2024 SH2 H2 Economics Revision 2 (TMJC 2021 Prelim CSQ2)

Question: Productivity and growth in the United Kingdom (UK)

Extract 4: Productivity slowdown in advanced economies

Productivity, commonly measured by gross domestic product (GDP) per man-hour, indicates
how efficiently production inputs, such as labour and capital, are being used in an economy to
produce a given level of output. It is considered a key source of economic growth and
competitiveness and, as such, is basic statistical information for many international
comparisons and country performance assessments.

Several advanced economies including the UK have been grappling with slow productivity
growth. A key reason for the slowdown is the failure to accumulate capital: weak investment
has left labour with too little capital to work with. This is a serious problem, but also a
reassuringly conventional one. Since the low capital spending stems from a lack of credit or
confidence, it is easy enough to imagine a reversal once financial wound heal and global
sentiments revive.

Structural factors also account for the slowdown. From the mid-eighteenth century, as the
Britons were major innovators in machinery such as steam engines, textile equipment and
tool-making, they pioneered the railway system, built many systems, and manufactured most
of the equipment other nations used. However, with the exceptional growth that the UK
enjoyed in the past, it is now left with less room for further productivity growth, contributing to
its inevitable slowdown.

Source: various

Figure 2: The UK’s GDP Growth (2015 – 2019)

4.5

3.5

2.5

1.5

0.5

0
2015 2016 2017 2018 2019

Real GDP growth (%) Nominal GDP growth (%)

Source: Office of National Statistics, the UK

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Table 1: Selected Macroeconomic Indicators for the UK (2015 – 2019)

2015 2016 2017 2018 2019

Value of sterling
1.53 1.36 1.29 1.33 1.28
(USD per £)

External Balance on
goods & services -43.19 -48.76 -38.47 -34.00 -35.06
(billion, in US$)

Fiscal Balance
-4.6 -3.3 -2.5 -2.2 -2.1
(% of GDP)

Productivity growth (%) 0.7 0.3 0.7 0.3 0.2

Source: Office of National Statistics, the UK

Extract 5: Does a fall in the value of the pound correct the UK trade deficit?
The theory behind the relationship between the value of a country’s currency and its balance
of trade is as follows: A fall in the value of the pound against the currencies of its trading
partners would increase the price of imports in the UK and decrease the price of UK goods
abroad. This should lead to a decrease in quantities consumed of imports and an increase in
quantities consumed of UK exports. According to the Marshall-Lerner condition, the
depreciation of the pound will reduce the deficit on the UK balance of trade if the sum of the
price-elasticity of demand for imports and exports is greater than one.
However, studies have shown that the demand for exports from the UK and imports into the
UK is not very price sensitive. Hence, a depreciation will likely increase a trade deficit rather
than reduce it.
Source: Economics Today, September 2019

Extract 6: Making inclusive growth happen in the UK

Ten years ago, the average income of the richest 20% in the UK was seven times that of the
poorest 20%; in 2018, it was more than twelve times greater. These figures present a stark
picture of how our traditional economic growth agenda has neglected inclusiveness and
generated increasingly unequal benefits from growth. They show how those at the top have
pocketed the majority of the gains of improved economic performance.
While a progressive income tax – one where higher tax rates are applied to higher levels of
income – does play a role in reducing the UK’s inequality problem, its impact is mainly felt in
its function as an automatic stabiliser. Automatic stabilisers work to offset fluctuations in
economic activity without direct intervention by policymakers. To ensure a fairer distribution of
the proceeds from growth, there is a need to understand that inequality is not just about
income; it extends into educational attainment, employment opportunities and health status.
First, investment in education and skills is vital for supporting the poorest and promoting social
mobility. In particular, more support should be given to schemes to enable small-medium
enterprises (SMEs) to collaborate on apprenticeships and other types of training relevant in
an increasingly globalised world.
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Second, there needs to be greater funding for labour market training programmes to enable
all unemployed people to address skills deficiencies and help more people enter employment.
Finally, there are stark differences in health outcomes across the UK – with large disparities
in healthy life expectancy between the most and least deprived areas in England. Public health
can contribute to reducing health inequalities by ensuring fair subsidies for healthcare,
targeted at those who need it the most, and integrating health equity considerations into policy
and programs.

