ECONOMICS PAPER 2 FINAL SCRIPT 2026
COMPLETE QUESTIONS AND CORRECT
ANSWERS VERIFIED
●● Which of the following is an example of a supply-side policy?
[1 mark]
A Reduced taxes on company profits
B Increased government spending on unemployment benefits
C Reduced government spending on education
D Increased taxes on expenditure.
Answer: A Reduced taxes on company profits
●● Which of the following pairs of policy changes is the most
appropriate response to the box
problem of high inflation?
[1 mark]
Interest rates Tax rates
A Increase Increase
B Decrease Decrease
C Increase Decrease
D Decrease Increase.
Answer: A Increase Increase
,●● Which of the following identifies the most likely effects of a
significant increase in
economic growth?
[1 mark]
Effect on unemployment Effect on budget deficit
A Decrease Increased deficit
B Increase Reduced deficit
C Increase Increased deficit
D Decrease Reduced deficit.
Answer: D Decrease Reduced deficit
●● State two causes of inflation..
Answer: • Any factor that would lead to an increase in demand/spending
in the economy
• Any factor that would lead to a rise in the cost of production
• Excessive growth in money supply (needs to have notion of excessive
or fast increases)
●● Explain one reason why the UK government may want to reduce a
budget deficit.
,[2 marks].
Answer: • To avoid further borrowing by government as borrowing will
mean more
interest has to be paid.
• To avoid inflationary consequences of deficit as too much government
spending/taxes being too low may result in inflation.
• To prevent national debt rising as the debt interest will mean future tax
rises
or spending cuts in later years.
• To maintain credit rating which means lower interest rates on national
debt.
• To prevent future tax rises which will be needed to pay off the deficit
in future
years.
●● Explain why rapid economic growth may be harmful for individuals
in an economy.
[2 marks].
Answer: • Increased negative externalities (e.g. pollution or congestion)
which result
, from higher economic activity as more output leads to more
pollution/more
output leads to more cars/vans on road.
• Depletion of natural resources as growth leads to using up of resources
which may be non-renewable leading to higher prices or shortages.
• Higher inflation may result if growth is excessive or prolonged.
• Increased inequality as the growth may come from those earning high
incomes whilst those on lower incomes or benefits see no/little change in
their income levels.
●● Explain one reason why a government may aim for balance on the
current account.
[2 marks].
Answer: • Might have to borrow money to finance deficit (if in deficit)
as deficit means
outflow of currency reserves.
• Might lead to downward pressure on exchange rate (if in deficit) due to
outflow of pounds to buy imports.
• May indicate weakness of export performance (if in deficit) which
could be
COMPLETE QUESTIONS AND CORRECT
ANSWERS VERIFIED
●● Which of the following is an example of a supply-side policy?
[1 mark]
A Reduced taxes on company profits
B Increased government spending on unemployment benefits
C Reduced government spending on education
D Increased taxes on expenditure.
Answer: A Reduced taxes on company profits
●● Which of the following pairs of policy changes is the most
appropriate response to the box
problem of high inflation?
[1 mark]
Interest rates Tax rates
A Increase Increase
B Decrease Decrease
C Increase Decrease
D Decrease Increase.
Answer: A Increase Increase
,●● Which of the following identifies the most likely effects of a
significant increase in
economic growth?
[1 mark]
Effect on unemployment Effect on budget deficit
A Decrease Increased deficit
B Increase Reduced deficit
C Increase Increased deficit
D Decrease Reduced deficit.
Answer: D Decrease Reduced deficit
●● State two causes of inflation..
Answer: • Any factor that would lead to an increase in demand/spending
in the economy
• Any factor that would lead to a rise in the cost of production
• Excessive growth in money supply (needs to have notion of excessive
or fast increases)
●● Explain one reason why the UK government may want to reduce a
budget deficit.
,[2 marks].
Answer: • To avoid further borrowing by government as borrowing will
mean more
interest has to be paid.
• To avoid inflationary consequences of deficit as too much government
spending/taxes being too low may result in inflation.
• To prevent national debt rising as the debt interest will mean future tax
rises
or spending cuts in later years.
• To maintain credit rating which means lower interest rates on national
debt.
• To prevent future tax rises which will be needed to pay off the deficit
in future
years.
●● Explain why rapid economic growth may be harmful for individuals
in an economy.
[2 marks].
Answer: • Increased negative externalities (e.g. pollution or congestion)
which result
, from higher economic activity as more output leads to more
pollution/more
output leads to more cars/vans on road.
• Depletion of natural resources as growth leads to using up of resources
which may be non-renewable leading to higher prices or shortages.
• Higher inflation may result if growth is excessive or prolonged.
• Increased inequality as the growth may come from those earning high
incomes whilst those on lower incomes or benefits see no/little change in
their income levels.
●● Explain one reason why a government may aim for balance on the
current account.
[2 marks].
Answer: • Might have to borrow money to finance deficit (if in deficit)
as deficit means
outflow of currency reserves.
• Might lead to downward pressure on exchange rate (if in deficit) due to
outflow of pounds to buy imports.
• May indicate weakness of export performance (if in deficit) which
could be
