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"Three grand essentials to happiness in this life are something to do, something to love and something to hope for." - Joseph Addison" - The_god_damned


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AQA AS Economics Unit 2

The National Economy

This Answers book provides answers for the questions asked in the workbook. They are intended as a guide to give teachers and students feedback. The candidate responses for the longer essay-style questions are intended to give some idea about how the exam questions might be answered. The examiner commentaries (underlined text) have been added to give you some sense of what is rewarded in the exam and which areas can be developed. Again, these are not the only ways to answer such questions but they can be treated as one way of approaching questions of these types.

Topic 1 Macroeconomic performance

1 Any two of the following examples: control of inflation; economic growth; low unemployment; long-term equilibrium on the balance of payments; a fair distribution of income and wealth. (2 marks)

2 Any two of the following examples: the fiscal policy instruments of taxation and government expenditure; the monetary policy instruments of bank rate and quantitative easing; the exchange rate. (2 marks)

3 Fiscal policy refers to the government’s ability to raise tax revenue and spend money in the economy to influence the level of aggregate demand, or to achieve some other policy objective. There are three fiscal policy positions that a government can hold at any one time:

  1. First, a budget deficit, which occurs when government spending exceeds tax revenues.

  2. Second, a budget surplus, which occurs when tax revenues are greater than government spending.

  3. Third, a balanced budget, which occurs when government spending and tax revenues are equal.
      (3 marks)

4 Monetary policy refers to the way in which monetary policy instruments such as Bank Rate are used to manage overall economic activity in the economy. In the UK monetary policy is implemented by the Monetary Policy Committee of the Bank of England to achieve the inflation target set out by the chancellor of the...


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