A LEVEL ECONOMICS. ECON4/Unit 4 The National and International Economy Report on the Examination June Version: 1.0

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1 A LEVEL ECONOMICS ECON4/Unit 4 The National and International Economy Report on the Examination 2140 June 2014 Version: 1.0

2 Further copies of this Report are available from aqa.org.uk Copyright 2014` AQA and its licensors. All rights reserved. AQA retains the copyright on all its publications. However, registered schools/colleges for AQA are permitted to copy material from this booklet for their own internal use, with the following important exception: AQA cannot give permission to schools/colleges to photocopy any material that is acknowledged to a third party even for internal use within the centre.

3 Unit 4: The National and International Economy (ECON4) General It was encouraging to see that most scripts demonstrated that high quality teaching and learning is taking place in most centres. Teachers have developed good practices and strategies to develop wider understanding, going beyond the curriculum in some instances. Focus on exactly how to answer questions is also a key feature taken from the marking in this series. Students generally have spent equal amounts of time on Sections A and B and are clearly being coached better in their time management with very few running out of time. Students have increasingly related issues raised in the media or political issues in their answers and most demonstrated a good awareness of events in the wider world. Although questions are designed to give equal access to all and provide fair coverage of the specification, it is inevitable that some students choose questions based upon their particular strengths and avoid others where they feel less confident. This was particularly apparent in the very low numbers of students choosing Questions 09 and 10 which assessed students understanding of exchange rates. In terms of the context questions, there was almost an even split between students choosing the Global Context and the European Context, although, students marginally preferred the latter. In the essays, the majority of students opted for Questions 07 and 08, although, 11 and 12 were also quite popular. Questions 09 and 10 were only answered by less than 10% of students. It is encouraging that most students are developing their skills of application in the context questions, although, students are encouraged to spend more time reading the extracts before a choice of context is made. One thing that did become apparent in a number of responses, is that, when using AD/AS analysis, students would have benefitted from using Keynesian AS curves to illustrate issues to benefit discussions of output gaps, spare capacity and trade-offs. All too often they opted for straight-line AS curves which inhibited analysis and evaluation of issues. Context 1 The Global Economy Question 1 Students were asked to perform a relatively straightforward calculation and then identify a significant comparison. Most students did not find this a problem and 41% were awarded full marks. However, mistakes were made in terms of students misinterpreting the question and finding the differences in each year rather than looking at the whole period. The mean for this question was Question 2 Very few students were able to define accurately the term price level, often confusing the term with price. Few students were awarded the full four marks available for the explanation. In terms of the analysis, there was a divide between those students who understood issues such as the Fisher equation or the process of quantitative easing, and those students who simply tried to link issues to falling interest rates without explaining how this was occurring. Many students were not awarded full marks as they could not explain accurately the link between the increase in the money supply and the increase in the price level. The mean for this question was of 7

4 Question 3 In general, students were able to answer this question quite well. However, some were confused as to what was meant by the global economy and focussed solely on UK inflation which limited their marks. Other answers chose to analyse the effects on all areas of the macroeconomy rather than focussing on the balance of payments. Weaker answers also failed to consider the differing effects on different parts of the balance of payments, many focussing solely on the current account, which again limited the marks that could be awarded. Centres appear to be encouraging application by getting students to quote data which is to be encouraged as is students bringing in their own wider knowledge of recent events. The mean for this question was Context 2 The European Economy Question 4 As with Question 01, this question involved a calculation and then, on this occasion, identifying a significant feature. The calculation was answered better than in Question 01 with almost 59% gaining full marks. However, minor errors are still being made, such as leaving off the units or not working to the nearest whole number. The mean for this question was 4.1. Question 5 Most students were able to explain the term export-led multiplier by either defining exports and then the multiplier or describing how increased exports could create a larger than proportionate increase in real national income through employment etc. Most students were also able to identify two distinct reasons as to why exports to the EU might increase. However, many students made the mistake of using the absence of tariffs which on its own is a historical reason why exports increased in the past but, in the context of the question, could not be used to explain the recent increase to the EU. Some students also ignored the EU aspect of the question and opted for explanations of other countries outside of the EU. In terms of diagrams, many students were able to draw accurate currency diagrams or diagrams which demonstrated the LRAS shifting to the right. However, many students opted for the effects of increased exports (in terms of AD increasing) which were not what the question required. The mean for this question was Question 6 This question proved very topical and many students were able to write up-to-date answers based on recent media reports and for some, even examples from their local area. Students often cited arguments about trade creation, trade diversion, immigration, effects on public services and the effects on the macroeconomic indicators and, in general, used the extracts to a greater degree than those answering Question 03. Some misunderstood the nature of the costs to the UK and assumed that the 65bn referred to a fee that the UK government had to pay. Stronger answers identified the fact it was difficult to compare the experiences of others outside of the EU, such as Norway, and that it was very difficult to judge whether the UK should leave the EU when similar events have never happened before. The mean for this question was of 7

