WEC02 01 Rms 20180815

Mark Scheme (Final)
Summer 2018
Pearson Edexcel IAS

In Economics (WEC02)
Paper 01 Macroeconomic Performance and Policy
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Summer 2018
Publications Code WEC02_01_1806_MS
All the material in this publication is copyright
© Pearson Education Ltd 2018
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 for (rejected marks) explaining three
incorrect options (provided three different reasons are offered and each option
key is clearly rejected).
Question Answer Mark

Number
1 Answer C (1 mark)
Explanation (up to 3 marks)

 Interest rate is the price paid for
borrowing money/reward for saving OR
Identifying this is an example of
expansionary monetary policy/ demand
side policy OR 0.25% decrease will lower
cost of borrowing/0.25% decrease will
lower reward for saving (1)
 More borrowing and spending may
increase AD due to higher
consumption/investment increasing real
output and reducing unemployment OR
lower saving may increase AD as saving
is withdrawal from circular flow of income
(1)
 Lower saving and higher spending would
increase AD which would increase real
output and decrease unemployment (1)
Accurate AD/AS diagram showing outward
shift in AD award up to 2 marks
Rejection marks
 A is incorrect as economic growth likely
to be higher with more spending/
investment/lower saving (1)
 B is incorrect as lower interest rates may
increase AD due to higher consumption
and investment (1)
 D is incorrect as in short run lower rates
impact upon AD however in long run may
increase LRAS (1) (4)
Number
2 Answer A (1 mark)

 LRAS a measure of a country’s/economy’s
potential output OR also known as the full
employment level of output (1)
 Rail link will improve infrastructure to allow
for better transportation linkages in the
economy OR transport infrastructure is what
enables economic activity to take
place/facilitate the movement of goods and
people (1)
 This increases efficiency of economy raising
productive potential/LRAS OR Increased
LRAS is equivalent to an outward shift of the
PPC curve (1)
 Raises productivity through increased
efficiency, increasing LRAS OR Increases
mobility of labour, raising LRAS (1)
 Investment also component of AD (1)
 Increased investment increases AD/shifts AD
curve right/outwards (1)
For correctly labelled diagram showing
outward shift in LRAS and/or AD award up to
2 marks
Rejection marks
 B is incorrect as withdrawals are savings,
taxes and imports and injections are
investment, government spending and
exports/rail investment is an
injection not a withdrawal (1)
 C is incorrect as rail project will not increase
size of labour force although it may reduce
geographical immobility, unemployment (1)
 D is incorrect as investment in
infrastructure likely to increase AD because
G and I are components of AD OR
investment likely to increase LRAS (1)
(4)
Question Mark Mark
Number
3 Answer D (1 mark)

 Consumption component of AD where AD =
C + I + G + (X-M) (1)
 Economic growth caused by increase in AD
or SRAS/LRAS (1) OR inflation either
demand-pull (AD) or cost-push (AS) (1)
 Falling household consumption therefore
results in lower AD and lower growth (1)
 Lower consumption therefore results in
reduced demand-pull inflation (1)
 Award 2 marks for AD/AS diagram showing
impact of leftward shift in AD curve on real
output and price level
Rejection marks
 A is incorrect because lower household
consumption may reduce demand for
imported goods/services and decrease
inflation (1)
 B is incorrect because lower household
consumption and lower AD may reduce
growth and decrease tax receipts (1)
 C is incorrect because lower household
consumption may have no effect upon
exports although it may reduce tax receipts
(1) (4)
Number
4 Answer C (1 mark)

 Identification of policy as aspect of monetary
policy (1)
 Asset purchases increase the cash reserves
of the banks (1) OR transfer of new money
from ECB to commercial banks (1)
 Increasing banks’ ability to lend to
businesses and individuals, thereby
increasing the money supply (1)
 Likely impact upon interest rates – i.e. lower
interest rates (1)
 Diagram showing increase in AD as outcome
(1)
Rejection marks
 A is incorrect because any increase in bank
lending through newly created money
(“money printing”) may increase the money
supply and increase AD, increasing inflation
(1)
 B is incorrect because an increase in the
supply of euros is more likely to depreciate
the value of the currency in a free floating
exchange rate system (1)
 D is incorrect because although the aim was
to maintain/increase liquidity in credit
markets, one of the consequences may have
been to keep business running,
maintaining/increasing output (1) (4)
Number
5 Answer B (1 mark)

