Mark Scheme (Results)

October 2019

Pearson Edexcel Internation Advanced

Subsidiary

In Economics (WEC12)
Paper 01 Macroeconomic Performance and
Policy
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October 2019
Publications Code WEC12_01_MS_1910
All the material in this publication is copyright
© Pearson Education Ltd 2019
Question Quantitative skills assessed Answer Mark

1 B

(1)

2 QS9: Interpret, apply and analyse information C

in written, graphical, tabular and numerical
(1)
forms

3 B

(1)

4 A

(1)

5 QS9: Interpret, apply and analyse information D

in written, graphical, tabular and numerical
(1)
forms

6 QS9: Interpret, apply and analyse information A

in written, graphical, tabular and numerical
(1)
forms
Question Explain one possible effect of high rates of unemployment on the public Mark
finances of Bosnia and Herzegovina.

Answer
7 Knowledge 1, Application 1, Analysis 2

Knowledge & Analysis

1 mark for knowledge and a further 2 marks for linked analysis

• Defining unemployment; the total number of individuals that are

willing and able to work and actively seeking work (1)

• Increase in unemployment leads to a higher demand for

unemployment benefits (1) increasing government spending possibly
leading to deterioration in public finance (1)

• Increase in unemployment leads to a fall in tax revenues (1) and a

deterioration in public finance (1)

Application

1 mark for applying to Bosnia and Herzegovina, e.g.:

• Bosnia and Herzegovina’s unemployment level has decreased by

9 percentage points / decreased from 46% to 37% between 2013-2018
(1) (4)
Question With reference to the chart, explain the difference between a Mark
current account deficit and a current account surplus.

Answer
8 Knowledge 2, Application 2

QS9: Interpret, apply and analyse information in written, graphical,

tabular and numerical forms

Knowledge

Up to 2 marks for defining a current account surplus and current

account deficit e.g.

• Current account surplus is when the value of exports of goods

services, transfers and investment income is greater than the value
of imports of goods services, transfers and investment income (1)

• Current account deficit is when the value of imports of goods

services, transfers and investment income is greater than the value
of exports of goods services, transfers and investment income (1)

Application

Up to 2 marks for use of the data, e.g.:

• There was a current account surplus between 2010 and 2011/

2014 to 2017 (1)

• There was a current account deficit in 2012 and 2013 (1)

• The current account surplus was at its highest at 11.7% of GDP in

2016 (1)

• The current account surplus rose in value from 2014 to 2017 (1) (4)
Question Explain one possible impact of increased business confidence on the Mark
economy of the UAE.

Answer
9 Knowledge 1, Application 1, Analysis 2

Knowledge & Analysis

1 mark for identification of one possible impact of increased

business confidence on the United Arab Emirates and Up to 2
marks for development of identified factor e.g.

increase in aggregate supply

• Increased business confidence increases incentives to invest

(1) this increases AD and real output, reducing the output gap
(1)
• Businesses will increase investment (1) which will have
multiplier effects (1) leading to a more than proportionate
increase in GDP (1)

Reward an accurate outward shift in LRAS/AD if shown on a

diagram (1)

Application

1 mark for applying to UAE e.g.:

• The increase in business confidence is due to high rates of

economic growth (1)
• Sustained growth since 2012 (1)
(4)
Question Draw a SRAS and AD diagram to show the possible impact of this Mark
increase in consumption on the price level and real output.

Answer

10 Knowledge 1, Application 3

Quantitative skills assessed:

QS4:Construct and interpret a range of standard graphical forms

QS9: Interpret, apply and analyse information in written, graphical,

tabular and numerical forms.

Real Output

Knowledge

1 mark for drawing original AD and SRAS curves showing the

equilibrium price level and real output (1)

Application

1 mark for correct shift in AD

1 mark for labelling new higher price level

(4)
1 mark for labelling new real GDP/output level
Question Using the information above, calculate the change in GDP per capita Mark
between 2016 and 2017. Show your workings.

Answer
11 Knowledge 1, Application 3

QS1: calculate, use and understand ratios and fractions.

QS9: Interpret, apply and analyse information in written, graphical,

tabular and numerical forms.

