Professional Documents
Culture Documents
Macro Tutor2u B
Macro Tutor2u B
Macro Tutor2u B
OCR AS
Economics (Macro)
Paper B
Section A
ANSWER ALL QUESTIONS IN THIS SECTION
3. The following table gives information about the UKs marginal propensity to save in the period
2004 to 2014.
Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
MPS 7.8 7 6.6 7.3 5.8 9.8 11.6 9.1 8.7 6.3 4.9
4. The table below provides information about the number of labour hours required to produce one
unit each of tea and Potatoes. You may assume that other factors of production are used in
equal quantities in each of the two countries.
Tea Potatoes
Country X 30 20
Country Y 80 10
7. Which of the scenarios below is most likely to cause the Production Possibility Frontier for a country
to shift to the right?
A. An increase in spending on capital
B. A fall in unemployment
C. An increase in consumer spending
D. A rise in the value of net exports
8. The following table gives information about the rate of inflation, according to the Consumer Prices
Index (CPI) from 2004 to 2014.
Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
CPI 1.3 2.1 2.3 2.3 3.6 2.2 3.3 4.5 2.8 2.6 1.5
inflation
rate (%)
9. The unemployment rate in the UK rose from 4.8% in 2005 to 8.1% in 2011. Which of the following
types of unemployment was the most likely to have been experienced?
A. Structural
B. Frictional
C. Classical
D. Cyclical
11. Which of the following scenarios is most likely to result in a depreciation of the pound sterling ()?
A. An increase in the UK interest rate and a decrease in demand for imports
B. A fall in demand for UK exports and fall in overseas interest rates
C. A belief by investors that the value of the pound sterling will fall and an increase in demand for imports
D. An increase in inwards Foreign Direct Investment and an increase in demand for imports
12. The table below provides data on the UKs current account from 2010 to 2014 (all data in m)
15. The following chart provides data on the value of the UKs budget deficit in real terms from 2004
to 2014.
120000
10000
80000
40000
20000
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Which of the following statements regarding the UKs budget deficit is true?
A. The budget deficit increased by approximately 210% from 2004 to its peak in 2010.
B. The8
budget deficit increased by approximately 70% from 2004 to its peak in 2010
C. The budget deficit has decreased by approximately 40% from its peak in 2010 to 2014
7
6
D. The5
budget deficit has increased by approximately 55% between 2004 and 2014
Growth (%)
2014 (actual)
4
2015 (projected)
3
2
1
0
-1
-2
Global High Eurozone UK Emerging China India Latin Brazil
economy income economies America
Costs and benefits
000
000
000
Section B
ANSWER ALL QUESTIONS IN THIS SECTION
000
8
7
6
5
Growth (%)
2014 (actual)
4
2015 (projected)
3
2
1
0
-1
-2
Global High Eurozone UK Emerging China India Latin Brazil
economy income economies America
The IMF reported that the underlying drivers for a gradual acceleration in economic activity in advanced
economieseasy financial conditions, more neutral fiscal policy (replacing austerity measures) in the euro area,
lower fuel prices, and improving confidence and labour market conditionsremained intact. However, factors such
as lower commodity prices, rebalancing in China, and economic distress related to geopolitical factors were the
chief problems for emerging market growth. These factors combine to create increased financial market volatility
and disruptive asset price shifts, alongside lower potential output growth in the higher income economies.
While the advanced economies are gradually recovering from the global financial crash in 2008-2009, their growth
is not sufficient to take up the slack created by the slowdown in recently-booming economies such as Brazil and
China. Economies which produce commodities such as oil, metals and cement have benefitted from the massive
demand for those goods created by that boom, and have invested in raising their capacity to produce and export
the commodities. They are now suffering a demand-side shock as the need for their exports shrinks away. The
richer economies are in no position to make up for that shortfall in demand, as their recovery still leaves their output
some way short of their potential.