Source: Making Inclusive Growth happen in the UK, OECD,

accessed 20 July 2021

Extract 7: Delivering strong and sustainable growth in the UK

The UK has committed to net-zero emissions3 by 2050, in increasing recognition for strong
and urgent action to tackle climate change. However, the UK government needs to overhaul
its policy framework as it is falling behind in its plans to reach net-zero emissions.

To address the ongoing poor productivity performance, the UK needs to rebalance its
economy from consumption towards investment by investing in infrastructure, innovation and
skills. To be consistent with the commitment to net-zero emissions, such investments must
help the UK build its innovation strengths in environment-related sustainable technologies,
goods and services, and enable the country to gain an increased share of new and growing
international markets.

Innovation policy needs to go beyond merely correcting market failures to achieve net-zero
emissions. It is necessary to improve resource efficiency through developing an economy that
is restorative and regenerative, utilising output as inputs in a continual cycle. Furthermore,
policy needs to encourage firms to undertake technological innovation that is sustainable, and
to roll it out at a scale that can drive down costs.

Source: Delivering Strong and Sustainable Growth in the UK, www.lse.ac.uk,

4 March 2020
3
Net-zero emissions refer to achieving an overall balance between greenhouse gas emissions produced
and greenhouse gas emissions taken out of the atmosphere.

(a) Distinguish between the terms ‘nominal GDP’ and ‘real GDP’. [2]

(b) Using Figure 2,

(i) compare the UK’s real GDP growth and nominal GDP growth between
2015 and 2019. [2]

(ii) explain what happened to the general price level for the period shown. [2]

(c) Suppose the price of imported goods into the UK rises due to a depreciation of
the pound (Extract 5). Using the concept of cross elasticity of demand, explain
what would happen to consumer expenditure by Britons on domestically
produced goods and services. [3]

(d) Extract 7 states that policy needs to encourage firms to roll out technological
innovation at a scale that can drive down costs.
 4

Using an appropriate diagram, explain why technological innovation needs to

be rolled out at a large scale in order to drive down a firm’s costs. [3]

(e) Discuss whether the UK’s balance of trade position in Table 1 is a cause for
concern. [8]

(f) Discuss the extent to which a progressive income tax system would help to
promote inclusive and sustainable growth in the UK. [10]

[Total: 30]
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Suggested Answers
(a) Distinguish between the terms ‘nominal GDP’ and ‘real GDP’. [2]

Difference in terms of measurement – 1m

Nominal GDP is valued at current price however, real GDP is valued at constant price
(prevailing in base year)

Implication of difference in measurement – 1m

Nominal GDP has not been adjusted for price changes but real GDP has been adjusted for
price changes.

OR

Difference in terms of definition – 2m

Nominal GDP refers to the money value of final goods and services produced in a country
within a year based on current prices, whereas real GDP refers to GDP adjusted for
inflation/price changes by keeping prices constant at a given base year.

(b) Using Figure 2,

(i) Compare the UK’s real GDP growth and nominal GDP growth between 2015 and
2019. [2]

Difference #1 – 1m
Overall, real GDP growth decreased whereas nominal GDP growth increased.

Difference #2 – 1m
Nominal GDP growth is consistently above real GDP growth.

(ii) Explain what happened to the general price level for the period shown. [2]

Inflation Rate ≈ Nominal GDP Growth Rate – Real GDP Growth Rate
Nominal GDP growth is above Real GDP growth throughout the period, and the
difference between nominal GDP growth and Real GDP growth has widened in 2019
compared to 2015. [1m] This shows that genera price level has increased at a higher
rate over the period. [1m]

OR

Since nominal GDP growth was consistently greater than real GDP growth [1m], it
means that the inflation rate is positive ie. GPL has increased. [1m]

(c) Suppose the price of imported goods into the UK rises due to a depreciation of the
pound (Extract 5). Using the concept of cross elasticity of demand, explain what would
happen to consumer expenditure by Britons on domestically produced goods and
services. [3]