Knowledge

EITHER

1 mark for GDP per capita formula

GDP/population (1)

OR

GDP per capita is a measure of a country's economic output that

accounts for its number of people (1)

Application

Up to three marks from the following

2017: $19390.6 billion /0.3257 billion (1) = $59 535.16 (1)

$59 535.16 - $57 589.70 = $1 945.46 (1)

OR

($59 535.16 - $57 589.70) / $57 589.70 = 3.38% (1)

NB: if correct answer ($1 945.46 / 3.38%) is given, award full

marks regardless of working (4)
Question Define the term ‘base rate of interest’ (Figure 1). Mark

Answer
12(a) Knowledge 2

Up to 2 marks for defining base rate of interest

• Cost of borrowing / Return received for saving money (1)

that the central bank charges / pays commercial banks (1)
• Set by the central bank (1) to commercial banks (1) (2)

Question With reference to Figure 2, explain the term ‘recession’. Mark

Answer
12(b) Knowledge 2, Application 2

QS9: Interpret, apply and analyse information in written, graphical,

tabular and numerical forms.

Knowledge
Up to 2 marks for offering a definition of recession

• Two consecutive quarters (1) of negative economic growth / negative

real GDP growth (1)

Application
Up to 2 marks for reference to Figure 2 for example:
• Recession starts Q4 2015 -1.2% to -0.2% Q1 2016 (1)
• Growth fell from -0.2% Q1 2016 to -2.1% Q2 2016 (1)
• Growth fell from -1.2% Q4 2015 to -2.1% Q2 2016 (1)
• Argentina was in recession between Q4 2015 and Q2 2016/ Q4
(4)
2015 and Q1 2016/ Q1 2016 and Q2 2016 (1+1)
Question With reference to Extract B, analyse one possible impact of the fall in Mark
the value of the peso on Argentina’s current account on the balance of
payments.

Answer
12(c) Knowledge 2, Application 2, Analysis 2

QS9: Interpret, apply and analyse information in written, graphical,

tabular and numerical forms.

Knowledge & Analysis

Up to 2 marks for knowledge and up to 2 marks for analysis

• The exchange rate is the external value of a currency (1K) the
current account measures the total value of exports minus the total
value imports (1K)
• The current account records the payments for goods and services,
plus investment income and transfers, between an economy and the
rest of the world (1K)
• Reward identification/definition of depreciation: a fall in the value of
one currency against another currency (1K)

• The fall in the value of the peso make imports more expensive (1K)
this may lead to fall in consumption of imports (1An) improving the
current account balance (1An)
• The fall in the value of the peso causes a decrease in the price of
commodity exports (1K) this may lead to an increase in the
consumption of exports (1An) improving the current account balance
(1An)
• Argentinian exports become more price competitive (1K) increasing
demand for Argentinian exports (1An) leading to an improvement in
the current account (1An)
• Demand for certain exports is inelastic (1An) causing a decrease in
the current account (1An)

Application

Up to 2 marks for reference to the data.

• The current account balance has fallen into deficit (1)
• Importing goods from America is very expensive (1)
• The peso fell by 12 percentage (points) against the dollar (1)
• Decrease in the value of commodity exports from Argentina (1)

Reward the use of relevant diagram

(6)
Question With reference to the information provided, examine the likely impact of Mark
inflation on the economy of Argentina.

Indicative content
12(d)
Knowledge 2, Application 2, Analysis 2, Evaluation 2

Knowledge 2

Up to 2 marks for knowledge of inflation;

• The rise (1) in the average price level (1)

• Inflation increases firms’ costs/ increases the prices for
consumers (1) can be measured using the CPI (1)

Application 2

Up to 2 marks for reference to the given sources, e.g.:

• Inflation remains a significant issue for Argentina (1)

• Inflation was between 30%-40% per year (1)
• In 2017 inflation was 25% (1)
• Inflation is damaging to firms and reduces investment (1)

Analysis 2

Up to 2 marks for linked explanations

• High inflation reduces investment (1) firms are unsure of future

prices reducing the incentive to invest reducing AD (1)
• Negatively impacts those on a fixed income as incomes don’t rise
with inflation (1) reducing standards of living (1)
• Labour demands higher wages to maintain real incomes (1);
increase cost-push inflation (1)
• Fall in competitiveness of Argentinian goods (1) leading to a fall
in exports and deterioration in the current account (1)
• Increase in unemployment (1) due to the fall in
competitiveness/ rising wage costs (1)
• In an attempt to reduce the rate of inflation the base rate of
interest was increased to 40% (1) likely to reduce borrowing and
consumption (1)

Evaluation 2

Up to 2 marks for evaluative comments, e.g.:

• It depends if incomes increase (1) if incomes increase at the

same rate as inflation then standards of living will remain
constant (1)
• If business confidence is high firms will invest (1) increasing the
level of AD in Argentina (1)
• High levels of imported inflation may reduce the demand for
foreign goods (1) improving the balance of payments on current
account (1)
• Demand-pull inflation may stimulate more aggregate supply (1)
increasing economic growth (1)
• The negative impact on the standards of living is likely to be
significant (1) as real wages have decreased (1) (8)
• The central bank is raising the base rate of interest (1) which is
likely to reduce the negative impact of inflation (1)
• The government has cut spending reducing AD (1) which is likely
to reduce the negative impact of inflation (1)
Question Using the information in Extracts A and B, discuss policies that the Argentinian
Government could use to increase consumption.

