Mark Scheme (Results)
Summer 2017
Pearson Edexcel International Advanced
Subsidiary in Economics
(WEC02)
Paper 01 Macroeconomic Performance and
Policy
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Summer 2017
Publications Code WEC02_01_1706_MS
All the material in this publication is copyright
© Pearson Education Ltd 2017
General Marking Guidance
All candidates must receive the same treatment.
Examiners must mark the first candidate in exactly the
same way as they mark the last.
Mark schemes should be applied positively.
Candidates must be rewarded for what they have shown
they can do rather than penalised for omissions.
Examiners should mark according to the mark
scheme not according to their perception of where the
grade boundaries may lie.
There is no ceiling on achievement. All marks on
the mark scheme should be used appropriately.
All the marks on the mark scheme are designed to be
awarded. Examiners should always award full marks if
deserved, i.e. if the answer matches the mark scheme.
Examiners should also be prepared to award zero marks if
the candidate’s response is not worthy of credit according
to the mark scheme.
Where some judgement is required, mark schemes
will provide the principles by which marks will be awarded
and exemplification may be limited.
When examiners are in doubt regarding the
application of the mark scheme to a candidate’s response,
the team leader must be consulted.
Crossed out work should be marked UNLESS the
candidate has replaced it with an alternative response.
Section A: Supported multiple choice
NB: Candidates may achieve up to 3 explanation marks even if the incorrect
option is selected.
NB: Candidates may achieve up to 3 marks (rejected marks) for explaining
three incorrect options (provided three different reasons are offered and
each option key is clearly rejected).
Question Answer Mark
Number
1 Answer B (1 mark)
Explanation (up to 3 marks)
Definition of inflation: sustained increase
in the average price level (1)
Definition of fiscal policy: use of
government spending and taxation (to
affect aggregate demand) (1)
Increasing income tax will reduce
disposable income / consumer spending
(1)
Lower consumer spending reduces AD (1)
and demand-pull inflation (1)
Lower AD decreases average price level
and real output (1)
For correct diagram award up to 2 marks
showing decrease in AD impact on real
output and average price level
Rejection marks
A is incorrect because increasing interest
rates in an example of monetary policy
(1)
C is incorrect because increasing asset
purchases is an example of monetary
policy (1)
D is incorrect because an increase in
government spending on pensions would
increase AD and inflation (1)
(4)
Question Answer Mark
Number
2 Answer A (1 mark)
Explanation (up to 3 marks)
Definition of real (income): nominal
values such as income minus inflation
(1) OR
Definition of nominal (income): monetary
value without taking inflation into account
(1)
If inflation higher than increase in
nominal income then real income falls
(1)
Rising nominal and falling real incomes
means inflation rate higher than increase
in nominal income (1)
2% increase in nominal and 2.4%
decrease in real income suggest inflation
at 4.4% (1)
Rejection marks
B is incorrect because deflation would
increase real incomes if nominal incomes
remained constant or increased or
decreased at a lower rate than the rate of
inflation (1)
C is incorrect because if inflation rate was
lower than increase in nominal incomes,
real income would increase, not decrease
(1)
D is incorrect because falling real incomes
likely to reduce consumer spending (4)
rather than increase (1)
Question Answer Mark
Number
3 Answer D (1 mark)
Explanation (up to 3 marks)
Definition of investment: purchase of
goods that are not consumed today but
are used in the future to create wealth
(1) OR
Purchase new machinery, equipment, or
buildings in order to increase productive
capacity/increase in capital stock in an
economy (1)
Decreased confidence may result from
increased risks(1)
If firms are not confident of a return on
investment (1) they are likely to decrease
investment(1)
Rejection marks
A is incorrect because lower corporation
tax may increase profits of firm who may
invest some of these increased profits(1)
B is incorrect because increased consumer
spending may lead to higher profits for
firms. Firms may also increase
investment to meet rising demand (1)
C is incorrect because lower interest rates
make it less expensive for firms to borrow
for investment/act as a disincentive for
firms to leave capital unutilised(1)
(4)
Question Answer Mark