Ian Stewart, Chief Economist of Deloitte, wrote that Having taken great pains to nurture a recovery, policymakers
are wary of jeopardising it with premature interest rate rises. The Fed needs to be confident that the first rate rise will
be the first of many. Until there is greater confidence that growth can be sustained central banks are likely to keep
interest rates at rock bottom levels.
Slowing growth in China, which is some way below the governments target of 7%, has an impact on all global
markets from commodities to luxury goods. Chinese imports slumped 20.4% year-on-year to USD145.22 billion, and
had fallen for the eleventh consecutive month. While Chinese exports declined by 3.7% year-on-year to USD205.56
billion in September, the governments desire to rebalance the Chinese economy away from investment and exports
towards domestic consumption is proving difficult with investment falling far short of its previous level of 40% of GDP,
and domestic consumption failing to take up the shortfall. While it may still be true that, if America sneezes, the world
catches a cold, we should probably now say the same about China.
(b) With reference to Fig. 1, compare GDP growth for 2014 and 2015 for the High Income Economies and the
Emerging Economies. [2 marks]
(e) Use a diagram to show how Investment that amounts to 40% of GDP is likely to have affected the Chinese
economy. [4 marks]
(f)* Until there is greater confidence that growth can be sustained central banks are likely to keep interest
rates at rock bottom levels. Evaluate the options that central banks have to encourage confidence and
growth at such a point in the economic cycle. [10 marks]
Evaluate, using an appropriate diagram(s), whether manipulation of exchange rates or supply side
policies are likely to be more effective in achieving Chinas aim of rebalancing their economy from ex
ports and investment towards domestic consumption and imports.
[20 marks]
OR
18* In the Institute of Fiscal Studies Green Budget of 2010, analysts considered estimates of the
effect of the 2008-9 recession on the UKs productive capacity which suggested a loss of
between 7% and 10% of potential GDP.
Evaluate, using an appropriate diagram(s), whether a decrease in aggregate supply is always harmful to
national economic performance. [20 marks]
Answers
1. B 6. C 11. C
2. B 7. A 12. A
3. D 8. C 13. D
4. D 9. D 14. C
5. A 10. B 15. A
(c) i Balance of Trade = Value of Exports minus Value of Imports. 2 Up to two marks:
Chinas exports = USD205.56bn (AO1 x 1 Two marks for correct answer
Chinas imports = USD145.22bn AO2 x1) USD60.34bn
Balance = USD60.34bn One mark if either USD or billion is
omitted
Where candidates have used the
correct formula OFR applies one
mark for formula.
(c) ii If US interest rates rise from their current low rate there is 2 Up to two marks:
more incentive to buy dollars for investment (1 mark) which (AO1 x One mark for understanding that
would raise demand for the dollar on international exchange 1 AO2 exchange rates are the result of the
markets and so make it more expensive ie cause it to x 1) interaction of supply and demand for
strengthen (1 mark) the currency (AO1)
One mark for understanding that
raising US interest rates from
historically low levels creates an
incentive to invest in USD accounts
(AO2)
Price level
Price level
A capital investment boom LRAS LRAS1 (AO1 One mark for each validAggregate
causesupply
given
Aggregate supply
A big rise or fall in the exchange rate x 2)
A contraction in consumer demand abroad in the P1
country of a major trading partner P*
A large slump
P*
in asset prices AD1
AD
An event such as the global credit crunch Aggregate demand 1
Aggregate demand
An unexpected change in interest rates or in
Aggregate demand
government taxation Y* Y1 Real GDP
Aggregate demand 1 Y* Y1 Real GDP
Price level
LRAS
Y* Real GDP
(d) ii Current account (1 mark) 2 Up to two marks:
Price level
components.
AD
Trend
One mark for a rightward shift in the
Peak
AS curve.
One mark for the new equilibrium
Current
account
Trough
points.
deficit
Aggregate supply
Contraction Expansion
Time
Price
Level
Price level
AS1 AS2
Aggregate supply P1
Aggregate demand 1
Aggregate demand P2
Y* Y1 Real GDP P1
AD
P*
Y* Y1 Real GDP
Quantity of cars
17.