Indicative content
12(e) Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the
general marking guidance.
The indicative content below exemplifies some of the points that candidates may
make but this does not imply that any of these must be included.
Other relevant points must also be credited.

Knowledge, Application and Analysis (8) – indicative content

• Consumption is the total household expenditure in the economy

• Identification of supply and demand side policies
• Subsidies to businesses to lower prices
• Reduce tax, such as income tax to increase disposable income leading to
higher consumption
• Further increasing government spending would increase consumer
confidence, encouraging more consumption
• Government spending on infrastructure may increase employment, increasing
incomes and consumption
• Government could stop cutting spending, and increase welfare payments.
Those on a fixed income would be able to purchase more goods and services
Level Mark Descriptor

0 No rewardable material.

Level 1 1–3 Displays isolated, superficial or imprecise knowledge and understanding of

economic terms, principles, concepts, theories and models.
Use of generic material or irrelevant information or inappropriate
examples.
Descriptive approach which has no chains of reasoning.
Level 2 4–6 Displays elements of knowledge and understanding of economic terms,
principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of the
question. Some evidence and contextual references are evident in the
answer.
Chains of reasoning in terms of cause and/or consequence are evident but
they may not be developed fully or some stages are omitted.

Level 3 7–8 Demonstrates accurate and precise knowledge and understanding of

economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using relevant
examples which are fully integrated to address the broad elements of the
question.
Analysis is clear, coherent, relevant and focused. The answer
demonstrates logical and multi-stage chains of reasoning in terms of
cause and/or consequence.
 Evaluation (6 marks) – indicative content

• Consumer confidence may remain low due to high inflation

• If interest rates don’t change, consumers may choose to save their income
• Increased government spending will further increase the government budget
deficit
• More demand will further increase inflationary pressure
• Spending on infrastructure may only increase employment levels by a small
amount
• Magnitude of changes in tax/spending
• Time lags of changing tax/spending
Level Mark Descriptor

0 No rewardable material.

Level 1 1–2 Identification of generic evaluative comments.

No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.

Level 2 3–4 Evidence of evaluation of alternative approaches.

Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.

Level 3 5–6 Evaluation recognises different viewpoints and/or is critical of the

evidence.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.
Question Evaluate the importance of productivity for the rate of economic growth in a
country.

Indicative content
13 Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the
general marking guidance.
The indicative content below exemplifies some of the points that candidates may
make, but this does not imply that any of these must be included. Other relevant
points must also be credited.

Knowledge, Application and Analysis (12 marks) – indicative content

• Productivity measures the efficiency of production. Usually measured as

output per worker/output per hour worked
• Economic growth is the increase in GDP of the economy
• High productivity increases the productive potential of the economy,
causing economic growth
• High levels of productivity cause increased incentives for businesses to
invest
• An increase in productivity could lead to an increase in LRAS and to a rise
in real output and to a fall in the price level A highly productive workforce
may increase the demand for labour and real wages, increasing
consumption and AD
• Higher productivity is likely to increase company profits and increase tax
revenue leading to more government spending and potential multiplier
effect on GDP
• High productivity may increase demand for exports improving the current
account of the balance of payments
Students may take alternative perspective

Diagrammatic analysis may be rewarded.

Level Mark Descriptor

0 No rewardable material.

Level 1 1–3 Displays isolated, superficial or imprecise knowledge and

understanding of economic terms, principles, concepts, theories and
models.
Use of generic material or irrelevant information or inappropriate
examples.
Descriptive approach, which has no chains of reasoning.

Level 2 4–6 Displays elements of knowledge and understanding of economic terms,

principles, concepts, theories and models.
Limited application of knowledge and understanding to economic
problems in context.
A narrow response or superficial, only two-stage chains of reasoning in
terms of cause and/or consequence.