Number
4 Answer B (1 mark)
Explanation (up to 3 marks)
Definition of balance of payments on the
current account: record of all money
flows to and from a country arising from
exports and imports (1) (of goods and
services, transfers of income and other
net transfers)
Data shows negative balance in each
year/ therefore current account in deficit
(1)
Value of withdrawals (leakages) greater
than injections (1)
Withdrawals exceed injections means net
withdrawals from circular flow of income
(1)
For correct diagram award up to 2 marks
showing decrease in AD impact on real
output and price level
Rejection marks
A is incorrect because data shows net
withdrawal rather than net injection (1)
C is incorrect because the data suggests
imports>exports thus likely to reduce AD
OR net exports only one component of AD
so cannot tell from this data alone (1)
D is incorrect because net exports is a
component of aggregate demand/no
causal link between net exports and AS
(1)
(4)
Question Answer Mark
Number
5 Answer D (1 mark)
Explanation (up to 3 marks)
Definition or formula of per capita GDP as
GDP/population (1)
Year Total GDP Population GDP per
(US$ (Million) capita
billion) (US$)
2009 1 055 21.3 49530.5
2010 926 21.7 42672.8
2011 1 141 22.0 51863.6
2012 1 388 22.3 62242.2
2013 1 534 22.7 67577.1
3 marks for calculations which support the correct
key.
Rejection marks
A is incorrect because per capita GDP
decreased between 2009 and 2010 (1)
B is incorrect because per capita GDP was
lowest in 2010 (1)
C is incorrect because per capita GDP
increased between 2012 and 2013 (1)
NB Each rejection mark may only be awarded if
supported by a relevant calculation
(4)
Question Answer Mark
Number
6 Answer B (1 mark)
Explanation (up to 3 marks)
Definition of CPI: CPI is a weighted price
index/a weighted measure of the change in
the average price of a basket of goods (1)
Definition of deflation: sustained decrease in
the average price level (1)
CPI index falls from 103.8 in 2013 to 103.6
in 2014 indicating deflation (1)
Increase in CPI indicates increase in average
price level/decrease in CPI indicates a fall in
average price level (1)
Correct calculation of inflation rate in any
year (1)
Rejection marks
A is incorrect because the CPI falls from
2008-2009 and from 2012-2013 indicating
deflation rather than inflation (1)
C is incorrect because the CPI was 103 in
2011 (up 3% since 2010) but was 103.9 in
2012 (index has increased by 0.9) (1)
D is incorrect because there was deflation in
2009 – CPI was lower in 2009 than in 2008
(1) (4)
Question Answer Mark
Number
7 Answer A (1 mark)
Explanation (up to 3 marks)
AD components C+I+G+(X-M) (1)
Decrease in imports is a decrease in
leakages/withdrawals OR Net exports will
rise (1)
Therefore AD rises (1)
LRAS is independent of price level/shows
potential output (1)
Rejection marks
B is incorrect as decrease in investment
likely to decrease AD and shift curve
inwards/left (1)
C is incorrect as decrease in government
spending (G) likely to decrease AD and shift
curve inwards/left (1)
D is incorrect as advance in production
technology likely to increase potential output
and shift LRAS outward/right but not directly
impact AD (1) (4)
Question Answer Mark
Number
8 Answer C (1 mark)
Explanation (up to 3 marks)
Definition of multiplier: Either: an initial
change in an injection can have a much
greater final impact on the level of
equilibrium national income OR 1/(1-MPC)
OR ∆Y / ∆J (1)
Evidence of calculation:
£3.2 billion/£1.5 billion = 2.1 (2)
Injections of new demand for goods and
services into the circular flow of income
stimulate further rounds of spending (1)
This can lead to a bigger eventual effect on
output and employment (1)
Rejection marks
A is incorrect as the outcome would have
been £600 million - £1.5 billion x 0.4 (1)
B is incorrect as the outcome would have
been £2.55 billion - £1.5 billion x 1.7 (1)
D is incorrect as the outcome would have
been £7.05 billion - £1.5 billion x 4.7 (1)
(4)
Section B: Data response
Question Answer Mark
Number
9 (a) Knowledge and application (up to 6 marks):
Identifying possible causes/reasons for increased
consumer spending
Falling value of peso against US$(Extract 1)
increases value of remittances/money sent to
Mexico from USA (1+2)
Effect of increased tourism on local population
e.g. employment, income, consumption (1+2)
Rising real wages in Mexico, due to low inflation
(Extract 1), increases consumer spending (1+2)
Economic growth implies an increasing standard
of living leading to increased consumer spending
(1+2)
EITHER
Low interest rates (Extract 2) lowers cost of