5 Essay 1 Question 7 Students were able to gain four marks for defining correctly budget deficit and fiscal policy. Many students also accurately referenced relevant UK data regarding budget deficits. Further to this, most students accurately developed answers which analysed reasons why reducing government spending may be favourable and used relevant diagrams such as the Laffer curve. However, some of these diagrams were disappointing and incomplete in terms of co-ordinates not being labelled, and some answers did not explain the principles behind the curve. Further to this, some students opted to counter argue the issue, explaining why increased taxation might be more beneficial, which was not what the question required. The mean for this question was Question 8 Many students failed to pick up on the long-run nature of the question and opted for short-run analysis and discussion. Some students assumed that a reduction in the budget deficit now, meant that the government would then just increase its spending in the future. Too few students considered the issues regarding debt reduction, crowding out/in, debt interest or equity issues. Stronger answers identified these issues and discussed trade-offs in the short run and costs/benefits in the long run of government policies. Weaker answers tended to focus their answers on issues discussed in Question 07, of the costs and benefits of the methods, which although relevant, were not the only aspects that needed to be discussed. The mean for this question was Essay 2 Question 9 Although this question was answered by far fewer students than the other essays, those who attempted this question tended to pick up marks quite quickly. Most students successfully explained various issues such as trade flows, investment or speculative hot-money flows as reasons for currency appreciation or depreciation. Many students were able to draw diagrams which illustrated the effects and causes. It was clear that some centres have used past examination questions to their advantage by preparing students with similar questions. It was also good to see that most students are now splitting their issues into separate arguments and using firstly, secondly, etc, finally to clearly define where issues start and end. The mean for this question was 11.8 Question 10 Again, this question had quite a varied response. Many who had gained full marks in Question 09, successfully used their knowledge to analyse the advantages of having free floating exchange rates in obtaining stability. Equally, stronger answers were able to assess the relative merits of fixed or managed systems and recent world, and particularly UK experiences. Students were also able to evaluate the relative importance of exchange rates in terms of stability. Weaker answers often made large assumptions regarding exchange rates and often failed to consider the stability part of the question. In terms of diagrams, there was some appreciation of the J-curve and knowledge of the Marshall Lerner condition which was encouraging. It is also apparent that students in some centres still confuse balance of payments and government budgets, which led to some very low marks being awarded on occasions. The mean for this question was of 7

6 Question 11 This proved to be the most successfully answered of all the 15 mark questions. Many students correctly identified, either endogenous shocks, or exogenous shocks (almost all opting for oil price rises for supply-side shocks) and then developing analysis in terms of effects on growth. The majority of students successfully differentiated between supply-side and demand-side shocks although there was overlap on occasions with students beginning analysis of a supply-side issue, only to draw AD falling with no subsequent analysis as to why this would happen. Most students were able to identify what a shock was although many did not opt to define economic growth, which resulted in very few students picking up full marks in the explanation at the start. The mean for this question was Question 12 This question proved to provide the best responses in terms of the 25 mark essay questions. Many students provided wider knowledge of current affairs and economic issues and examples of the growing global economy. Stronger answers identified issues which also affected individuals and related factors such as quality of life and standards of living to their answer. Some students confused world economic growth with the opening up of new markets. Others did not fully consider world economic growth and focussed solely on the UK. Stronger answers developed issues and evaluation regarding where world economic growth was occurring and its likely effects on the UK in the long run. It was clear that weaker answers did not fully consider the effects of economic growth on individuals in terms of quality of life factors and merely linked the individuals aspect to issues regarding employment. The mean for this question was Concluding remarks It is clear that many centres are spending more time on developing exam skills and techniques and also getting students to focus much more on the questions, however the following points are worth repeating to remind centres of good practice: ECON 3 and ECON 4 are both synoptic papers, although knowledge and understanding will generally focus on mainly microeconomic issues in ECON 3 or macroeconomic issues in ECON 4, there may well be issues raised which cross over into both. Students should be encouraged to take their time and read questions carefully before commencing answers. Planning should be encouraged. Application is important in the context questions; references and use of data should lead to better answers and higher marks. Ongoing interest in current economic affairs and issues will enhance students answers. Diagrams are good in aiding answers but they should be clear, with written reference explaining the diagram in the text or close to the diagram. Recent UK data is very useful. Marks are available on 10 mark questions and 15 mark questions for reference to the UK. It is clear that the most successful centres clearly pay time and attention in improving classroom practice by using past papers and answers but also by using past examiners reports to highlight good, and on occasions bad, practice. 6of 7

7 Mark Ranges and Award of Grades Grade boundaries and cumulative percentage grades are available on the Results Statistics page of the AQA Website. Converting Marks into UMS marks Convert raw marks into Uniform Mark Scale (UMS) marks by using the link below. UMS conversion calculator 7of 7