 9 Demonstrates accurate knowledge and understanding of the concepts, theories and models. Ability
to link knowledge and understanding in context using relevant and focused examples which are fully
integrated. Economic ideas are applied appropriately to the broad elements of the question.
Evaluation 4
Possible points for inclusion
N Impossible to accurately measure output gap; different views on the nature of the output gap from the Keynesian

(can’t really have positive because can’t go beyond full employment) and Classical (positive and negative gaps
possible) perspectives
N Relative size of impact e.g. more of the workforce is over 25 and therefore able to benefit from the living wage,
than those who are no longer able to claim housing benefit, so overall impact would be to boost AD and close
the negative output gap
N Explanation of other 2015 budget measures that might work with or against the measures outlined in extract
A (e.g. increase in inheritance tax threshold, all benefits to be frozen, maintenance grants for poor students
scrapped, higher personal tax allowance etc)
N Other factors influence the size of the output gap e.g. international competitiveness affecting the value of net
exports, monetary policy set by the Bank of England, consumer and business confidence etc
N Effects of the budget measures might have different effects in different regions e.g. could further hold back those
areas with high youth unemployment but encourage growing areas
0 No evaluative comments
1 1-2 Identification of generic evaluative comments without supporting evidence or reference to
context. No evidence of a logical chain of reasoning.
2 3-4 Evaluative comments supported by chains of reasoning and appropriate reference to
context. Evaluation is balanced and considers the broad elements of the question.
(e) With reference to Extract B, discuss the likely impact of the apprenticeship schemes outlined by Mr Javid on
the UK’s current account balance. [15 marks]
N Definition of current account; explanation of term current account balance; recognition that the current account
is just one of the three accounts on the balance of payments; recognition that there are 3 main accounts on the
current account (balance of trade, investment income, transfers)
N Development of meaning of apprenticeship schemes; link to higher skills, higher productivity, higher quality of
goods and services produced
N Explanation of international competitiveness; understanding that competitiveness can be improved by producing
cheaper goods, higher quality goods, or as a result of a lower exchange rate
N Higher productivity should cause average costs to fall, which in turn causes exports to be cheaper, therefore
causing demand for exports to rise and improving the current account balance
N Higher quality goods and services boosts demand for exports, improving the current account balance
N Reference to Extract B e.g. degree level equivalent apprenticeships, minimum standards, reduction in employer
NI contributions
link between causes and consequences.

2 4 - 6 Displays elements of knowledge and understanding of economic principles, concepts
and theories. Applies economic ideas and relates them to economic problems in context,
although does not focus on the broad elements of the question. A narrow response; chains of
reasoning may be developed but the answer may lack balance.
4 7 - 9 Demonstrates accurate knowledge and understanding of the concepts, theories and models.
Ability to link knowledge and understanding in context using relevant and focused examples
which are fully integrated. Economic ideas are applied appropriately to the broad elements of
the question.
Evaluation 6
N Apprenticeships, if they are at least 3 years long, will take time to affect the cost and quality of exports, and
therefore take time to affect the current account
N Impact depends on quality and availability of apprenticeships – will the UK version really be able to match the
quality of those in Germany and Austria? Different cultural perspectives on vocational training may make this
task more difficult. If youngsters don’t want to do apprenticeships then there will be minimal impact on the
current account
N The UK’s ability to compete in areas such as manufacture of road vehicles depends on factors that are much
broader than skill levels e.g. availability of raw materials, quality of infrastructure to export manufactured goods
etc
N Britain’s biggest growth areas appear to be in sectors that are not manufacturing, which may be harder to
establish apprenticeship schemes
N Where is the funding coming from? Opportunity cost – money could be spent on other factors that could
improve the current account, such as better transport infrastructure
N Apprenticeship schemes won’t necessarily tackle key problems such as poor literacy, numeracy and technology
skills
N An improvement in UK apprenticeships and quality of goods/services may still not be good enough to compete
with products from Germany or even China
2 3-4 Evidence of evaluation of alternative approaches which is unbalanced. Evaluative comments
with supporting evidence / reference to context and a partially developed chain of reasoning.
3 5 -6 Evaluative comments supported by chains of reasoning and appropriate reference to context.
Evaluation is balanced and considers the broad elements of the question.