Explain impact of depreciation of £ on domestically produced goods – 2m

Depreciation would cause imported goods to become relatively dearer in pounds → ↑Pm →
↓QDm → assuming XED positive [1] (imports and domestically produced goods and services
 6

are substitutes) → Britons would switch to domestically produced goods → ↑DD [1], ceteris
paribus.
OR
The extent of increase in DD depends on XED. If XED>1 → ↑DD more than proportionately
[1m]

Explain impact on consumer expenditure on domestic goods – 1m

↑DD → ↑P & ↑Q → ↑Consumer expenditure (P x Q)

(e) Discuss whether the UK’s balance of trade position in Table 1 is a cause for concern.
[8]

Question Dissection
Command Discuss whether How do you discuss?
word • 2-sided balanced approach of explaining and
evaluating

What do you explain?

• KR1: Explain why UK’s BOT position in Table
1 should be a cause for concern → costs
associated with BOT position
• KR2: Explain why UK’s BOT position in Table
1 should not be a cause for concern → benefits
associated with BOT position

What do you evaluate?

• Evaluate whether costs outweigh benefits of
UK’s BOT position in Table 1

Content/ Balance of What is BOT? What is the UK’s BOT position in

Concept Trade & Impacts Table 1? → Table 1 indicates that UK is
on the economy experiencing BOT deficit (negative external
balance)

What are the possible costs of BOT deficit on

economy?
1. BOT deficit → X revenue < M expenditure →
fall in (X-M) → fall in AD → effect on economy
& SOL?
• [EV] UK’s real GDP growth is still positive
albeit decreasing → what does it imply? So,
is BOT deficit still a cause for concern?

2. Falling real output and rising unemployment →

increases government’s budget deficit → effect
on economy in the LR?
• [EV] UK’s fiscal deficit decreases as a % of
GDP over time which may in turn boost
investors’ confidence instead. So, is BOT
deficit still a cause for concern?

What are the possible benefits of BOT deficit on

economy?
 7

A. BOT deficit results in depreciation of sterling

pound → reduce BOT deficit if Marshall-Lerner
condition holds (Extract 5 para 1)
• [EV] However, Marshall-Lerner condition
may not hold true in SR (Extract 5 para 2)

Context UK Answer to be applied to the context of UK

Introduction
According to Table 1, the UK is experiencing BOT deficit, since the external balance of goods
and services is in negative.

KR1: BOT deficit is a cause for concern

BOT deficit → X revenue < M expenditure → fall in AD c.p.→ assuming that the economy is
operating with spare capacity → at original GPL, there is a surplus where the total spending
falls short of total output → firms experience rise in inventories→ incentivises firms to reduce
production to reduce output → via the reverse multiplier effect, there will be multiple decrease
in production, output and national income → assuming that the population size growth remains
unchanged → fall in per capita income → fall in purchasing power → fall in ability to consume
goods and services → worsens material SOL

At the same time, as firms’ production decrease, derived demand for labour would decrease
→ fall in DDL → assuming that wages are sticky downwards at prevailing wage rate → SSL >
DDL → there will be excess supply of labour which gives rise to demand-deficient
unemployment → increase in number of people with no job and no income → fall in material
SOL.
Increased crime rates and increased stress level of unemployed, which reduces security and
thus quality of life → worsens non-material SOL

Moreover, a trade deficit may need to be financed by drawing down of reserves or external
borrowing. If the country draws on its reserves, it may become more vulnerable to external
shocks and economic crises as it will have less reserves to weather against such economic
shocks in the future. If the deficit is financed by external borrowing, it will increase the country’s
foreign debt, which will impose a burden on future generations who need to repay the debt. A
high foreign debt may also affect investor confidence if the country has difficulty repaying its
debt and increases its risk of debt default. This is especially so if the deficit is severe. A large
trade deficit means that the country is likely to face a mounting external debt as it may not
have sufficient reserves to finance the deficit. This can have a negative impact on investor
confidence.

Evaluation
• UK’s real GDP growth is still positive albeit decreasing → implies economic slowdown →
so the impact of the trade deficit may not be that significant to result in negative growth
(also because of the nature of the UK’s economy → not export oriented) OR trade deficit
could be offset by rise in other components of AD eg. C and I, such that there is still positive
growth.

