Download AQA AS Economics 7135_2 Paper 2 (June 2026). These are model answers based on the mark sch and more Exams Economics in PDF only on Docsity!
AQA AS Economics 7135/2 Paper 2 (June 2026).
These are model answers based on the mark
scheme.
SECTION A
0 1 Define the term ‘injections’ in the context of the circular flow of income. [2 marks]
Answer: Injections are additions to the circular flow of income from outside the domestic economy ( mark), which include investment (I), government spending (G), and exports (X) (1 mark for naming at least two or providing the concept).
0 2 Using the data, calculate the output gap in the UK economy for 2019 (Real GDP = £2,120bn, Potential GDP = £2,180bn). Give your answer to 2 decimal places. [2 marks]
Answer: Output gap = ( \frac{\text{Real GDP} - \text{Potential GDP}}{\text{Potential GDP}} \times 100 ) = ( \frac{2120 - 2180}{2180} \times 100 ) = ( \frac{-60}{2180} \times 100 ) = -2.75% (2 marks for correct answer with minus sign and 2 decimal places; 1 mark for correct method but wrong sign/rounding).
0 3 Explain one reason why the MPC might use QE rather than lowering the Bank Rate to stimulate aggregate demand. [3 marks]
Answer:
- Lowering the Bank Rate may be ineffective if it is already close to zero (liquidity trap), as banks cannot reduce rates below zero significantly (1 mark).
- QE involves the central bank purchasing government bonds, injecting money directly into the financial system (1 mark).
- This lowers long-term interest rates, raises asset prices, and increases lending, stimulating AD when conventional monetary policy has exhausted its scope (1 mark).
0 4 Calculate the percentage change in the UK current account deficit on trade in goods between 2018 (£140bn) and 2019 (£147bn). [2 marks]
Answer: Change = ( 147 - 140 = +7 ) (deficit increased) Percentage change = ( \frac{7}{140} \times 100 ) = 5% (2 marks for 5%, 1 mark for correct method but £7bn instead of %).
0 5 Explain how a depreciation of the pound sterling could reduce a deficit in the UK current account. [4 marks]
Answer:
- Depreciation makes UK exports cheaper in foreign currency (1 mark) and imports more expensive in sterling (1 mark).
- This leads to an increase in export volume and a decrease in import volume (1 mark).
- If the Marshall–Lerner condition holds (sum of price elasticities of demand for imports and exports > 1), the value of exports rises relative to imports, improving the current account deficit (1 mark).
0 6 Explain how a rise in business confidence could affect the level of investment and the LRAS. [7 marks]
Answer: Effect on investment (3–4 marks):
- Higher business confidence means firms expect higher future demand and profits.
- This increases expected rate of return on capital projects.
- More investment is undertaken (new machinery, technology, factories).
- Investment increases both in volume and as a % of GDP.
Effect on LRAS (3–4 marks):
- Higher investment increases the capital stock.
- This raises the productive capacity of the economy.
- LRAS shifts right (outwards) on a diagram (can be referenced).
07.4 Evaluate the view that fiscal policy should be used to manage the UK economy, rather than relying on monetary policy. [10 marks]
Answer: For fiscal policy:
- Can target specific sectors (investment, regional aid) – monetary policy is blunt.
- Government spending directly creates demand (e.g., infrastructure).
- Can address supply-side issues (education, training).
Against (for monetary policy):
- Monetary policy is quicker to implement (MPC meets monthly).
- Fiscal policy suffers from implementation lags and political constraints.
- High government debt (Extract C: 97% of GDP) limits fiscal expansion – risk of loss of confidence.
Evaluation:
- Best used together: monetary policy for demand management, fiscal policy for long-run structural changes and when rates are near zero.
- Extract C shows both policies have drawbacks – monetary policy hurts investment, fiscal policy limited by debt.
Conclusion: Not an either/or; policy mix depends on economic circumstances.
08.1 Calculate number of unemployed if labour force = 33.0 million and unemployment rate = 3.7%. [2 marks]
Answer: Unemployed = labour force × unemployment rate = 33.0m × 0. = 1.221 million (or 1,221,000) (2 marks for correct; 1 mark for correct method but wrong placement of decimal).
08.2 Explain how a fall in the savings ratio could help offset a negative output gap in the short run. [3 marks]
Answer:
- Negative output gap means actual GDP < potential GDP (recessionary gap).
- Fall in savings ratio means households spend more of their disposable income (1 mark).
- Higher consumption increases aggregate demand (1 mark).
- This raises real GDP towards potential output, reducing the negative output gap (1 mark).
08.3 Using Extract C, explain how a rise in government debt as a % of GDP might limit expansionary fiscal policy. [5 marks]
Answer:
- High debt (2.4 trillion, 97% of GDP) means government already has large interest payments ( mark).
- Expansionary policy (spending increases or tax cuts) would increase debt further (1 mark).
- Markets may lose confidence, demanding higher interest rates on government bonds (1 mark).
- Higher rates crowd out private investment and increase future tax burden (1 mark).
- Government may be forced into fiscal consolidation (spending cuts/tax rises) instead (Extract C), which is contractionary (1 mark).
08.4 Discuss the likely impact of rising economic inactivity on the UK’s long-run economic growth and the current account. [10 marks]
Answer: On long-run growth (5 marks):
- Inactivity reduces the size of the labour force – a key factor of production.
- This reduces potential output (LRAS shifts left).
- Lower labour input → lower long-run growth trend.
- Also reduces tax revenues and increases welfare spending.
On current account (5 marks):
- Inactivity may force up wages for remaining workers, raising unit labour costs.
- Higher costs make UK exports less competitive – worsens current account.
- However, inactivity also reduces domestic demand for imports (but effect on exports likely dominates).
- Lower growth may reduce import spending (mitigating effect).
Evaluation:
- Impact depends on which groups are inactive (e.g., early retirees vs. sick vs. discouraged workers).
- Supply-side policies (training, childcare) could reverse inactivity.
