Context 2: Inflation and monetary policy in the UK
Extract D: The UK's Consumer Prices Index (2015 = 100) rose from 131.5 in March 2023 to 134.9 in March 2024. CPI inflation had peaked at over 11% in October 2022, driven by energy and food prices after Russia's invasion of Ukraine.
Extract E: The Bank of England raised Bank Rate fourteen times from 0.1% in December 2021 to 5.25% in August 2023. Mortgage rates rose sharply and house prices fell slightly. Some economists argued that rates were raised too late; others that much of the inflation came from global supply shocks that interest rates could not affect.
Extract F: Wage growth reached around 8% in 2023, partly due to labour shortages. The government kept income-tax thresholds frozen, which increased tax revenue as wages rose ('fiscal drag'). Unemployment rose slightly from 3.8% to 4.3%. Productivity growth remained weak.
Context 2: Inflation and monetary policy in the UK
Extract D: The UK's Consumer Prices Index (2015 = 100) rose from 131.5 in March 2023 to 134.9 in March 2024. CPI inflation had peaked at over 11% in October 2022, driven by energy and food prices after Russia's invasion of Ukraine.
Extract E: The Bank of England raised Bank Rate fourteen times from 0.1% in December 2021 to 5.25% in August 2023. Mortgage rates rose sharply and house prices fell slightly. Some economists argued that rates were raised too late; others that much of the inflation came from global supply shocks that interest rates could not affect.
Extract F: Wage growth reached around 8% in 2023, partly due to labour shortages. The government kept income-tax thresholds frozen, which increased tax revenue as wages rose ('fiscal drag'). Unemployment rose slightly from 3.8% to 4.3%. Productivity growth remained weak.
12 marks
Using Extract D, calculate the rate of CPI inflation between March 2023 and March 2024.
24 marks
Using the data, explain what happened to real interest rates between 2021 and 2024.
39 marks
With the help of an AD/AS diagram, explain how higher interest rates are likely to reduce inflation.
425 marks
Using the extracts and your knowledge of economics, evaluate whether monetary policy is the most effective way of reducing inflation in the UK.
515 marks
Section B (essay)
Explain the possible causes of a current account deficit on the UK balance of payments.
625 marks
Section B (essay)
Evaluate whether supply-side policies are the best way for the UK to reduce a persistent current account deficit.
Finished?
Answer every question to finish (6 left), or finish when the time’s up.
Score 0 / 80 · 0 of 6 marked
This paper is written by Plasmo in the style of the AQA A-Level Economics exam. It is not a past paper and is not produced or endorsed by the exam board.
AQA A-Level Economics Mock Exam: Paper 2: National and international economy | Plasmo