EITHER
(f) Evaluate the impact of supply side policies such as labour market reform and the building of
infrastructure on the UK’s macroeconomic objectives. [20 marks]
N Definition of supply side policy, the labour market, infrastructure
N Explanation of UK macro objectives
N Outline of possible labour market reforms e.g. higher living wage, more apprenticeship programmes, cuts to
benefits
N Link labour market reforms and infrastructure building to impact on macroeconomic objectives – use AD/AS
analysis where possible e.g. increase in LRAS, causing higher GDP and lower price levels, possibly reduction in
inequality, greater international competitiveness causing rise in net exports and improved balance of trade
N Answers should cover the impact on a range of macroeconomic objectives
chains of reasoning and no link between causes and consequences.
2 4 - 6 Displays elements of knowledge and understanding of economic principles, concepts and
theories. Applies economic ideas and relates them to economic problems in context, although
does not focus on the broad elements of the question. A narrow response or superficial , two-
stage chains of reasoning only.
Ability to apply economic concepts and relate them directly to broad elements of the question
with evidence integrated into the answer. Analysis is clear and coherent, although it may lack
balance. Chains of reasoning are developed, but the answer may lack balance.
4 11 - 14 Demonstrates precise knowledge and understanding of the concepts, theories and models.
Ability to link knowledge and understanding in context using appropriate examples. Analysis
is relevant and focused with evidence fully and reliably integrated. Economic ideas are
carefully selected and applied appropriately to economic issues and problems. The answer
demonstrates logical and coherent chains of reasoning.
Evaluation 6
N Infrastructure building takes a long time (e.g. HS2 only ready in over a decade), therefore the impact on macro
objectives takes a long time to have its full effect (although there are intermediate effects in terms of employment
in construction etc)
N Infrastructure building is likely to be a more expensive reform than labour market reform (i.e. interventionist
vs free market supply side policies) – can have impact on government’s fiscal balance, which is a more

contemporary macro objective – which type of supply side policy is preferable in the current economic climate?
N Other supply side policies may be more effective e.g. better pre-16 school education to boost literacy, numeracy
and technology skills
N Interaction with other policies such as monetary policy – the UK is anticipating higher interest rates in the
relatively near future, which could cause AD and LRAS to shift left, adversely affecting some macro objectives
N Which objectives are a priority? And why?
OR
(g) Evaluate the possible measures that the UK government could take to improve the balance of trade in
the UK economy. [20 marks]
N Definition of balance of trade - one component of current account, difference in value of exports and imports,
made up of visible and invisible trade
N Importance of trade balance – net exports form part of AD, therefore reduction in the deficit could boost AD and
lead to SR growth and increased employment – multiplier effects too
N Ideally two possible approaches identified and analysed e.g. improved transport infrastructure to reduce
business costs and improve shipping to make exports more price competitive; decide to intervene in currency
market to lower the value of the £ and make X cheaper and M more expensive; invest in apprenticeships and
training to boost the quality of exports and reduce their prices through higher productivity; subsidising growth
industries; tax breaks on training courses
N Link to data in the extracts e.g. growth industries are the creative industries, hotels/tourism etc so spend money
on advertising those abroad, or subsidising these industries
chains of reasoning and no link between causes and consequences.
2 4 - 6 Displays elements of knowledge and understanding of economic principles, concepts and
theories. Applies economic ideas and relates them to economic problems in context, although
does not focus on the broad elements of the question. A narrow response or superficial , two-
stage chains of reasoning only.

Ability to apply economic concepts and relate them directly to broad elements of the question
with evidence integrated into the answer. Analysis is clear and coherent, although it may lack
balance. Chains of reasoning are developed, but the answer may lack balance.
4 11 - 14 Demonstrates precise knowledge and understanding of the concepts, theories and models.
Ability to link knowledge and understanding in context using appropriate examples. Analysis
is relevant and focused with evidence fully and reliably integrated. Economic ideas are
carefully selected and applied appropriately to economic issues and problems. The answer
demonstrates logical and coherent chains of reasoning.
Evaluation 6
N Prioritising measures / policies / approaches with justification for those priorities
N Consideration and comparison of opportunity cost of the policies measures identified
N Consideration of whether improving the trade balance should actually be a priority for the government or
whether other objectives are more important
N Assessment of the effectiveness of the policies identified e.g.
– Need different types of better infrastructure for different exports e.g. creative industries may need superfast
broadband, whereas vehicle manufacturers may need better rail links to key ports – how does the government
“pick a winner”?
– Lowering the exchange rate isn’t really an option in the UK because the Bank of England, in charge of
monetary policy, does not intervene in current markets
– Subsidies can be ineffective if not used to lower production costs
N Difficult to make changes in the international environment e.g. difficult to compete against China, given that we
have stronger health and safety and environmental rules which increase our costs above those of China, for
example – but these rules improve living standards for UK workers – there is a trade off
TOTAL FOR SECTION B = 60 MARKS
TOTAL FOR PAPER = 80 MARKS

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