Unit 2: Macroeconomics and the Global Economy

Mark scheme

Question Which one of the following describes the recovery phase of the economic cycle? Mark
number Answer

1(a) AO1 1 marks

The only correct answer is:

B GDP starts to rise and economic activity is on the increase

A is not correct because this describes a boom

C is not correct because this describes a downturn
D is not correct because this describes a recession
(1)

Question Which one of the following is an example of frictional unemployment? Mark

Number Answer

1(b) AO1 1 mark

The only correct answer is:

B Workers are unemployed whilst waiting to start a new job

A is not correct because this is an example of cyclical unemployment

C is not correct because this is an example of seasonal unemployment
D is not correct because this is an example of structural unemployment

(1)

Question What is meant by the term exports? Mark

number Answer

1(c) AO1 2 marks

Award 1 mark for reference to goods and 1 mark for reference to being
sent to another country

The sale of goods or services (1) to another country (1)

Accept any other appropriate response.

(2)

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 Question What is meant by the term globalisation? Mark
number Answer

1(d) AO1 2 marks

Award 1 mark for reference to interconnection and 1 mark

for reference to world’s economies

Growing interconnection (1) of the world’s economies (1)

Accept any other appropriate response.

(2)

Question Calculate how much the average price level increased between 2018 and Mark
number 2021. You are advised to show your working.
Answer

1(e) A02 2 marks

Award 1 mark for showing the calculation

105.4 - 100 (1)

Award 1 mark for the correct answer

= 5.4% (1)

Award 2 marks if the correct answer 5.4% is shown, with percentage sign, even if
no calculations are shown

Award 1 mark if the answer given is 5.4, but with no percentage sign, with
or without calculations shown

Do not award marks for the formula.

(2)

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 Question Using the diagram below, draw the effects of a decrease in UK exports to the Mark
number US on the equilibrium exchange rate of UK pounds (£). Label the new curve, the
new equilibrium exchange rate and the new equilibrium quantity.
Answer

1(f) AO2 3 marks

Award 1 mark for leftward shift of demand curve, labelled Award 1 mark for
lower equilibrium exchange rate, labelled Award 1 mark for lower
equilibrium quantity, labelled

(3)

Question Explain one effect of rising inflation on menu costs in the UK. Mark
number Answer

1(g) AO2 3 marks

Award 1 mark for identifying a relevant effect Award 1 mark for

developing the effect
Award 1 mark for the response being in context

• One effect is that menu costs may increase (1). When inflation
is high, prices need changing frequently (1). Firms have to
spend money to print new brochures/update websites with the
higher prices (1)

Accept any other appropriate response.

(3)

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Question Analyse the possible benefits for Columbia of having import quotas. Mark
number Indicative content

1(h) AO2 (3 marks)/AO3 (3 marks) AO2 and AO3

• Quotas are physical limits on the quantity of imports allowed into a

country
• Quotas on rice might help to protect domestic rice farmers
• By restricting the amount of rice imported into Columbia
domestic rice farmers may gain more market share
• This could result in higher revenues for domestic rice farmers
• Rice is a staple food in Columbia therefore is of national
importance
• Therefore, domestic rice farmers might be able to increase the
supply of rice to meet any shortages if imports are restricted by
quotas
(6)
 Question Fiscal policy would involve a change in which one of the following? Mark
number Answer

2(a) AO1 1 mark

The only correct answer is:

D Tax rates

A is not correct because this is affected by changes in the supply and demand for
currencies
B is not correct because this is part of monetary policy
C is not correct because this is dependent on the output of firms
(1)

Question A savings account has €5 000 in it at the start of the year. If the interest rate is 2%, Mark
number what is the total amount in the account at the end of the year?
Answer

2(b) AO2 1 mark

The only correct answer is:

D €5 100

A is not correct because this is the interest only

B is not correct because this is calculated by €5 000/2
C is not correct because this is calculated by €5 000 - €100
(1)

Question State one role of a central bank. Mark

number Answer

2(c) AO1 1 mark

Award 1 mark for one function.

• setting interest rates

• controlling inflation
• stabilising a nation’s currency
• lender of last resort
• implementing the government’s monetary policy
• regulating the banking system

Accept any other appropriate responses.