Level 3 7–9 Demonstrates accurate knowledge and understanding of economic

terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of the
question. Some evidence and contextual references are evident in the
answer.
Analysis is clear and coherent. Chains of reasoning in terms of cause
and/or consequence are evident but they may not be developed fully
or some stages are omitted.

Level 4 10–12 Demonstrates accurate and precise knowledge and understanding of

economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using
appropriate examples which are fully integrated to address the broad
elements of the question.
Analysis is clear, coherent, relevant and focused. The answer
demonstrates logical and multi-stage chains of reasoning in terms of
cause and/or consequence.

Evaluation (8 marks) – indicative content

• Investment by businesses is based upon confidence not productivity

• Potential growth is influence by productivity whereas actual growth occurs
as a result of an increase in AD
• Increased productivity may only occur in the long run
• Magnitude of productivity/ depends on relative productivity
• Other methods may be better in achieving economic growth
• High consumption through demand-side policies
• May conflict with sustainability objectives

Level Mark Descriptor

0 No rewardable material.
Level 1 1–3 Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.

Level 2 4–6 Evidence of evaluation of alternative approaches.

Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.

Level 3 7–8 Evaluation recognises different viewpoints and/or is critical of the

evidence, leading to an informed judgement.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.
Question Evaluate the use of supply-side policies as a means of reducing unemployment.

Indicative content
14 Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the
general marking guidance.
The indicative content below exemplifies some of the points that candidates may
make, but this does not imply that any of these must be included. Other relevant
points must also be credited.

Knowledge, Application and Analysis (12 marks) – indicative content

• Definition of supply-side policies; policies used by the government to

increase LRAS
• Explanation of how specific supply-side policies may reduce unemployment
e.g.
spending on education and training may reduce structural unemployment
• Housing subsidies or increased provision of low-cost housing
• Improved information on job availability
• Encouraging business start-ups will increase demand for labour, if start-
ups are non-seasonal it may reduce seasonal unemployment
• Expenditure on infrastructure may increase the employment of
construction workers
• Deregulation of labour markets
• Reduction in welfare payments
• Reduction in income tax rates to increase incentives to work

Diagrammatic analysis may be rewarded.

Level Mark Descriptor

0 No rewardable material.

Level 1 1–3 Displays isolated, superficial or imprecise knowledge and

understanding of economic terms, principles, concepts, theories and
models.
Use of generic material or irrelevant information or inappropriate
examples.
Descriptive approach, which has no chains of reasoning.

Level 2 4–6 Displays elements of knowledge and understanding of economic terms,

principles, concepts, theories and models.
Limited application of knowledge and understanding to economic
problems in context.
A narrow response or superficial, only two-stage chains of reasoning in
terms of cause and/or consequence.

Level 3 7–9 Demonstrates accurate knowledge and understanding of economic

terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of the
question. Some evidence and contextual references are evident in the
answer.
Analysis is clear and coherent. Chains of reasoning in terms of cause
and/or consequence are evident but they may not be developed fully
or some stages are omitted.

Level 4 10–12 Demonstrates accurate and precise knowledge and understanding of

economic terms, principles, concepts, theories and models.
Ability to link knowledge and understanding in context using
appropriate examples which are fully integrated to address the broad
elements of the question.
Analysis is clear, coherent, relevant and focused. The answer
demonstrates logical and multi-stage chains of reasoning in terms of
cause and/or consequence.

Evaluation (8 marks) – indicative content

• Increasing aggregate demand may reduce cyclical unemployment

• Supply-side policies ineffective if AD is very low

• Government spending may cause a multiplier effect increasing demand for

labour

• Reducing income tax or VAT will boost consumption encouraging more firm
investment to increase supply reducing unemployment

• If confidence is low firms will not expand and not employ more labour

• Depends if the policy fits the nature of unemployment

• Firms may invest in capital intensive production which may reduce

employment
 • Government ability to spend maybe limited by income/deficit

• If incomes are rising, individuals might able to save and still consume
reducing potential for multiplier

• Magnitude of intervention

• Education may not lead to skills to fill job shortages/ increase

underemployment

• Opportunity cost of government expenditure on education and

infrastructure

• Crowding out from government spending

Level Mark Descriptor

0 No rewardable material.

Level 1 1–3 Identification of generic evaluative comments.

No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.

Level 2 4–6 Evidence of evaluation of alternative approaches.

Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.

Level 3 7–8 Evaluation recognises different viewpoints and/or is critical of the

evidence, leading to an informed judgement.
Appropriate reference to evidence/context.
Evaluation is supported by a logical chain of reasoning.