Answer Marks Guidance
(a) Level 4 (16-20 marks) 20 This question requires an evaluation
Good knowledge and understanding of management of (AO1 x 3 of the relative impact of exchange
exchange rates and of demand side policies. AO2 x 4 rate management and of demand
AO3 x 6 side measures on the different com-
Strong analysis of how and why exchange rate management AO4 x 7 ponents of Aggregate Demand.
and demand side policies might impact upon an economy
such as China. Answers are likely to set out how
A relevant and accurately labelled diagram is provided and is exchange rate management works,
linked to the analysis. and the current balance of compo-
nents of aggregate demand in China,
Strong evaluation of the relative impact of exchange rate followed by a discussion about the
management and demand side policies on the balance of the effectiveness of each in rebalancing
components of Aggregate Demand. the economy.
There is a well-developed line of reasoning which is clear and Answers that refer to manipulation
logically structured. The information presented is relevant and of exchange rates only or to demand
substantiated. side policies only will be capped
at the midpoint of the appropriate
level.
Price level
Price level
Price level
Reasonable knowledge and understanding
LRAS LRAS1
of Aggregate supply
policies. P1
P*
P*
Price level
LRAS
Y1 Y* Real GDP
Price level
Price level
AD AD1 P*
P*
Y* Y1 Real GDP
Capital goods
Level
D
1 (1-5 marks) X1
Q2 Q1 Q3
Limited
QL
knowledge and understanding of Recovery Boom
Time X2
management of exchange rates and of demand side
Real GDP
Trend
policies. Peak
Current
account
Limited or no analysis of how and why exchange Trough
deficit
rate
Aggregate management and demand side policies might
supply
AS2
demand. P1
Aggregate supply
Aggregate demand 1
The information is basic and communicated in an
Aggregate demand
For exchange
P2
rate management this should
Y* Y1
unstructured way. The information is supported by examine the impact of a stronger Chinese
Real GDP P
limited evidence and the relationship to the evidence currency, and may include:
1
AD
P*
may not be clear. The effect of encouraging imports for
Aggregate demand 1 domestic consumption Y1 Y2and the Realimpact
GDP on
Aggregate demand
0 marks no response or no response worthy of the balance of trade
Y* Y
credit. Real GDP 1
The effect of making exports less
Quantity of cars
competitive on international markets and
impact on the balance of trade
The effect on imports of capital goods and
inward foreign direct investment
Price level
Price level
LRAS1 LRAS
Reasonable knowledge and understanding of supply
Aggregate
P*
Reasonable analysis of how lower aggregate supply P* AD
D1
may affect national performance. A relevant diagram is
Aggregate demand 1
provided, which is less than perfect. Aggregate demand
Y* Y1 Real GDP Y1 Y*
eal GDP
Reasonable evaluation of how lower aggregate Real GDP
LRAS
Price level
judgement being made.
AS1
AS
The information has some relevance and is presented
with limited structure.
P* The information is supported by
P1
limited evidence.
AD AD1 P*
Real GDP
Level 1 (1-5 marks) Y* Y1
AD
Limited knowledge and understanding of how lower
aggregate supply may affect national performance. Y1 Y* Real GDP
DP
Current
Limited or noaccount
analysis of how lower aggregate supply
surplus
may affect national performance.
Capital goods
X1
Trend
The information is basic and communicated in an
unstructuredCurrent
way. The information is supported by
limited evidence and the relationship to the evidence
account
deficit
may not be clear.
Y2 Y1
Expansion
0 marks no response or no response worthy of credit. Consumer goods
Time
Price
Level
AS1 AS2
Analysis of the effect of a decrease
Aggregate supply P1 in aggregate supply on national
P2 economic performance should consider
macroeconomic objectives and may
AD include:
Real GDP