 Definition of HDI: a composite indicator or
measure of life expectancy, education, and
income indices (1)
 The higher the index the higher the level of
development (1)
 GNI per capita does not tell us about quality
of life/living standards (1)
 Iceland’s higher HDI index and lower GNI
per capita (1) would suggest that Iceland
must have higher standards of education
and/or health than USA (1)
Rejection marks
 A is incorrect because the HDI index for
Iceland is 0.846 (closer to 1.0) and USA
0.760. Iceland thus has higher human
development on this measure as it is closer
to 1.0 (1)
 C is incorrect because the HDI and GNI per
capita does not include energy consumption
in the calculation/cannot be deduced from
data (1)
 D is incorrect because the HDI and GNI per
capita does not include access to mobile
phone in the calculation/cannot be deduced
from data (1) (4)
Number
6 Answer A (1 mark)

 AD components C+I+G+(X-M) OR definition
of AD OR definition of net exports (1)
 Decrease in imports ceteris paribus is a
decrease in leakages/withdrawals OR Net
exports will rise (1)
 Therefore AD increases/AD curve shifts
outwards (1)
Rejection marks
 B is incorrect as decrease in investment
likely to decrease AD and shift curve
inward/left (1)
 C is incorrect as decrease in government
spending (G) likely to decrease AD and shift
curve inward/left (1)
 D is incorrect as a decrease in labour
productivity likely to shift SRAS to the left
OR decrease potential output and shift LRAS
to the left (1) (4)
Number
7 Answer D (1 mark)

 CPI is a price index weighted by a basket of
goods and services OR Inflation a sustained
rise in the average price level (1)
 In 2014 CPI 2.8% and in 2015 CPI 0.9 %
OR Inflation in both years (1)
 The average price level was still rising in
2015 (1) but at a slower rate than in 2014
(1)
Rejection marks
 A is incorrect as disinflation/falling rate of
the average price level increase not deflation
in 2014-2015 (1)
 B is incorrect as inflation in 2013-
2014/average prices rising at increasing rate
(1)
• C is incorrect as average price level in 2011
was lower than 2009, due to deflation/falling
average price level between 2009-2011 (1) (4)
Number
8 Answer C (1 mark)

 An example of business regulation e.g.
health and safety or increased pension
provisions negatively impacts on firms
through higher costs for firms (1)
OR
 More regulation likely to decrease
efficiency/productivity producing fall in real
output (1)
 Decreased efficiency likely to shift LRAS
left/inwards (1)
 Explanation that more regulation leads to
inward shift in LRAS (1) higher average
price level and fall in real output (1)
OR
Up to 2 marks for correctly annotated diagram or
own diagram (inward shift in LRAS with decreased
real output and higher average price level labels)
Rejection marks
 A decreased efficiency likely decrease real
output not increase it (1)
 B decreased efficiency likely increase
average price level not decrease it/decrease
real output not increase it (1)
 D decreased efficiency likely increase
average price level not decrease it (1)
(4)
Section B: Data response
NB: KAA marks relates to those awarded for AO1, AO2 and AO3
NB: Evaluation marks relates to those awarded for AO4

Number
9 (a) Knowledge (Up to 2 marks)
 Definition of balance of trade: value of exports-
value of imports (1)
 Positive figure is a balance of trade surplus (1)
 Negative figure is a balance of trade deficit (1)
Application (Up to 2 marks)

 $2.51bn (exports) -$3.26bn (imports) (1)
Balance of trade =-$0.75bn (1)
The correct answer is to be awarded full marks
– must include currency unit, be negative and
presented in billions (bn)
- If the correct answer is not given then other
(4)
awarding points must be considered
Question Mark
Number
9 (b) (10)
Knowledge, application and analysis - indicative content
 Balance of trade defined as value of exports
minus value of imports (net exports)
 Main export is nickel (22.7% of exports)
 Main import petroleum (19% of imports)
 Both products are commodities and subject to
(global) price fluctuations
 Commodity is any product traded on the
international commodity market
 Increase in price of petroleum compared to
price of nickel will increase balance of trade
deficit
 Rising petroleum costs may increase costs for
mining in Madagascar, reducing profits and/or
competitiveness of nickel exports and
increasing balance of trade deficit
 Demand for nickel dependent upon growth in
steel producing export destinations such as
France, USA, Belgium, Luxembourg, Germany,
South Africa
 Reduced balance of trade deficit may increase
AD, economic growth and average price level
Negative impacts on balance of trade can be
used for KAA and positive impacts for
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
conflicts and data references.
3 5-6 Clear understanding of impacts and linking to data.
Evaluation – indicative content
 Decrease in price of petroleum compared
to price of nickel will decrease balance of
trade deficit
 Rising nickel prices may increase value
of currency creating a negative impact
upon other sectors e.g.
vanilla/agriculture
 Rising nickel prices, derived from
increasing from export destinations,
may reduce a balance of trade deficit
 Rising nickel prices and consequent
increase in AD may increase rate of
inflation
 Impact will depend upon PED and PES
for petroleum and nickel
0 0 No evaluative comments.
1 1-2 For identifying evaluative comments without
explanation.
2 3-4 For evaluative comments supported by relevant
reasoning.

