2024 Past Paper 2 Edexcel A Economics | Model Answers

Written by Tom Furber, economics tutor. | Published 11th August 2026.

Contents

Introduction

This page features full model answers for Edexcel A Economics A Level, Paper 2, 2024 past paper. My tutor commentary on the answers is to be added over time.

Notes on the responses:

• Answers are likely to score full marks or close to this. 
• To find the questions, the question paper is available on the Edexcel website, linked here (external link to Edexcel). 
• I recommend having the question paper and answers up at the same time.
• Do not simply copy the answers. Instead, attempt the questions yourself and compare your responses to the model answers, as well as using the mark scheme.
• For many questions, there are multiple ways to score highly.
• Answers are not to be copied without permission from the author.
• Some answers feature extra commentary or working from me. These are marked separately in “tutor’s commentary” boxes.
• I am not affiliated with any exam board. These model answers are written independently of the exam board.
• In the actual exam, you only have to attempt one of the two 25 mark questions. Here I have written model answers for both questions.

Section A

Question 1 – saving

1(a) D – household savings were greatest as a percentage of household income in the second quarter of 2020. *

(b) £26,300 x 0.1 = £2630.

(c) A recession at the start of 2020 meant that households feared losing their jobs. So consumer confidence fell, leading consumers to cut back spending.

Question 2 – investment.

2(a) The answer is C, a  2.1 percentage point fall.

[Tutor working: 23.5 – 21.4 = 2.1 percentage point fall.]

(b) Investment as a percentage of GDP fell from 24.2% in January 2020 to 20.8% in October 2020. Investment is a component of aggregate demand (AD = C + I + G + X – M), so a fall in investment reduces aggregate demand. This could slow the economic growth rate of the EU, leading to lower per capita incomes, so households’ living standards may fall.

Question 3 – financial markets.

3.(a) Market rigging means that banks collude to coordinate price-setting. In this case banks such as Barclays were sharing information about customers’ orders and prices, making it easier to coordinate to manipulate prices to increase revenue and profit. Meanwhile consumers are worse off as they are having to pay higher prices / less generous rates.

(b) The answer is C – provide forward markets.

Question 4 – business cycle and the multiplier.

4.(a) The answer is C

[Tutor note: A boom is when actual GDP is above trend GDP.]

(b)

The size of the multiplier is 1/(1-MPC) = 1/0.9.

Total increase in AD = £60 million x 1/0.9 = £66.67 million (2dp).

Question 5 – tariffs and comparative advantage.

5. (a)

The 25% tariff on steel imports from the UK into the US increases the price of importing steel into the US from the UK. This makes UK steel less affordable for US consumers, reducing US consumer surplus. So demand for UK steel imports falls and consumers switch to US steel, so demand for steel produced in the US rises. This increases US steelmakers’ revenue and profits.

(b) The answer is C, increase in productivity of US steel workers.

Section B

Question 6a (5 marks) – progressive and regressive taxes

A progressive tax is when the tax paid as a percentage of income increases as income increases, likely to lower income inequality. In Figure 4, those with incomes below £12,570 pay a 0% income tax rate. A regressive tax is where those with higher incomes pay a lower percentage of their income on the tax, for example VAT (value added tax). For those on lower incomes, consumption is a larger proportion of income. So taxes like VAT are regressive, larger as a percentage of total spending or income for a lower income household, increasing inequality.

Question 6b (8 marks) – fiscal drag and AD

The personal allowance is frozen at £12,570 from 2022-23 to 2023-24. With rising nominal wages, more people would end up with a nominal income above £12,570, even if their wage has not increased in real terms.  So more people would be dragged into paying income tax. Extract A mentions that the freeze on the personal allowance is in place until April 2028. This increase in the tax burden reduces real disposable income. So consumption may fall as workers have less to spend. As consumption is a component of aggregate demand (AD = C + I + G + X – M), a fall in consumption reduces aggregate demand, with AD shifting left.

However, the freeze in income tax thresholds may increase government tax revenue. This gives the government more funds to increase its spending on infrastructure. As government spending is another component of AD, higher government spending may shift AD to the right instead.

Question 6c (10 marks) – budget deficit and government debt

The UK’s fiscal deficit increased from just over 2% of GDP in 2019-20 to about 15% of GDP in 2020-21. This could be a concern. It means the UK Government has to borrow more to cover the extra government spending that it cannot fund through tax revenue. This can cause crowding out. Higher government borrowing increases demand for loanable funds, leading to a higher equilibrium interest rate on loanable funds. This increases the cost of borrowing for firms, which increases the cost of firm borrowing for investment. This reduces private investment, which could reduce aggregate demand and slow economic growth. 

However, a higher fiscal deficit may simply reflect higher government spending to prevent a worse downturn during the Covid-19 pandemic. Higher government spending from a temporary fiscal deficit would boost AD and boost the UK’s economic growth rate instead.