borrowing and consumers are encouraged to
spend more (1+2)
OR
Low interest rates reduce the reward for saving
and consumers are encouraged to spend more
(1+2)
If only 1 reason given then maximum of 3 marks (6)
If more than 2 reasons given, reward the best 2
Question Mark
Number
9 (b)
(14)
Knowledge, application and analysis – indicative content
Consumer spending is a component of AD
Increase in AD may increase real output and
price level
Increased economic growth
Increased employment related to retail sector
Increase in MPC would cause an increase in the
value of the multiplier
Extract 2 suggests domestic firms competitive
due to value of peso thus increasing value of
multiplier
Candidates should produce diagram(s) showing
outward shift in AD
EG
One positive view may be presented as KAA and the
other viewpoint may be accepted as evaluation or
vice versa
Level Marks Descriptor
0 0 A completely inaccurate response.
1 1-3 Shows some awareness of possible impacts or
identification of one or more points.
Definition/understanding or data references.
Material presented is often irrelevant and lacks
organisation. Frequent punctuation and/or grammar
errors are likely to be present and the writing is
generally unclear.
2 4-6 Identification and some explanation of impacts
identified along with some development of analysis or
some identification of possible effects and data
references.
Material is presented with some relevance but there are
likely to be passages which lack proper organisation.
Punctuation and/or grammar errors are likely to be
present which affect the clarity and coherence.
3 7-8 Clear understanding and analysis of the economic
impact and data references
Material is presented in a relevant and logical way.
Some punctuation and/or grammar errors may be
found, but the writing is clear and coherent overall.
Evaluation – indicative content
Magnitude of increase in consumer spending
Time period – short-term then impact will
be less whereas long-term impact may be
greater
If consumer spending financed through
borrowing this may create problems in the
long-term
Growth may be inflationary (although
inflation relatively low)
Trend since 2012 (Figure 1) is low growth
thus impact on economic growth not
significant
Impact on rate of inflation depends on the
elasticity of the AS curve
Impact on AD depends on other
components of AD
Level Marks Descriptor
0 0 No evaluative comments.
1 1-2 For identifying evaluative comments without
explanation.
2 3-4 For evaluative comments supported by some reasoning
and relevant examples.
3 5-6 For evaluative comments supported by relevant
reasoning and relevant examples.
Question Answer Mark
Number
9 (c) Knowledge (2 marks):
Helps to meet objective macroeconomic stability
(1)
Low and stable inflation rate may facilitate real
wage growth / consumer spending (1),
economic growth (1), international
competitiveness (1) may make income
inequality redress measures easier (1)
Helps to avoid uncertainty created by high
inflation/deflation in the economy (1)
encouraging investment as firms can make
appraisal on the basis of clear expectations (1)
Uncertainty might create a collapse in
investment (1)
Target can be used as a tool to guide interest
rate decisions made by Central Bank (1)
If inflation judged too high, CB can increase
interest rates, and vice versa (1)
Improves the accountability and transparency of
monetary decisions by Central Bank (1)
Reduced inflationary expectations if people
believe a low inflation target will be met (1) (4)
This will then reflect in the wage demands of
people in work (1)
If employees expect low inflation they may be
prepared to accept a slower growth of pay (1)
Application (2 marks):
The 3% target gives monetary policy clarity (1)
“Low inflation helped to increase real wages and
consumer spending” (1)
Rate of inflation fell from 4.1% in December
2014 (1) to record low of 2.5% in August 2015
(1)
Question Mark
Number
9 (d)
(10)
Knowledge, application and analysis – indicative content
Peso value against US$ fell 2013-2014 (Figure
1)
Peso at record low 2015 (Extract 1)
Price of exports falls causing increase in
demand for Mexico’s exports
Price of imports rises causing decrease in
demand for imports
Net effect is an improvement in a current
account
More USA tourists (invisible export) boosting
AD
Higher value of income transfers from workers
in USA, increasing consumer spending and AD
Domestic firms’ price competitiveness
increased
One positive view may be presented as KAA and the
other viewpoint may be accepted as evaluation or
vice versa
Level Marks Descriptor
0 0 A completely inaccurate response.
