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AQA AS ECONOMICS Paper 2 The National Economy in a Global Context Insert 2023
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AQA AS ECONOMICS Paper 2 The National Economy in a Global Context Insert 2023AS
ECONOMICS
Paper 2 The National Economy in a Global Context
Insert
DO NOT WRITE ANY ANSWERS IN THIS INSERT. YOU MUST ANSWER THE
QUESTIONS IN THE ANSWER BOOKLET PROVIDED.
CONTEXT 1: INFLATION
Questions 21 to 26
• Extract A: UK inflation rate (%), measured by CPI, January 2018 to
December 2020
• Extract B: Achieving the inflation target of 2%
• Extract C: Are very low interest rates good for the economy?
CONTEXT 2: INTERNATIONAL TRADE
Questions 27 to 32
• Extract D: UK monthly balance of trade in goods and services
(£million), November 2017 to October 2020
• Extract E: The trade balance: an overlooked objective of government
macroeconomic policy?
• Extract F: Should the trade balance receive more attention?
, 2
IB/M/Jun23/E7 7135/2
Context 1 Total for this context: 50 marks
INFLATION
Extract A: UK inflation rate (%), measured by CPI, January 2018 to December 2020
Source: ons.gov.uk, February 2021
Extract B: Achieving the inflation target of 2%
For over 40 years, the control of inflation has been one of the main objectives of government
macroeconomic policy. It is widely believed that price stability helps to create the conditions for
all the other objectives to be achieved. Stable prices mean firms and individuals have more
confidence. Consequently, there is likely to be more investment and consumption, more jobs
are created, and everyone benefits as the economy grows. On the other hand, high inflation 5
can be disruptive. Firms may postpone expansion plans, workers may ask for large wage
increases, and already-high inflation can quickly get out of control. With this in mind, the
government sets the target rate of inflation that the Bank of England’s Monetary Policy
Committee (MPC) has to achieve. The MPC uses monetary policy to control inflation. Given
that the price level is affected by demand-side and supply-side factors, both domestically and 10
from all over the world, this is not an easy task.
In 2020, the pandemic caused long periods of reduced economic activity. As expected,
unemployment increased and inflation fell. Oil prices tumbled in response to falling global
demand and this helped to reduce firms’ costs of production. In the UK, government policy,
such as the temporary reduction in VAT, an indirect tax, from 20% to 5%, also helped to reduce 15
inflation.
IB/M/Jun23/7135/2
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