Number
9 (c)
Up to 3 marks from:
 Inflation impacts upon consumers if nominal
incomes rise more slowly than average prices (1)
 Falling real incomes (1)
 Inflation impact consumers on low or fixed incomes
more than those on high incomes (1)
 Consumers likely to increase spending in the short-
run due to expectations of rising prices (1)
 Consumers may choose to buy cheaper, imported
goods rather than domestic goods (1)
 Consumers may see falling living standards as
inflation means they can afford less goods with
their incomes (1)
Up to 3 marks from:
 Inflation is above 6% throughout time series (1)
 Highest rate is 9% 2008-2011 (1)
 Lowest 6% 2012-2014 (1)
 Prices rising throughout years 2008-2015 (1)
Award a mark for any other valid data references (6)

Question Mark
Number
9 (d) (14)
Discussion of living standard might include reference
to:
 Rising GNI/GDP per capita
 Higher mean/median incomes
 HDI (education and health indices)
 Access to clean water
Discussion of mining investment might include:

 Increased investment, increasing AD and
economic growth leading to higher GNI/GDP
per capita
 Increased employment/decreased
unemployment leading to rising incomes and
consumption
 Rising incomes and consequent higher living
standards through consumption
 Increasing export revenues increasing national
income and employment
 Increasing tax revenues for Government
(direct and indirect tax) for investment in
infrastructure such as clean water or education
 Positive multiplier effect in incomes
 Investment in infrastructure, increasing LRAS
and potential for development
 Investment in human capital (training)
increase employment and sustainable rise in
living standards
Data references include:

 Sustainable rates of economic growth 2008-
2015, with 2009 showing negative economic
growth (Figure 1)
 Relatively stable, low inflation compared to
many other developing economies (Figure 1)
 Diversify employment as 75% in agriculture
(Extract 1)
 Improve balance of trade (Figure 2)
 Help to pay for essential imports of oil and rice
(Figure 2)
 Decreases dependency upon volatile
agricultural markets (Extract 1)
Responses may include relevant AD/AS diagrams
should as outward shift in AD, higher growth and
employment and/or outward shift in LRAS, higher
growth and employment
Positive impact of investment on living

standards can be used for KAA and negative
impacts for evaluation or vice versa

1 1-3 Shows some awareness of possible impact or
identification of one or more impacts. Understanding of
causes 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 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 the impacts 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.
Here we are looking for balance in the response –
that the response is not one-sided
 Growth may increase inflation, which may
increase inequality
 Benefits of growth may be unequally spread
(rising GDP and GNI may not mean higher
living standards for many)
 Environmental costs (pollution)
 Loss of land for farmers
 Reliance upon volatile commodity markets
 Rising exports may appreciate currency, make
exports more expensive and decrease demand
for goods from other sectors
 Higher incomes may increase demand for
imports, worsening current account balance
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
9 (e) (14)
Discussion of policies might include:
 Demand-side policies: fiscal policy taxation and
spending; monetary policy (including exchange
rates)
 Supply-side policies: free-market and
interventionist
Discussion of demand-side policies might include:

 Used to shift the AD curve right (expansionary
policies)
 Government could reduce direct taxes and
increase its spending
 May help to solve disequilibrium unemployment
(demand-deficient unemployment)
 Government could decrease interest
rate/increase the supply of money to increase
AD
Supply-side policies might include:

Interventionist policies:
 Education and training to raise levels of human
capital/make labour more flexible to cope with
changing structure of economy
 Research and development (R&D) to develop
new technologies or production techniques
improve efficiency
 Improved infrastructure to allow for better
transportation linkages in the economy; better
telecommunications linkages in the economy;
 Reduction in direct taxes (income tax)
 Reduction in direct taxes on firms (corporation
 tax)
 Labour market reform may including reduction
in trade union power/reduction in minimum
wages/reduction in unemployment benefits
 Deregulation/privatisation and competition
policy

