AS
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: FISCAL POLICY
Questions 21 to 26
• Extract A: UK government spending and tax revenue (£ billion),
2019/20 to 2023/24
• Extract B: Fiscal policy and aggregate demand
• Extract C: Fiscal policy and long-run aggregate supply
CONTEXT 2: THE CONSTRUCTION INDUSTRY
Questions 27 to 32
• Extract D: Total household debt and saving in the UK, as a percentage
of disposable income, Quarter 4 (Q4), 2019 to 2023
• Extract E: The importance of the construction industry
• Extract F: Is household borrowing good for an economy?
IB/M/Jun26/G4004/V7 7135/2
, 2
Context 1 Total for this context: 50 marks
FISCAL POLICY
Extract A: UK government spending and tax revenue (£ billion), 2019/20 to 2023/24
Source: Office for National Statistics, 2024
Extract B: Fiscal policy and aggregate demand
Fiscal policy is a tool that governments use to achieve their macroeconomic objectives. It can
be used to influence aggregate demand and aggregate supply.
Over the past 10 years, the growth of real GDP in the UK has been slow. In the second half of
2023, the economy experienced two quarters of negative growth. It was predicted that the rate
of growth of real GDP for the UK would be 1.1% in 2024 and 1.5% in 2025. This remains 5
behind forecast real GDP growth rates in the US of 2.8% and 2.2%, for 2024 and 2025
respectively, but it is better than the forecasts for some EU economies. In Germany, growth
rates are expected to be 0% in 2024 and reach only 0.8% in 2025. Slow growth among trading
partners may make it more difficult to achieve an improvement in the balance of payments on
current account. Stronger rates of growth can help all economies. 10
When growth is slow, fiscal policy, like monetary policy, can be used to influence aggregate
demand. It can have multiplier effects and play a part in stimulating the accelerator process.
It helps to increase short-run growth and create more jobs. This could be crucial to the UK as
the Institute of Fiscal Studies (IFS), an economic research organisation, estimated that the
unemployment rate will increase to 4.9% in 2025 and 5.3% in 2026. 15
However, expansionary fiscal policy has its downsides. Increased government borrowing is
likely to lead to higher debt interest repayments. Debt interest for the financial year 2025/26 is
expected to be £126 billion, more than the amount allocated to housing, the environment and
transport. There is also a risk of inflationary pressure.
Source: News reports, December 2024
IB/M/Jun26/7135/2
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: FISCAL POLICY
Questions 21 to 26
• Extract A: UK government spending and tax revenue (£ billion),
2019/20 to 2023/24
• Extract B: Fiscal policy and aggregate demand
• Extract C: Fiscal policy and long-run aggregate supply
CONTEXT 2: THE CONSTRUCTION INDUSTRY
Questions 27 to 32
• Extract D: Total household debt and saving in the UK, as a percentage
of disposable income, Quarter 4 (Q4), 2019 to 2023
• Extract E: The importance of the construction industry
• Extract F: Is household borrowing good for an economy?
IB/M/Jun26/G4004/V7 7135/2
, 2
Context 1 Total for this context: 50 marks
FISCAL POLICY
Extract A: UK government spending and tax revenue (£ billion), 2019/20 to 2023/24
Source: Office for National Statistics, 2024
Extract B: Fiscal policy and aggregate demand
Fiscal policy is a tool that governments use to achieve their macroeconomic objectives. It can
be used to influence aggregate demand and aggregate supply.
Over the past 10 years, the growth of real GDP in the UK has been slow. In the second half of
2023, the economy experienced two quarters of negative growth. It was predicted that the rate
of growth of real GDP for the UK would be 1.1% in 2024 and 1.5% in 2025. This remains 5
behind forecast real GDP growth rates in the US of 2.8% and 2.2%, for 2024 and 2025
respectively, but it is better than the forecasts for some EU economies. In Germany, growth
rates are expected to be 0% in 2024 and reach only 0.8% in 2025. Slow growth among trading
partners may make it more difficult to achieve an improvement in the balance of payments on
current account. Stronger rates of growth can help all economies. 10
When growth is slow, fiscal policy, like monetary policy, can be used to influence aggregate
demand. It can have multiplier effects and play a part in stimulating the accelerator process.
It helps to increase short-run growth and create more jobs. This could be crucial to the UK as
the Institute of Fiscal Studies (IFS), an economic research organisation, estimated that the
unemployment rate will increase to 4.9% in 2025 and 5.3% in 2026. 15
However, expansionary fiscal policy has its downsides. Increased government borrowing is
likely to lead to higher debt interest repayments. Debt interest for the financial year 2025/26 is
expected to be £126 billion, more than the amount allocated to housing, the environment and
transport. There is also a risk of inflationary pressure.
Source: News reports, December 2024
IB/M/Jun26/7135/2