1 1-2 Shows some awareness of impacts or data references
2 3-4 Understanding of impacts or some awareness of
impacts and data references
3 5-6 Clear understanding of impacts and linking to data
Evaluation – indicative content
Impact will depend upon time period – peso may
increase in value again
Impact will depend upon PED for imports and
exports
Other factors might affect the current account
such as real incomes, state of the world
economy, protectionism, non-price factors
Commodity prices (oil) may increase again,
increasing value of exports and currency
Value of imports as % of GDP greater than value
of exports as % of GDP in all years 2008-2014
(Figure 2)
Falling value of peso increasing costs of
(essential) imports leading to fall in
competitiveness of Mexico’s goods
Level Marks Descriptor
0 0 No evaluative comments.
1 1-2 For identifying evaluative comments without
explanation
2 3-4 For evaluative comments supported by relevant
reasoning
Question Mark
Number
9 (e)
(14)
Knowledge, application and analysis – indicative content
Objectives may include:
o stable low inflation
o economic growth
o low unemployment
o maintenance of balance of payments
o redistribution of income (reduction in
poverty)
o environmental protection
Examples of potential conflicts:
o Strong economic growth and low
inflation
o Low inflation and low unemployment
o Economic growth and protection of
environment
o Economic growth and stable balance of
payments
Analysis of how/why Mexico is/is not successful
in avoiding the conflict
Use of appropriate AD/AS diagrams to explain
impact on various indicators
Analysis that Mexico has avoided conflicts may be
presented as KAA and the other viewpoint may be
accepted as evaluation or vice versa
Level Marks Descriptor
0 0 A completely inaccurate response.
1 1-3 Shows some awareness of how policies may
impact/have impacted upon macroeconomic objectives
or identification of one or more points or data
references
Material presented is often irrelevant and lacks
organisation. Frequent punctuation and/or grammar
errors are likely to be present and the writing is
generally unclear.
2 4-6 Identification and some explanation of how policies may
impact/have impacted upon macroeconomic objectives
along with some development of analysis or some
identification of possible impacts and data references.
Material is presented with some relevance but there are
likely to be passages which lack proper organisation.
Punctuation and/or grammar errors are likely to be
present which affect the clarity and coherence.
3 7-8 Clear understanding and analysis of how policies may
impact/have impacted upon macroeconomic objectives
Material is presented in a relevant and logical way.
Some punctuation and/or grammar errors may be
found, but the writing is clear and coherent overall.
Evaluation – indicative content
If candidate has asserted that Mexico avoided
conflicts then evaluation should focus on areas where
they have been unsuccessful, for example:
Mexico may have avoided some conflicts but
not others
The long term situation may change
Avoidance of some conflicts/failure to avoid
may be due to other factors (e.g. strength of
US dollar) rather than Mexican government
intervention
Level Marks Descriptor
0 0 No evaluative comments.
1 1-2 For identifying evaluative comments without
explanation.
2 3-4 For evaluative comments supported by some reasoning
and relevant examples.
3 5-6 For evaluative comments supported by relevant
reasoning and relevant examples.
