Pearson Edexcel Level 3 GCE
Economics
Advanced
PAPER 3: Microeconomics and Macroeconomics
June 2023
Instructions
•• Use black ink or ball-point
Fill in the boxes at the top of this page with your name,
centre number and candidate
•• pen.
number.
There are two sections in this question
In Section A, answer all questions 1(a) to 1(c) and one question from 1(d)
• Inor Section
paper.
1(e). B, answer all questions 2(a) to 2(c) and one question from 2(d)
•• Answer the questions in the spaces
or 2(e). – there may be more space than you need.
provided
Information
•• The total mark for this paper is 100.
The marks for each question are shown in
– use this as a guide as to how much time to spend on each question.
• Calculators
brackets
may be used.
Advice
•• Read each question carefully before you start to answer it.
Check your answers if you have time at the
end.
Turn over
, SECTION A
Read Figures 1 and 2 and the following extracts (A and B) before answering Question 1.
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Answer ALL Questions 1(a) to 1(c), and EITHER Question 1(d) OR 1(e).
Write your answers in the spaces provided.
You are advised to spend 1 hour on this section.
Question 1
The UK economy
Figure 1: UK gas prices in pence per therm, August 2002 to August 2022
600
500
400
Penc
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e per 300
therm
200
100
0
Aug Aug Aug
200 201 2022
2 2
Figure 2: UK inflation, CPI, August 2002 to August
2022
9.9
10
8
6
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(%)
4
2
0
–2
Aug Aug Aug
200 201 2022
2 2
2
, Extract A
Fiscal policy changes in the UK, Autumn 2022
After many changes in policy, people earning above £150 000 will now no longer
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benefit from the tax cut in the September 2022 mini-budget, which proposed the
removal of the 45% tax band. The proposed change in the main 20% standard
rate of income tax
moving to 19% has been postponed. 5
In April 2022, a 1.25% rise in national insurance contributions was implemented,
labelled as a health and social care levy. It was cancelled in Autumn 2022. Britain’s
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poorest households would have lost £7.56 a year from the national insurance rise.
The richest 10% of households, earning an average of £108 000, would have lost
£1 800.
Another measure in the Truss Government’s £30 billion tax cut proposals that would have 10
benefitted the rich, was the removal of the 2023 planned rise in corporation tax
from 19% to 25%. The former chancellor wanted to cut the tax to 15% but this was
the wrong time to do this. The former chancellor also removed the 2014 cap on
bankers’ bonuses, clearly an unfair decision at the time when public sector workers
were told to accept pay
caps to keep inflation under control. 15
The reflationary fiscal policy triggered warnings that the Monetary Policy Committee
of the Bank of England would raise interest rates further – having already raised
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them from 0.1% in 2021 to 2.25% in September 2022. This meant an end to the
fiscal rules set by the government in the recent past: debt to be falling as a share of
national income by 2024
and no borrowing for day-to-day spending. 20
Extract B
Inequality to rise in the UK
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The rising cost of living is expected to affect low-income families the most.
Inflation in Autumn 2022 is expected to hit 14% for families in the poorest tenth
of the income distribution, compared with 8% for families in the richest tenth,
driven in large part
by rising energy costs and food prices. Around half of the food consumed in the UK is 5
imported, and the 20% fall in the value of the pound in 2022 has affected lower
income groups more because food is a higher proportion of their spending. The
government’s decision to freeze benefits, rather than allowing them to rise in line
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with current inflation, means that the support provided is a real terms cut for families
currently receiving high
levels of benefits. A two-year freeze on energy price caps will now only last until April 10
2023, which would have kept the average energy bill at £2 500 rather than £3 500.
(Source: adapted from IFS Report: Living standards, poverty and
inequality in the UK: July 2022 and
https://www.ft.com/content/6de5b52e- 64c8-4997-8939-
e1c59172daa7?shareType=nongift)
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3
Turn
over
, 1 (a) Explain the difference between a positive and a normative statement,
using an example of each from Extract A.
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(5)
(b) Examine two reasons for the rise in inflation in the UK. Refer to the
information provided in your answer.
(8)
(c) Discuss the likely impact of a rise in gas prices on a firm that uses a large
amount of gas in its production process. Use a cost and revenue diagram to
support
your answer. (12)
EITHER
(d) Evaluate microeconomic and macroeconomic policies that could be
used to reduce inequality in the UK. (25)
OR
(e) Evaluate the likely microeconomic and macroeconomic effects of tax
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cuts in the UK.
(25)
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4
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