Friday 8 October 2021 – Afternoon
A Level Economics
H460/02 Macroeconomics
Time allowed: 2 hours
You can use:
* 8 1 9 3 4 0 3 5 8 6 *
• a scientific or graphical calculator
* H 4 6 0 0 2 *
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INSTRUCTIONS
• Use black ink. You can use an HB pencil, but only for graphs and diagrams.
• Answer all the questions in Section A, one question in Section B and one question in
Section C.
• Write your answer to each question in the space provided. If you need extra space use
the lined pages at the end of this booklet. The question numbers must be clearly shown.
INFORMATION
• The total mark for this paper is 80.
• The marks for each question are shown in brackets [ ].
• Quality of extended response will be assessed in questions marked with an asterisk (*).
• This document has 28 pages.
ADVICE
• Read each question carefully before you start your answer.
Read the following stimulus material and answer all parts of question 1 which follow in this section.
Are we moving towards a cashless society?
Recent years have seen a change in both the amount consumers spend and how they make
their payments. How much consumers spend is influenced by a variety of factors. These
include changes in income and changes in confidence. During an economic boom, consumer
expenditure is likely to be high. Indeed, an economic boom is often consumer-led. In contrast,
5 consumer expenditure can fall to a low level during a recession. Fig. 1 shows how consumer
expenditure can vary as income changes.
Consumer
expenditure
(C)
C
0
Income (Y)
Fig. 1 The relationship between changes in income and changes in consumer expenditure
Changes in injections and leakages can alter a country’s income. It has been estimated, for
instance, that an injection of $200m of government spending in the Swiss economy would cause
a rise in GDP of $300m.
10 The proportion of payments made in cash in Switzerland is declining. It is also falling in the UK.
In 2005, 70% of payments in the UK were made in cash. By 2015, this had fallen to 50% and is
forecast to decline to 30% by 2025. The extent to which cash is used influences the number of
banknotes printed and in circulation. Fig. 2 shows the value of banknotes in circulation in the UK
over a five year period.
Fig. 2 The value of banknotes in circulation (£million) 2014 –2018
15 Some central banks favour ending the use of cash. One reason is because of the role that cash
plays in a number of criminal activities including money laundering and drug dealing. A more
significant motive is probably to enable central banks to charge negative interest rates when
needed to stimulate economic activity. If people and banks can take money out of their deposits
and hold them as cash, negative interest rates are likely to have less power to encourage an
20 increase in spending.
Negative interest rates involve commercial banks having to pay to hold deposits at the central
bank. As commercial banks often have excess funds held at the central bank, a negative interest
rate may encourage them to lend the funds instead. If commercial banks pass on the negative
rates to their customers, people will have to pay to save. Negative interest rates would have an
25 impact on borrowing, the cost of servicing government debt and probably on the exchange rate.
A number of central banks, including the Bank of Japan, the Swiss National Bank, Denmark’s
National Bank and the European Central Bank (ECB) have used negative interest rates in a bid
to avoid deflation. These banks received some criticism for the effect that the negative interest
rates had on confidence, saving and bank profitability.
30 The Bank of England has yet to introduce a negative interest rate. Fig. 3 shows how the UK
interest rate has changed in recent years.
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