Question Answer Mark
Number
10 (a) Knowledge (2 marks):
The Human Development Index (HDI) is a
composite measure (1) consisting of
components of education, income and life
expectancy (1)
The education component of the HDI is
measured by mean of years of schooling for
adults aged 25 years and expected years of
schooling for children of school entering age (1)
The standard of living dimension is measured by
gross national income (GNI) per capita (1)
Application (2 marks):
HDI values range from 0 to 1 – the higher the
value, the more developed the country (1)
Finland’s GNI per capita has fallen since 2008,
particularly in 2012 to 2014 (1)
Finland’s HDI measure has remained steady at
0.88 throughout 2008 to 2014 (1)
Finland’s place in the world ranking of HDI has (4)
moved from 17th to 24th (1)
Question Mark
Number
10 (b) Knowledge and application (up to 6 marks):
Definition of recession: 2 consecutive quarters
of negative GDP growth/recession 2008/2012-
2014 (1)
Recession in Russia (biggest trading partner)
reducing demand for exports (1+2)
Net exports component of AD falls, thus AD falls
(1)
Failure of Nokia, large firm contributing to GDP,
falling real output (1+2)
Rising unemployment/ falling incomes, reduced
consumer spending as component of AD leads
to falling economic growth (1+2)
Current account deficit, resulting from falling
net exports, falling AD/ leakage from circular
flow of income, reducing economic growth
(1+2)
If only one cause award up to 3 marks
If more than 2 causes given, reward the best 2 (6)
Question Mark
Number
10 (c)
(14)
Knowledge, application and analysis – indicative content
Nokia used to contribute significantly to
economic growth (25% up to 2007)
Falling growth from loss of contribution of
Nokia to AD (falling exports and investment)
Falling SRAS (possibly LRAS) as Nokia output
falls
Negative impact upon incomes and consumer
spending
Rising current account deficit, decreasing net
exports leading to falling AD
Impact upon currency value – falling value of
currency makes imports more expensive,
increasing inflation
Accurate diagram showing fall in AD annotated
and explained in relation to lower real output
and falling average price level
And/Or
Accurate diagram showing fall in SRAS/LRAS
and explained in relation to lower real output
and rising average price level
Costs of decline of Nokia can be used as KAA and
possible benefits of decline can used as evaluation or
vice versa
Level Marks Descriptor
0 0 A completely inaccurate response.
1 1-3 Shows some awareness of possible impacts or
identification of one or more points. Understanding of
impact on growth and unemployment or data
references
Material presented is often irrelevant and lacks
organisation. Frequent punctuation and/or grammar
errors are likely to be present and the writing is
generally unclear.
2 4-6 Identification and some explanation of the impact on
growth and unemployment along with some
development of analysis or some identification of
possible effects and data references
Material is presented with some relevance but there are
likely to be passages which lack proper organisation.
Punctuation and/or grammar errors are likely to be
present which affect the clarity and coherence.
3 7-8 Clear understanding and analysis of the of impact on
growth and unemployment and data references
Material is presented in a relevant and logical way.
Some punctuation and/or grammar errors may be
found, but the writing is clear and coherent overall.
Evaluation – Indicative content
Economy may become less reliant upon one
firm
Impact will depend upon how long it takes for
other sectors to replace Nokia
Diversification of economy away from mobile
‘phones
Lower growth may reduce inflation, increasing
price competitiveness of other export industries
Reduction in crowding-out by one large firm
Other sectors of the economy may see less
competition for labour, lower costs and
increased international competitiveness
Investment in sectors other than
telecommunications
Level Marks Descriptor
0 0 No evaluative comments.
1 1-2 For identifying evaluative comments without explanation.
2 3-4 For evaluative comments supported by some reasoning and
relevant examples.
3 5-6 For evaluative comments supported by relevant reasoning
and relevant examples.