The UK Government’s debt-to-GDP ratio increased from 83% in 2019-20 to 95% in 2020-21. A high national debt could lead to a higher level of debt interest repayments for the UK Government, causing a concern. Such interest payments have an opportunity cost, as the money spent on debt interest could have been on funding public services such as state schools or the NHS in the UK. With less funding for education or healthcare, the quality of public services could decline and worker productivity could fall if more workers are sick.

However, interest rates were low when the borrowing occurred in Covid with 0.1% base rate. This keeps borrowing costs for the government low, reducing the opportunity cost of debt interest repayments for the government. This could enable public services to be maintained even if government debt is high. 

Question 6d (12 marks) – quantitative easing

Quantitative easing (QE) is when the Bank of England (BoE) creates new digital money and uses it to buy mainly government bonds. At the start of the Covid-19 pandemic, the BoE bought £200bn of bonds. So the sellers of such bonds in the secondary market, such as commercial banks, have more funds available to invest by lending to firms. This gives firms more money to invest. Also, as demand for government bonds increases, this increases the price and lowers the yield for government bonds. So investors switch to substitutes, such as corporate bonds, with lower price / higher yield to maximise returns. This gives firms even more funds to invest. As investment is a component of aggregate demand, higher investment shifts AD right from AD to AD1. Indeed experts argued that QE “pushed inflation higher in the UK by stimulating aggregate demand”.  This increases UK real GDP from Y to Y1 and increases the price level from PL to PL1. A sustained rise in the price level is inflation and the opposite of deflation, hence QE can reduce the risk of deflation. 

However, commercial banks may not be willing to lend money to firms, due to the elevated risk of firm shutdown during the Covid downturn. This could explain why ‘most of the extra money is contained in the financial system’ rather than being invested. So investment and AD would not increase as much, so the price level may not rise as much. 

Also, there is a risk that inflation could rise too far above target following too much QE by the Bank of England. This could lower real incomes for those whose incomes rise more slowly than inflation, such as public sector workers. As a result, purchasing power could fall further among some UK consumers, reducing living standards.

Question 6e (15 marks) – supply-side policies

One supply-side policy is the UK Government planning to spend £20bn ‘to transform carbon capture in the UK’, which could be seen as infrastructure spending. Carbon capture technology enables firms to use more fossil fuels while lowering the emissions generated. This allows firms to comply with pollution regulations while producing more, increasing productive capacity.  This shifts long-run aggregate supply (LRAS) right from LRAS to LRAS1. Government spending is also a component of aggregate demand (AD = C + I + G + X – M). So higher government spending also shifts AD right to AD1. Altogether this increases the economic growth rate, as shown by real GDP increasing from Y to Y1 in equilibrium. 

However, increased government spending on carbon capture could increase the budget deficit, which is already increased from just over 2% of GDP in 2019-20 to 15% of GDP in 2020. This increases the national debt, which increases the amount of debt interest the government must pay. These debt interest payments come at an opportunity cost, meaning the government may forgo spending on other measures which may increase economic growth even faster such as train infrastructure in the future.

The UK Government could also decrease income tax rates. This could reverse the fiscal drag that income taxpayers have faced. Lowering income tax rates, e.g. by increasing the personal allowance up from £12,570, could allow workers to keep a greater proportion of income and lead to fewer people paying tax. This increases the incentive to work, increasing the number of hours that workers are willing to work. This boosts the quantity of labour available. Workers may also be more motivated to work as a result of income tax cuts, boosting labour productivity. This all shifts LRAS right. This results in an increase in the economic growth rate in the UK, with real GDP rising, and an extension (movement along) the AD curve in equilibrium. As real GDP increases more quickly, the derived demand for labour rises. So demand for labour rises, reducing unemployment.

However, cuts in income tax rates could reduce tax revenue. If the UK Government wants to reduce its debt-to-GDP ratio from a high of 95% within the medium term, it would need to cut government spending to keep the budget deficit low and remain within its fiscal rules. This cut in government spending could decrease aggregate demand, as G is a component of AD, shifting AD left and slowing economic growth for the UK economy.

Section C

Question 7 (25 marks) – policies to bring down a current account deficit

The US Government provides funding for rail infrastructure, such as funding for the public-private partnership with Brightline for the train line between Miami and Orlando, Florida. Providing a new train line reduces travel time for some workers. So less time is lost on the commute to work. So workers can spend a greater number of hours at work (or waste less time on commuting). This may boost the productive potential of the economy. There may also be reduced transport costs for transporting inputs. This reduces firm costs, so SRAS shifts right. In addition, workers can access a greater range of jobs. So workers may find a job that better matches their skills, so they can be more productive in their job. This shifts LRAS to the right.

As a result, the price level falls from PL to PL1. A fall in the price level relative to other countries  increases export demand. This leads to higher total export sales, which reduces the current account deficit. 

However, there may be a significant time lag associated with infrastructure projects. It takes time to approve rail projects, to plan the train route and comply with environmental impact regulation, as well as the actual building of the rail line. In the case of the Orlando-Miami route, it took about a decade to get from initial plans to completion. As a result, the increase in productive capacity and fall in costs of transporting inputs may take a decade to materialise. So the price level does not fall in the short term, so export demand does not rise immediately. The current account deficit for the US may only narrow in the long term.