 Sustainable rates of economic growth 2008-
2015 (Figure 1)
 Relatively stable inflation (Figure 1)
 Diversify employment as 75% in agriculture
(Extract 1)
 Improve balance of trade (Figure 2)
 Help to pay for essential imports of oil and rice
(Figure 2)
 Decreases dependency upon volatile
agricultural markets (Extract 1)
Positive impacts of policies can be used for KAA
and negative impacts for evaluation or vice
versa

1 1-3 Shows some awareness of possible policies or
identification of one or more policies. Understanding of
policies or data references
generally unclear.
2 4-6 Identification and some explanation of policies identified
along with some development of analysis or some
identification of possible policies 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 policies and data
references. Material is presented in a relevant and
overall.
Here we are looking for balance in the response –
that the response is not one-sided
 Interventionist supply-side policies are costly
so there is an opportunity cost for the
government
 May only be effective over the longer term
 Tax incentives - may be less income for
government
 A lower level of trade union power is likely to
result in (even) less job security and worsening
conditions for workers
 Deregulation negative effects on labour or the
environment
 Demand side policies involve a trade-off.
 Usually, if inflation is improved, unemployment
gets worse and vice versa.
relevant examples.
Number
10 (a) Knowledge (Up to 2 marks)
 Definition of annual percentage change in
real GDP per capita: Increase/decrease in
the ratio of GDP to population (1)
 Real means adjusted for inflation (1)
 Can be caused by increase in GDP and less
than proportionate increase in population
(1)
 GDP per capita is GDP divided by the
population of a country OR GDP per person
(1)
Application (Up to 2 marks)

 Figure 1: GDP per capita growth fluctuates
(1) throughout 2008-2016 (1)
 Use of Figure 1 data:
 Growth of 1.5% in 2012 (1)
 Very low growth/zero growth forecast in
2016 (1)
 Negative growth 2008-2011 (1)
(4)
Question Mark
Number
10 (b) (10)
Discussion of human development might include
reference to:
 GNI/GDP per capita
 Mean/median incomes
 HDI (education and health) – GNI per capita is
included in the HDI
 Causes of GDP growth increase/decrease in AD
components or AS (SRAS and LRAS)
 Causes of GDP per capita growth,
increase/decrease in GDP growth and/or
changes in population size
 Impact may depend upon the causes:
 If low/negative GDP growth then less wealth
and income, rising unemployment
 If rising population then less wealth and
income spread across population as a whole
Data references may include:
 Low rates of GDP per capita growth do not
necessarily mean falling human development
 GDP per capita does not tells us about the
distribution of wealth or income
 Low rate of growth may be have been
distributed equally in Norway, therefore human
development may still be high for the majority
 One of the most equal countries in the world
 Security in the labour market
 No minimum wage but high trade union
membership
 Highest cost of living in Europe
 Low rates of growth (negative growth)
counteracted by redistribution so human
development may not decrease
 Other indicators such as health and education
as important in determining human
development

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.
 Here we are looking for development and
evidence of judgement as to the most
significant effects
 Education and healthcare may be of a high
standard even though GDP per capita growth
but may not be maintained if GDP does not
grow or decreases
 Rising unemployment 2008-2016 (official
figures) may mean more citizens live in relative
poverty
 High unemployment not included in official
figures (Extract 2) may mean human
development is falling for people not classed as
unemployed
 High costs of free universal healthcare may not
be sustainable without continued GDP growth
 Expensive supply-side policies have to be
funded and may mean increasing costs for
firms through corporate tax
 Higher wages, to cover high costs of living,
may mean higher costs for firms reducing
SRAS and lower investment reducing LRAS and
human development
1 1-2 For identifying evaluative comments without
explanation.
2 3-4 For evaluative comments supported by relevant
reasoning.
Question Mark
Number
10 (c) (14)
 Unemployment defined as where person
actively seeking work but unable to find
suitable employment
Impact may include:
 Waste of resources
 Poverty
 Rising government budget deficit, decreased
tax receipts (direct and indirect) and increased
government spending on benefits/welfare
 Social effects (e.g. increased crime, increased
suicide, net migration) with explanation of their
negative impact on the economy
 Risk of deflation
 Loss of potential output
 Loss of skills or human capital

 Unemployment rising between 2008-2016 from
less than 2.5% to 5%
 Government provision of work experience,
training
 Norway pays unemployment benefits
Accurate diagram showing decrease in AD or
decrease in LRAS causing increase/decrease in
average price level and rise in real output
Negative impacts of rising unemployment can

be used for KAA and positive impacts for
evaluation or vice versa
1 1-3 Shows some awareness of possible effects or
identification of one or more effects. Understanding of
effects or data references
generally unclear.
2 4-6 Identification and some explanation of effects 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 effects and
overall.