KR2: BOT deficit is not a cause for concern

BOT deficit results in depreciation of sterling pound which will reduce BOT deficit if Marshall-
Lerner condition holds (Extract 5 para 1), assuming floating exchange rate → price of exports
become relatively cheaper in foreign currency → assuming PEDx>0 → rise in DDx → rise in
X revenue in domestic currency. At the same time, price of imports become relatively dearer
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in pounds → fall in QDm more than proportionately given that PEDm>1 due to the many close
substitutes available in the global market → fall in import expenditure & rise in Cd as elaborated
in (c) above → based on Marshall-Lerner condition (PEDx+PEDm>1) → reduces BOT deficit
over time → thus not a concern.

Moreover, the fall in AD due to the trade deficit could help to reduce inflationary pressure. As
shown in Fig 2, the inflation rate has increased since 2015, causing a wider gap between
nominal and real income growth. A fall in AD caused by the trade deficit may help to reduce
demand-pull inflation.

Evaluation
• However, Marshall-Lerner condition may not hold true in SR (Extract 5 para 2) due to time
lags & contractual obligations. The depreciation of the UK pound could worsen the trade
deficit instead.
• Moreover, it is the trend in the balance of trade that matters, rather than the trade deficit
itself. As shown in Table 1, the trade deficit has generally been decreasing from 2015 to
2019. This shows that the balance of trade is in fact improving, which means that AD is still
increasing. As long as the trade deficit is falling, it means that AD can still increase and
hence the deficit is not a concern.

Synthesis & Evaluative conclusion

[E/Criterion] Nature of the problem + ease of resolving it
[E/Opinion] UK’s BOT position in Table 1 is a cause for concern.
[E/Reasoning] Whether deficit is a cause for concern depends on:
(a) Cause: Likely a fall in productivity plaguing developed countries (Ext 1 & Table 1) resulting
in uncompetitive goods & svc → worrying because structural and takes time + reform to
address
(b) Duration: Persistent → corroborates with difficulty in addressing root cause of low
productivity + theory does not appear to apply to UK since ML does not hold for the UK
(Ext 2) and theoretical relationship is not consistently observed in Table 1 → deficit does
not appear to correct itself over time via a depreciation → Negative consequences of deficit
likely to persist.
(c) Severity: While the trade deficit has decreased, it is still rather high at US$30 billion. It
could still cause a significant draining of the official reserves or increase in foreign debt.
The decrease in trade deficit may thus be insufficient to reduce the burden of foreign debt
significantly and is still a cause for concern.

Mark Scheme

Levels Descriptors

For an answer that demonstrates knowledge, understanding, application and

analysis:
➢ EXCELLENT breadth that considers the following economic concepts in
explaining multiple and balanced perspectives, viewpoints, relationships and
factors. ALL points chosen should be of relevance and significance in
answering the question.
High L2 ✓ EXCELLENT breadth covers 2 key requirements of the question,
6m including accurate application and explanation of relevant economic
concepts, theories and principles.

o Key requirement 1: The BOT deficit is a cause for concern

o Key requirement 2: The BOT deficit is not a cause for concern

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➢ EXCELLENT depth in economic analysis that reflects the following in MOST

explanations.
➢ Accurate use of economic concepts, clear elaboration, and precise
use of economic terminologies, language and phrasing.
➢ Coherent economic arguments.
➢ Clear well-written explanation supported by tools of analysis such
as well-labelled and well-referred to diagram(s).
➢ Relevant examples and accurate use of facts.
➢ Well-organised ideas and relevant material that is well focused on
answering the question.

o EXCELLENT depth in economic analysis refers to an analytical (D) response

which demonstrates EXCELLENT ability to explain economic concepts,
theories and principles in a precise, logical and reasoned manner.

➢ The overall answer should also be well-organised with a coherent structure.

For an answer that demonstrates knowledge, understanding but lacks application

and analysis:
➢ At least GOOD breadth that considers the following economic concepts in
explaining multiple and balanced perspectives, viewpoints, relationships and
factors. MOST points chosen should be of relevance and significance in
answering the question.
✓ GOOD breadth covers at least 1 key requirement of the question,
including some ability in accurate application and explanation of
relevant economic concepts, theories and principles.