A tariff will support domestic producers. Consider the example of steel tariffs of 25% that US President Donald Trump put in place on Chinese steel.  In the diagram below, a tariff will shift the world supply upwards from world supply to world supply + tariff. So the world price increases from pw to pw+tariff. This reduces the quantity of imports from (q3-q2) to (q1-q), as the higher price of imports disincentivises consumers from purchasing imports. This reduces the current account deficit. The tariff also increases domestic production from q to q2, increasing producer surplus by area A. This will mean higher profits for the US steel firms, leading to higher investment and growth for domestic firms. With US steelmakers facing reduced competition from abroad, they can grow and benefit from economies of scale.  This means lower long-run average costs as output increases. Manufacturers can pass this on to consumers with lower prices, increasing export demand, leading to a higher total value of exports and reducing the current account deficit. 

However, tariffs can also create a possibility of retaliation. In the case of the US tariffs on Chinese steel, China retaliated with its own tariffs, for example on frozen pork. This is to support industries harmed by US tariffs and to pressure the US to lower its tariffs. Retaliatory tariffs would increase the costs for US producers of frozen pork, rendering their product less competitive in US markets. This could lead to decreased quantity exported and producer surplus for US frozen pork producers, which could increase the US current account deficit. Altogether, the effect on the current account deficit could be nullified due to retaliatory tariffs.  

Overall, supply-side policies are more effective in the long run at reducing the current account deficit. Such policies such as government spending on rail infrastructure avoid tradeoffs in the long run, as economic growth rate increases, inflation comes down and the current account deficit is reduced. US tariffs are likely to lead to retaliation, rendering them less effective in reducing the current account deficit. However, he success of tariffs depends on whether tariffs are fully passed onto consumers. If the US can use its large buying power to force importers to take on some of the burden of tariffs, the pass-through of tariffs into higher US prices may be reduced, preventing a large rise in inflation while reducing the current account deficit.

Question 8 (25 marks) – globalisation factors

One factor is the emergence and growth of trading blocs. An example is the European Union, a single market with 27 countries which has no trade barriers between member states such as France and Germany. Consider the French car market in the diagram. A reduction in tariffs due to being part of the EU means world supply shifts down from World Supply + Tariff to World Supply. This makes it cheaper to buy cars from other countries in the EU such as German Volkswagens and BMWs. As a result, imports increase from (q2-q1) to (q3-q), making the French car market more interdependent on the German car market. As the German cars may be cheaper than some French cars, this incentivises French consumers to switch to buy more German cars, as this increases their consumer surplus by area A+B+C+D.  The EU single market also features free movement of people within the bloc, encouraging migration flows between member states. This decreases geographical immobility of labour and makes nations more interdependent on others’ labour forces.

However, some trading blocs such as the EU feature a common external tariff. As a result, the EU may lead to higher tariffs on goods coming into the EU from Africa, for example with 40% to 60% tariffs on some agricultural products such as dairy. Instead there may be more imports of goods between less efficient member states, when African producers may be cheaper. This is trade diversion. Because of the reduction in imports from Africa into the EU, trading blocs may reduce interconnectedness between countries, reversing globalisation.

Another factor is technological progress. The internet has made it easier and cheaper to communicate across borders, reducing the costs to firms of advertising online in other countries. Faster communication also enables multinational companies to offshore their factories to countries with lower labour costs, while maintaining cross-border communication with their head offices. An example is Nike offshoring clothing factories to Indonesia. Moreover, technological improvements in transport, such as faster planes and containerisation, enable more goods to be transported within a given time across borders, increasing productivity, while also reducing the unit cost of exporting goods. As a result of lower communication costs, SRAS shifts right to SRAS1. As a result of increased transportation productivity, LRAS shifts right to LRAS1. This lowers the price level to PL1 for the UK economy, making its exports cheaper relative to other economies. So export demand increases, leading to increased exports out of the UK such as more pharmaceuticals from companies such as GSK and Astrazeneca. Lower transport and communications costs have made it easier for UK exports to compete with domestically produced goods in other countries on price, creating greater interdependence.

However, not everyone will benefit from technological progress. Some developing countries, particularly in rural areas, may lack access to modern communications and transportation. A landlocked country such as Chad with poor quality roads and few airports may not be able to benefit from faster flights, trains and containerisation that benefit other parts of the world. As a result, some lower-income countries will not see falling costs of exporting (and importing) due to technological change, meaning the levels of exports and imports do not increase. 

Overall, technological progress is likely to be the more significant factor contributing to globalisation. Technological progress is less likely to be reversed and many developing countries are now experiencing the benefit of technological progress, such as mobile banking in India. Trading blocs have also contributed to globalisation but this is partly undermined by the common external tariff of some trading blocs like the EU. Moreover, the UK has left the EU and some political parties in other EU member states want to leave the EU too. So integration with trading blocs could be partially reversed, leading to ‘deglobalisation’.

Related resources for Edexcel Economics A

For A-Level Economics Edexcel A style resources, click the blue buttons below: