Econ AS 2020 Paper 2

1

B

2

B

3

A

4

C

5

D

6

D

7

D

8

C

9

C

10

C

1-10

BB AC DDD CCC

11

B

12

B

13

A

14

B

15

A

16

A

17

D

18

A

19

B

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D

11-20

BBA BAA DABD

21 Define ‘falling exchange rate’ in Extract B (line 7).                                              [3 marks]

When a currency weakens or depreciates, meaning it buys less of another currency than before.

22 Use Extract B to calculate, to two decimal places, the ratio of internet sales to £1 worth

of all retail sales in November 2013.

[4 marks]

The calculation can be shown step by step for clarity:

1.     Internet sales = £827 million

2.     All retail sales = £6806.7 million

3.     Ratio = £827 ÷ £6806.7 ≈ 0.1216

Rounded to two decimal places: 0.12 : £1

Answer: £0.12 of internet sales per £1 of total retail sales

23 Use Extract A to identify two significant points of comparison between the percentage

change in the value of all retail sales and internet sales over the period shown.

[4 marks]

·  Growth in internet sales has consistently been higher than growth in retail sales throughout the period. For example, in January 2016 internet sales grew by 16.2% compared to the same month a year earlier, whereas retail sales grew by only 3% in the same period.

·  The range of percentage change in internet sales is much greater than that of retail sales, showing more volatility. Internet sales ranged from 31% growth (October 2016) to 9% growth (October 2017), a 22 percentage point range, while retail sales ranged from 6% to 1%, a 5 percentage point range.

24 Extract B (lines 9–11) states: ‘Taking into account pubs, restaurants and other shops, a

further 4042 premises became empty, increasing spare capacity in the economy.’

Draw a production possibility curve diagram for an economy producing capital goods and

consumer goods to show an increase in spare capacity in the economy.

[4 marks]

DIAGRAM

25 Extract C (lines 3–4) states: ‘Household consumption accounts for approximately 60% of

aggregate demand so has a vital role to play in the economy.’

Explain two factors that could cause a fall in consumption.

[10 marks]

actor 1: Higher unemployment

• Unemployment reduces households’ disposable income, lowering spending on goods and services.

• Consumption is the largest component of aggregate demand (≈60%), so a fall has a large macroeconomic impact.

• During a recession, job losses cause households to cut back, especially on non-essential spending.

• Lower consumption reduces firm revenues, leading to further layoffs.

• This creates a negative multiplier effect, amplifying the initial fall in demand.

• AD/AS diagram: fall in consumption shifts AD left, reducing output and national income.

Factor 2: Lower consumer confidence / expectations

• Fear of future income loss encourages households to save rather than spend.

• Even employed households may delay purchases of durable goods (e.g. cars, appliances).

• Reduced confidence lowers consumption, causing a short-run fall in AD.

• Prolonged pessimism can slow long-term economic growth through weaker demand.

Conclusion

• Higher unemployment and lower confidence both reduce consumption.

• Since consumption is a major component of AD, sustained falls can lead to slower growth, rising unemployment, and recession.

26 Extract C (line 1) states: ‘So, is the changing retail industry and the decline in the

high street bad news for the economy?’

Use the extracts and your knowledge of economics to assess whether the changes taking

place in the retail industry are likely to cause lasting damage to UK macroeconomic

performance.

[25 marks]

Introduction

• Retail is undergoing structural change: decline of high street stores, rise of online sales.

• Macroeconomic performance measured by GDP, unemployment, inflation, and balance of payments.

• Effects assessed on both demand-side (AD) and supply-side factors.

1. Aggregate Demand (AD) Effects

• Consumption:

  • High street decline may reduce consumption if disposable income falls (≈60% of AD).

  • Online growth may offset losses; spending may be reallocated rather than reduced.

  • Negative multiplier effects possible in affected areas.

• Investment:

  • Less spending on physical stores, more on e-commerce infrastructure, logistics, and tech.

• International trade:

  • Increased online purchases from overseas could raise imports, potentially worsening the current account.

2. Supply-Side Effects

• Employment:

  • High street decline → job losses in retail, warehousing, services.

  • E-commerce expansion → new jobs in logistics, IT, distribution.

• Productivity & Innovation:

  • Investment in tech and automation improves productivity, supporting long-term growth.

• Structural change:

  • Reallocation of labour and capital from declining to growing sectors. Disruptive short-term but not necessarily damaging long-term.

3. Other Macroeconomic Considerations

• Inflation:

  • Online retail increases competition → downward pressure on prices.

  • Lower commercial rents reduce cost-push inflation.

• Confidence & Expectations:

  • Persistent high street closures may reduce consumer and business confidence.

• Economic cycle:

  • Short-term effects worse during downturns; long-term depends on economy’s adaptability.

• Government role:

  • Fiscal/supply-side support (retraining, digital infrastructure incentives) can mitigate negative effects.

4. Short-term vs Long-term Impact

• Short-term:

  • Job losses in high street retail; reduced AD locally; temporary GDP slowdown.

• Long-term:

  • Economy adapts: online spending rises, productivity improves, new jobs in tech/logistics.

  • Structural change can enhance supply-side performance and sustainable growth.

Conclusion & Evaluation

• Short-term disruptions likely; long-term macroeconomic damage unlikely if labour market adapts.

• Effect varies by region and sector.

• Multiplier and accelerator effects may amplify short-term impact.

• Long-term potential benefits from productivity gains and innovation.