AS ECONOMICS Paper 2 The National Economy in a Global Context

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 Total for this context: 50 marks ECONOMIC GROWTH Extract A: Real GDP growth, annual percentage change, various economies, 2015–2019 Year UK (%) Germany (%) US (%) China (%) World (%) 2015 2.4 1.7 2.9 6.9 3.5 2016 1.9 2.2 1.6 6.8 3.4 2017 1.9 2.5 2.4 6.9 3.9 2018 1.4 1.5 2.9 6.7 3.6 2019 1.4 0.6 2.3 6.1 2.9 Source: International Monetary Fund, World Economic Outlook, April 2020 Extract B: The global economy goes into recession Even before the world economy was hit by the pandemic in 2020, the greatest economic shock 1 for centuries, there were signs that economies were in the midst of a global slowdown. This had made price stability easier to achieve but growth rates were disappointing. Output had been adversely affected by the rising tensions in global trade. The US had placed import taxes on various goods from a number of countries including China, Canada and those in 5 the EU, leading to a fall in exports from those countries. In addition, structural changes to industries, such as the movement away from petrol and diesel cars and the rise of artificial intelligence technology had resulted in some job losses. In the UK, political uncertainty surrounding Brexit had been cited as a major cause of disappointing growth and low levels of investment. These factors, amongst others, damaged business confidence, and many firms 10 were reluctant to invest in new capacity. Yet all this seems insignificant compared with what was to follow. When consumption abruptly fell and production in some industries completely stopped, economies contracted severely. For example, in the three months to May 2020, UK output shrank by a staggering 19.1% compared to the previous three months. When a report by the International Monetary Fund in June 2020 15 forecast that annual world output would contract by 4.9% during 2020, by 10.2% in the UK and the Euro area, and 8% in the US, people began to wonder if the recession would ever end. According to the report, even China was expected to have real GDP growth of only 1%. Source: News reports, July 2020 Extract C: Can we look forward to a decade of prosperity and opportunity? Faced with such uncertainty and gloomy expectations, it was almost impossible to remember 1 the time when the Prime Minister, Boris Johnson, had promised to make the 2020s a “decade of prosperity and opportunity”. If this is to be achieved, it will be essential to find ways to boost both short-run and long-run growth, but firstly confidence and optimism must be restored. In March 2020, the Bank of England’s Monetary Policy Committee announced a second 5 emergency cut in bank rate to 0.1%. Designed to reduce the costs of existing and new borrowing, it was hoped that this would maintain spending in the economy. Monetary policy was also used to increase the supply of money and credit. The Chancellor of the Exchequer, Rishi Sunak, also announced further unprecedented increases in government spending and reductions in various taxes. On a global level, it was hoped that exports would slowly start to 10 recover. The measures that have been taken and the anticipated revival of the world economy should support demand-side growth. What about supply-side growth? The Chancellor announced a range of supply-side plans. For example, more than £600 billion is to be spent on infrastructure such as roads, rail and broadband by the middle of 2025; and an extra £900 million on research into nuclear fusion, 15 space and electric vehicles. An increase in the funds available for education and training should help to improve factor mobility and ensure the labour force has the skills the economy needs. The current, low rates of direct taxation help to create incentives to work, save and invest, but in the future, taxes may have to rise to pay for the increase in government spending. Source: News reports, July 2020 Turn over for Context 1 questions Turn over ► Context 1: – Questions 21 to 26 Define ‘price stability’ Extract B (line 3). [3 marks] If UK GDP was equal to £2073 billion in 2017, use Extract A to calculate, to the nearest billion, the value of UK GDP in 2018.