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EDEXCEL A-LEVEL ECONOMICS PAPER 2-
ACTUAL QUESTIONS WITH ANSWERS
2026
Macroeconomics - correct-answer -The study of the economy as a whole,
including inflation, growth and unemployment.
Aggregate demand - correct-answer -The total of all demands or expenditures in
the economy at any given price.
Aggregate demand curve - correct-answer -Shows the relationship between the
price level and equilibrium national income. As the price level rises the
equilibrium level of national income falls.
Animal spirits - correct-answer -Business confidence: the mood of managers and
owners of firms about the future of their industry and the wider economy.
Gross investment - correct-answer -The addition to capital stock, both to replace
the existing capital stock which has been used up (depreciation) and the creation
of additional capital.
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Investment - correct-answer -The addition to the capital stock of the economy.
Retained profit - correct-answer -Profit kept back by a firm for its own use which
is not distributed to shareholders or used to pay taxation.
Net exports or the net trade balance - correct-answer -Exports minus imports.
Aggregate supply curve - correct-answer -The relationship between the average
level of prices in the economy and the level of total output.
Components of the current account - correct-answer -Trade in goods (trade
balance)
Trade in services (trade balance)
Income e.g. remittances (income balance)
Transfers - govt. fees e.g. aid, EU payments (income balance)
Causes of current account surplus (6) - correct-answer -Exporting more than
importing
Recession
Competitive exports (deflation/disinflation/high quality exports)
High level of natural resources
Exports worth more than imports
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High levels of exports
Causes of current account deficit (6) - correct-answer -Importing more than
exporting
Sustained economic growth
Uncompetitive exports (inflation/poor quality products)
Low level of natural resources
Exports worth less than imports
Low levels of exports
Components of financial account (3) - correct-answer -FDI
Portfolio investment
Reserves
Capital account - correct-answer -Minor payments/transfers
Floating exchange rate - correct-answer -Currency value set by market
No govt. intervention
No target for exchange rate
Speculation causes change in floating exchange rate
e.g. British Pound
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Advantages of a floating exchange rate (4) - correct-answer -Reduces need to
hold large foreign currency reserves
Freedom to set interest rates
Automatic correction
Less risk
Disadvantages of floating exchange rate (2) - correct-answer -Can be volatile -
reduces FDI
A lower, more competitive exchange rate does not guarantee a current account
surplus
Fixed exchange rate - correct-answer -Govt. fixes currency value to another
currency
Central bank must hold sufficient currency reserves
e.g. Chinese Yuan
Advantages of a fixed exchange rate - correct-answer -Stability attracts FDI
Stability controls inflation
Leads to lower borrowing costs
Less speculation
EDEXCEL A-LEVEL ECONOMICS PAPER 2-
ACTUAL QUESTIONS WITH ANSWERS
2026
Macroeconomics - correct-answer -The study of the economy as a whole,
including inflation, growth and unemployment.
Aggregate demand - correct-answer -The total of all demands or expenditures in
the economy at any given price.
Aggregate demand curve - correct-answer -Shows the relationship between the
price level and equilibrium national income. As the price level rises the
equilibrium level of national income falls.
Animal spirits - correct-answer -Business confidence: the mood of managers and
owners of firms about the future of their industry and the wider economy.
Gross investment - correct-answer -The addition to capital stock, both to replace
the existing capital stock which has been used up (depreciation) and the creation
of additional capital.
,2|Page
Investment - correct-answer -The addition to the capital stock of the economy.
Retained profit - correct-answer -Profit kept back by a firm for its own use which
is not distributed to shareholders or used to pay taxation.
Net exports or the net trade balance - correct-answer -Exports minus imports.
Aggregate supply curve - correct-answer -The relationship between the average
level of prices in the economy and the level of total output.
Components of the current account - correct-answer -Trade in goods (trade
balance)
Trade in services (trade balance)
Income e.g. remittances (income balance)
Transfers - govt. fees e.g. aid, EU payments (income balance)
Causes of current account surplus (6) - correct-answer -Exporting more than
importing
Recession
Competitive exports (deflation/disinflation/high quality exports)
High level of natural resources
Exports worth more than imports
,3|Page
High levels of exports
Causes of current account deficit (6) - correct-answer -Importing more than
exporting
Sustained economic growth
Uncompetitive exports (inflation/poor quality products)
Low level of natural resources
Exports worth less than imports
Low levels of exports
Components of financial account (3) - correct-answer -FDI
Portfolio investment
Reserves
Capital account - correct-answer -Minor payments/transfers
Floating exchange rate - correct-answer -Currency value set by market
No govt. intervention
No target for exchange rate
Speculation causes change in floating exchange rate
e.g. British Pound
, 4|Page
Advantages of a floating exchange rate (4) - correct-answer -Reduces need to
hold large foreign currency reserves
Freedom to set interest rates
Automatic correction
Less risk
Disadvantages of floating exchange rate (2) - correct-answer -Can be volatile -
reduces FDI
A lower, more competitive exchange rate does not guarantee a current account
surplus
Fixed exchange rate - correct-answer -Govt. fixes currency value to another
currency
Central bank must hold sufficient currency reserves
e.g. Chinese Yuan
Advantages of a fixed exchange rate - correct-answer -Stability attracts FDI
Stability controls inflation
Leads to lower borrowing costs
Less speculation