(1)

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 Question What is meant by the term current account surplus? Mark
number Answer

2(d) AO1 2 marks

Award 1 mark for reference to value of exports and 1 mark for reference to
exceeding value of imports

When the value of exports (1) exceeds the value of imports

(1)

Accept any other appropriate response. (2)

Question Explain one impact education and training may have on inequality and Mark
number poverty.
Answer

2(e) AO2 3 marks

Award 1 mark for identifying a relevant impact Award 1 mark for

developing the impact
Award 1 mark for the response being in context

• One impact is that it can reduce inequality and poverty (1).

Training and education can provide new skills for young people (1).
Therefore, they are more likely to be able to gain
employment/income (1)

Accept any other appropriate response.

(3)

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 Question Using the diagram below, draw the effects of the introduction of a subsidy on the Mark
number equilibrium price and quantity of electric vehicles. Label the new curve, the new
equilibrium price and new equilibrium quantity.
Answer

2(f) AO2 3 marks

Award 1 mark for rightward shift of supply, labelled Award 1 mark for
lower equilibrium price, labelled Award 1 mark for higher equilibrium
quantity, labelled

(3)

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Question With reference to the data above and your knowledge of economics, Mark
number assess the impact of infrastructure spending on the productive potential of
a country such as the UK.
Indicative content

2(g) AO2 (3 marks)/AO3 (3 marks)/AO4 (3 marks) AO2 and AO3

• Infrastructure spending is an example of a supply-side policy

• The productive potential of the UK economy may increase if the quality
of its infrastructure is improved
• The UK Government is investing in a wide range of projects
including urban transport and the provision of broadband to hard-to-
reach areas
• This may help to increase geographical mobility as well as improve the
distribution of goods/services
• In the short term, building or upgrading transport can boost (aggregate)
demand through increased construction activity and employment
• In the long term, infrastructure investment can boost economic growth
by attracting investment and increasing the potential supply capacity of
an economy

AO4
• However, it can be argued that spending £130bn on its economic
infrastructure may not be that effective in increasing the total output
in the UK economy
• It is unclear how the UK Government will fund this investment
and it may have to borrow the additional finance and could result
in a fiscal deficit
• There is an opportunity cost of these investments with no guarantee that
total output will increase in the long term
• By nature, supply-side policies tend to take a very long time to work
and infrastructure investments can be highly complex to manage
• The overall impact on output will depend upon whether the planned
spending can add to (aggregate) demand and (aggregate) supply
(9)
Question A decrease in unemployment is likely to result in Mark
number Answer

3(a) AO1 1 mark

The only correct answer is:

C an increase in inflation

A is not correct because tax revenues are likely to rise as more people have jobs/
firms are making more profit
B is not correct because economic growth is likely to increase as more people are
in employment
D is not correct because relative poverty should decrease as more people have
income from a job (1)

Question Which one of the following is a possible disadvantage of Foreign Direct Investment Mark
number (FDI)?
Answer

3(b) AO1 1 mark

The only correct answer is:

B Greater environmental damage

A is not correct because this is an advantage of FDI

C is not correct because this is an advantage of FDI
D is not correct because this is an advantage of FDI
(1)

Question Explain one reason why an increase in the quality of foreign goods may have Mark
number resulted in a negative impact on the US current account.
Answer

3(c) AO2 3 marks

Award 1 mark for identifying a relevant reason Award 1 mark for

developing the reason
Award 1 mark for the response being in context

• One reason is demand may have increased for imports (1) as

consumers switch to imports rather than domestically produced
goods as their quality has improved (1). This results in more money
flowing out the country resulting in a negative impact on the current
account deficit (1)

Accept any other appropriate response. (3)

Question With reference to the data above and your knowledge of economics, Mark
number analyse the disadvantages of free trade for UK firms.
Indicative content

3(d) AO2 (3 marks)/AO3 (3 marks) AO2 and AO3

• Free trade is a situation in which goods and services coming into or

going out of a country/trade area are not controlled or taxed
• The UK has agreed to end 99% of tariffs on goods from Australia
• Free trade means that UK firms are no longer protected from
imports from Australia that once had tariffs applied to them
• Free trade means that UK firms may face greater competition
from firms in Australia
• UK firms may have increased competition from cheaper, lower cost
firms in Australia that may have lower wage costs compared to UK
firms
• This could result in falling sales for UK firms that might have higher
labour costs compared to Australia

(6)
Question With reference to the data above and your knowledge of economics, Mark
number assess the possible benefits of privatising the college.
Indicative content