Question Mark
Number
10 (d)
(10)
Knowledge, application and analysis – indicative content
Waste of resources
Rising poverty and inequality
Rising government budget deficit through
decreased tax receipts (direct and indirect) and
increased government spending on benefits
Social effects (e.g. increased crime)
Net outward migration as workers seek
employment overseas
Emigration of skilled workers
Emigration of younger workers (decreasing
potential labour force and potential output)
Lower AD and lower trend growth
Possible deflationary spiral
Reference to data – falling GNI per capita,
lower HDI ranking (Figure 2) – low growth and
rising unemployment (Figure 1)
Diagram(s) - AD falling, lower real output and
falling average price level lined to
unemployment/employment
AS falling, lower real output and higher
average price level
Phillips curve – lower inflation and higher
unemployment
Costs of unemployment can be used as KAA and
benefits of unemployment used as evaluation or vice
versa
Level Marks Descriptor
0 0 A completely inaccurate response
1 1-2 Shows some awareness of effects or data references
2 3-4 Understanding of effects or some awareness of effects
and data references
3 5-6 Clear understanding of effects and linking to data
Evaluation – indicative content
Requires evidence of awareness of possible benefits
of unemployment (answer is not one sided)
Higher unemployment may reduce inflation
thus make Finnish economy more competitive
internationally
Higher unemployment may reduce wages and
costs for business improving efficiency and
international competitiveness
Contraction of inefficient sectors may make
economic growth more balanced (less reliant
upon Nokia)
Time scales - risk of deflation and stagflation
may only be short term and growth may return
in long-term
As Russian economy returns to growth, Finland
economy may also see renewed growth and
falling unemployment
Level Marks Descriptor
0 0 No evaluative comments
1 1-2 For identifying evaluative comments without
explanation
2 3-4 For evaluative comments supported by relevant
reasoning
Question Mark
Number
10 (e)
(14)
Knowledge, Application and Analysis – Indicative content
High costs of new benefit system (minimum
income guarantee) may result in reduced
government spending in other areas increasing
unemployment and reducing growth
Budget imbalance as spending exceeds tax
receipts may mean higher direct and indirect
tax reducing growth and increasing
unemployment
Increased government borrowing may crowd-
out private borrowing for investment
Disincentive to work from minimum income
guarantee may result in higher unemployment
Higher taxation required may decrease
disposable income for those in work, reducing
consumer spending and AD, real output and
average price level, thus reducing HDI
Higher taxation for firms may decrease SRAS
as costs rise, decreasing real output and
increasing average price level
Negative impact of minimum income guarantee on
growth and unemployment can be used as KAA and
possible positives can used as evaluation or vice
versa
Level Marks Descriptor
0 0 A completely inaccurate response.
1 1-3 Shows some awareness of possible effects or
identification of one or more points. Understanding of
impact on growth and unemployment or data
references
Material presented is often irrelevant and lacks
organisation. Frequent punctuation and/or grammar
errors are likely to be present and the writing is
generally unclear.
2 4-6 Identification and some explanation of the impact on
growth and unemployment along with some
development of analysis or some identification of
possible effects and data references
Material is presented with some relevance but there are
likely to be passages which lack proper organisation.
Punctuation and/or grammar errors are likely to be
present which affect the clarity and coherence.
3 7-8 Clear understanding and analysis of the of impact on
growth and unemployment and data references
Material is presented in a relevant and logical way.
Some punctuation and/or grammar errors may be
found, but the writing is clear and coherent overall.
Evaluation – indicative content
Maintain or increase living standards for low
income groups and/or unemployed
Redistribute income/reduce income
inequality
Reduce gap between high and low income
groups
Significant saving in administration costs of
benefits system may be used by
government in other areas
May increase HDI ranking if increases GNI
per capita
Alternatively, may be no impact on HDI
ranking or GNI per capita as guaranteed
income scheme is a redistribution of income
rather than a net increase
No net effect on government revenue or
spending, since taxation system changes
increase revenue to offset any additional
expenditure on guaranteed income scheme
Reduce some of the wider costs of
unemployment e.g. crime
Is 800 Euros the correct level? If too much,
acts as disincentive to work. If too little,
may not improve crime levels/social issues
May boost AD as low income groups have
higher MPC than higher income groups –
i.e. increase value of multiplier
May increase creativity and enterprise in
economy as more small businesses are
started as risk is offset by minimum income
guarantee
Level Marks Descriptor
0 0 No evaluative comments.
1 1-2 For identifying evaluative comments without
explanation.
2 3-4 For evaluative comments supported by some reasoning
and relevant examples.
3 5-6 For evaluative comments supported by relevant
reasoning and relevant examples.
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