 Here we are looking for development and
evidence of judgement as to the most
significant effects
 Higher unemployment may reduce inflation
thus make Norway’s economy more
competitive internationally (currently high cost
of living)
 Higher unemployment may reduce wages and
costs for business
 Impact upon AD may depend upon size of
(negative) multiplier
 Reference to the magnitude of unemployment -
particularly that the (official rate) remains low
by international standards
 Welfare state is developed in such a way to
reduce some of the social costs of
unemployment
 Official figures may not be accurate as exclude
other members of potential workforce
 Unemployment may be higher than official
figures suggest

relevant examples.
Number
10 (d)
Up to 3 marks from:
 Supply side policies are designed to increase long-
run aggregate supply (LRAS)/potential
output/potential capacity (1)
 Increase the full employment level of output (1)
 Policies intended to increase quantity and quality of
inputs, including labour (1)
 Policies to increase productivity/efficiency, lower
costs for firms and increase SRAS and/or LRAS (1)
 Accurate diagram showing outward shift in LRAS
award up to 2 marks
Up to 3 marks from:
 More focused qualifications (1) to help people
move into specific jobs (1)
 Investment in education and training (1) to
facilitate occupational mobility (1)
 Job practice schemes (1) to maintain or improve
skills (1)
 No minimum wage (1) reducing regulation (1)
 Workplace democracy (1) to improve decision
making and raise productivity (1)
 Free universal healthcare (1) improving health of
workforce, reducing absenteeism and raising
productivity (1)
 Reduced income inequality (1) increasing
motivation and productivity of workforce (1)
(6)
Question Mark
Number
10 (e) (14)
Redistribution of income a macroeconomic objective
Other objectives may include:
 Increased economic growth,
 Control of inflation
 Reduction in unemployment
 Equilibrium of the Balance of Payments
 Balanced budgets
 Protection of the environment
Potential conflicts might include:

 Increased growth may be less likely due to lack
of incentive to work caused by benefit system
 Balanced budgets if welfare spending is high
 High union membership may increase wages
and costs for firms, reducing growth
 Redistribution through benefits and low
unemployment
 Low inflation and redistribution
 High business taxes increase costs and lack of
international competitiveness worsening
balance of trade

 Free healthcare
 Strong welfare state
 High trade union membership
 Under-reporting of unemployment
 Highest cost of living in Europe
Negative impacts of redistribution can be used

for KAA and positive impacts for evaluation or
vice versa
1 1-3 Shows some awareness of possible conflicts or
identification of one or more conflicts. Understanding of
conflicts or data references
generally unclear.
2 4-6 Identification and some explanation of conflicts
identified along with some development of analysis or
some identification of possible conflicts 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 conflicts and
overall.

Here we are looking for balance – the way in which
redistribution may support other objectives
 Norway is one of the equal societies but has
one of the most prosperous economies
 Free healthcare and education may increase
productivity and growth
 Welfare system may reduce crime and other
social costs of inequality
 High trade union membership may increase co-
operation between employers and employees,
raising productivity
 No minimum wage may increase employment
 Quality of labour factor may be high thus LRAS
may increase
relevant examples.
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Mark Scheme (Final)

Pearson Edexcel IAS

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 All candidates must receive the same treatment.

NB: Candidates may achieve up to 3 explanation marks even if the incorrect

Question Answer Mark

Explanation (up to 3 marks)

Explanation (up to 3 marks)

Explanation (up to 3 marks)

Explanation (up to 3 marks)

Explanation (up to 3 marks)

Explanation (up to 3 marks)

Explanation (up to 3 marks)

Explanation (up to 3 marks)

NB: Evaluation marks relates to those awarded for AO4

Question Answer Mark

Application (Up to 2 marks)

Question Answer Mark

Award a mark for any other valid data references (6)

Discussion of mining investment might include:

Data references include:

Positive impact of investment on living

Level Marks Descriptor

Discussion of demand-side policies might include:

Supply-side policies might include:

Data references include:

Level Marks Descriptor

Application (Up to 2 marks)

Level Marks Descriptor

Data references include:

Negative impacts of rising unemployment can

Evaluation – indicative content

Level Marks Descriptor

Potential conflicts might include:

Data references include:

Negative impacts of redistribution can be used

Evaluation – indicative content

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