Practice A2 Macro Questions
This is a revision resource for the June Unit 6 Macro paper for the AQA exam. The January 2009 Unit 6
paper covered the following topics
• Economic effects of oil prices (data Q)
• Budget deficit (essay)
• Inflation and interest rates (essay)
• Trade deficit and balance of payments policies (essay)
Economic Growth
“The scale of the global economy is approaching the limits of what our planet can cope with. As the
oceans are emptied of fish, forests shrink from logging and levels of pollutants and greenhouse gases in
the atmosphere rise, the environmental and social costs of further growth are likely to intensify until we
reach a point at which the price we pay for each unit of extra growth becomes greater than the benefits
we gain.”
Source: New Scientist magazine, October 2008
(a) Explain the term ‘underlying trend rate of economic growth’ and the factors determining this trend
rate (20 marks)
(b) Do you agree with the view that countries must take steps to limit their economic growth in order to
protect their environment? (30 marks)
Exchange Rates
“Just over a year ago, newspapers were full of stories on how to spend your spare cash abroad, as sterling
rocketed in value against the US dollar and the euro. In November 2007, £1 could buy you $2.10. Today
you'd be lucky to get $1.49. The fall of sterling has been even more marked against the euro. Today, £1
will get you around €1.13.”
Source: Independent, 14th December 2008
(a) Explain why a currency might fall in value in the global currency market (20 marks)
(b) Assess the extent to which a persistent depreciation of sterling against the Euro and the US dollar
might improve the UK’s macroeconomic performance (30 marks)
Deflation
“The destruction wrought by deflation is less obvious and dramatic than hyperinflation, but it penetrates
deep. The most obvious effect is to reduce household spending. But if people are not buying, less is
made and sold. Shops and factories close and jobs are lost. The value of property falls along with
everything else, and borrowers default on their mortgages, threatening lenders. And as the number of
people with money shrinks, prices are lowered even farther still in an effort to encourage spending.”
Source: Price cuts are cold comfort in deflation's chill, the Times, February 18th, 2009
(a) Explain why an economy might experience a period of price deflation (20 marks)
(b) Evaluate the potential economic effects of a country experiencing price deflation (30 marks)
Natural Rate of Unemployment and the Economic Cycle
“At the end of 2008 the UK unemployment rate stood at 6.3%, its highest rate since 1998.
There are now almost 2 million persons unemployed in the UK. The unemployment rate is set to rise
further, probably to close to 10.0% by the end of 2009. This could imply there will be over three million
unemployed by 2010.”
Source: Speech by Professor David Blanchflower, February 2009
(a) Explain the factors that determine the natural rate of unemployment (20 marks)
(b) Evaluate the possible consequences for UK macroeconomic performance of a sustained rise in
unemployment (30 marks)
Fiscal Policy and Taxation
(a) Explain how fiscal policy could be used to influence aggregate demand. (20 marks)
(b) The UK government decides to bring about a significant shift in the sources of tax revenue from
direct taxes, such as income tax, to indirect taxes, such as Value Added Tax (VAT).
Evaluate the potential economic consequences of such a shift in the sources of tax revenue. (30
marks)
Monetary Policy and the Euro
“A new forecast says that the UK economy will grow as its weakest pace in 2009 since the recession of
the early 1990s. Troubled credit markets, rising commodity prices and weakening demand will drive
growth downward according to economists at the Confederation of British Industry.”
Source: News reports, March 2008
(a) Explain how a change in policy interest rates might help to keep inflation within its target (20
marks)
(b) In the light of current events, evaluate the potential impact on the UK’s macroeconomic
performance if the UK were to adopt the single European currency.
Trade and Protectionism
“As the recession deepens, the danger is of a growing deluge of beggar-thy-neighbour protectionist
measures which will end up eliminating all the hard-won gains of the single European market and the
wider liberalisation of world trade.”
Source: Jeremy Warner, article in the Independent, February 2009.
(a) Explain why a government might decide to introduce protectionist trade policies (20 marks)
(b) Do you agree with the view that import controls such as tariffs and export subsidies are
damaging to the long run performance of an economy? (30 marks)