3(e) AO2 (3 marks)/AO3 (3 marks)/AO4 (3 marks) AO2 and AO3

• Privatisation is the act of selling a company or activity controlled by

the government to private investors
• The Scottish Government has recently privatised Shetland College
• Shetland College will have more control over its operations
now that it is in the private sector
• Shetland College cannot rely on public money and must make a profit
to survive
• Therefore, Shetland College will now have to compete against the
other rival colleges for students in order to gain revenue
• Competitive pressures should help to improve quality and reduce prices
for the students using the college
• Shetland College may try to compete by offering a wider range of
courses to attract more people to the college
• It could seek to lower the prices for its courses without the interference
of the government thereby benefitting students of the college

AO4
• However, in practice, state monopolies often become private
monopolies
• This might be the case with the firm operating in the education
market
• Competitive pressures are often not forthcoming and Shetland
College has simply been moved from state to private ownership
without facing any new competition
• Critics are concerned that the privatisation might result in fewer courses
available for students
• As a result consumers/students might be exploited due to poor quality and
price increases as the private firm seeks to reduce costs in order to
maximise profits
• Workers might be negatively affected as large numbers of people are
often made redundant to reduce costs
• The overall impact will depend on how the college is managed
and operated by the management
(9)
Question Calculate, to two decimal places, the percentage change in the fiscal deficit Mark
number for Spain between 2019 and 2020. You are advised to show your working
Answer

4(a) AO2 2 marks

Award 2 marks for calculating the percentage change in the fiscal deficit for
Spain

-€87.43bn x 100 (1)

-€35.64bn

= 245.31% (1)

Award 2 marks if the percentage is accurately calculated as 245.31% even if no

calculations are shown

Award 1 mark if % is missing i.e. 245.31 with or without calculations shown

No marks for formula

(2)

Question With reference to the data in Figure 3 and your knowledge of economics, Mark
number analyse the impact of a fiscal deficit for a country such as Spain.
Indicative content

4(b) AO2 (3 marks)/AO3 (3 marks) AO2 and AO3

• A fiscal deficit is when government tax receipts are lower than

government spending
• In this case, Spain had a deficit of -€123.07bn in 2020
• A fiscal deficit requires the Spanish Government to spend more
of its tax revenue on either paying the interest on the debt or using
tax revenue to pay off the debt completely
• This has an opportunity cost for the Spanish
Government
• The money spent on interest payments could be spent on
public services such as education, healthcare and social
provision
• Persistent fiscal deficits result in future generations burdened
with current debt
• Fiscal deficits could result in an increase in taxation levels to
help repay the debt or a reduction in spending on public
services

(6)
Question With reference to the data above and your knowledge of economics, evaluate Mark
number how effective subsidies are in protecting the environment in a country such as
Spain.
Indicative content

4(c) AO2 (4 marks)/AO3 (4 marks)/AO4 (4 marks) AO2 and AO3

• Subsidies are grants given by a government to a producer to reduce the

costs of production or to a consumer to reduce the price of consumption
• The Spanish Government is giving over €6.9bn in subsidies to
renewable energy sources which currently accounts for 47% of
energy produced in Spain
• Renewable energy sources such as wind and solar help to reduce
negative externalities caused by fossil fuels
• Therefore, using subsidies is an effective way to protect the
environment in Spain due to the amount of wind and sun the country
receives
• It is sensible to harness this for energy use rather than generating
energy by fossil fuels
• The subsidies will help create over 280,000 jobs in the manufacturer
of wind and solar technology positively contributing to the Spanish
economy
• This should encourage the production of energy from renewable
energy sources reducing the environmental impact

AO4
• However, the Spanish Government will have to fund the renewable
energy subsidies creating an opportunity cost
• The money used to subsidise renewable energy could have been
used elsewhere within the Spanish economy
• Spanish Government is already running a large budget deficit
• Subsidies may cause inefficiency in the firms that produce energy
equipment
• It depends on the amount of the subsidies as over 50% of the country’s
energy needs are still from non-renewable sources
• There are other ways in which the government can protect the
environment which may have less opportunity cost to the Spanish
Government
• Regulation through the use of laws and fines could be used to protect
the environment and the revenue used to tackle the environmental
damage
• The overall effectiveness will depend upon how much energy
production from fossil fuels contributes to environmental damage
in Spain
(12)