➢ At last GOOD depth in economic analysis that reflects the following in MOST
Low L2 explanations.
4m - 5m ✓ Accurate use of economic concepts, clear elaboration, and precise
use of economic terminologies, language and phrasing.
✓ Relevant material that is focused on answering the question.
✓ Diagram(s) /tool(s) of analysis that may not be well-labelled, may not
be well-referred to and may not be drawn with precision (where
appropriate).
✓ Example(s) used to support or illustrate arguments, but may not be
the most relevant or suitable.

o GOOD depth in economic analysis refers to a cursory (C) response which

demonstrates the ability to explain economic concepts, theories and principles,
although in a descriptive or incomplete manner.

For an answer that demonstrates knowledge but lacks understanding, application

and analysis:
➢ INSUFFICIENT breadth that considers the following economic concept(s).
Point(s) chosen may be of relevance but may not be of significance in
answering the question.
✓ INSUFFICIENT breadth covers only 1 key requirement of the
question adequately or covers 2 key requirements of the question
L1 inadequately.
1m - 3m
➢ INSUFFICIENT depth in economic analysis that may reflect the following:
➢ Lack of accuracy in the use of economic concepts, lack of clarity in
elaboration, and lack of precision in the use of economic
terminologies, language and phrasing.
➢ Lack of relevance in the material or explanation given.
➢ Basic errors of theory
➢ Insufficient or incomplete explanation
 10

o INSUFFICIENT depth in economic analysis refers to a response which

demonstrates basic knowledge (K) of economic concepts, theories and
principles (e.g. basic definition and description), but without adequate
explanation, or the explanation is largely flawed and inaccurate.

Evaluation Marks

Levels Descriptors

For an evaluation that contains:

E2
➢ One well-explained contextualised evaluative judgement/decision,
2
supported by arguments presented in the answer.

For an evaluation that contains:

E1 ➢ One unexplained evaluative statement. The statement is not supported by
1 arguments presented in the answer and they may not be linked to the
context.

(f) Discuss the extent to which a progressive income tax system would help to promote
inclusive and sustainable growth in the UK. [10]

Question Dissection
Command Discuss whether How do you discuss?
word • 2-sided balanced approach of explaining and
evaluating

What do you explain?

• KR1: Explain how progressive income tax
system can promote inclusive growth
• KR2: Explain how progressive income tax
system cannot promote sustainable growth

What do you evaluate?

• Evaluate the extent to which progressive
income tax can promote inclusive and
sustainable growth

Content/ Progressive What is it? How does it help achieve sustained

Concept income tax economic growth first, and how it helps achieve
system inclusive growth as well as sustainable growth?

Inclusive growth What is it? What does inclusive growth entail?

Sustainable What is it? What does sustainable growth entail?

growth

Context UK Answer to be applied to the context of UK

Introduction: Define key terms [may be embedded into main development]

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- Inclusive Growth: a rate of growth that is broad-based across economic sectors and
creates productive employment opportunities for the majority of the country’s population. It
is actual growth that takes into account income distribution
- Sustainable Growth: a rate of growth that is sustained and can be maintained without
creating other significant economic problems, particularly for future generations
- Sustained Growth: higher real output accompanied by lower price level i.e., non-
inflationary growth. This is due to rise in potential growth. It occurs when actual growth is
accompanied by an increase in potential capacity.
- Progressive Y Tax: Tax system where a higher tax is applied to higher levels of Y

KR1: Progressive Income tax would help to promote inclusive growth in UK

With economic growth, the income of households increases. Under a progressive tax system,
a larger percentage of the incomes of high-income earners is transferred to the government
as tax revenue, thus reducing their disposable income by a larger extent. On the other hand,
the disposable incomes of the low-income workers fall by a smaller extent as they are given a
lower tax rate, allowing them to still be able to afford basic goods and necessities. This helps
to reduce post-tax income inequality and thus promote inclusive growth.

Moreover, a progressive income tax extracts a larger percentage of income during booms and
so allows the tax revenue to grow faster. This allows the government to set aside a bigger
budget to finance initiatives that promote inclusive growth, such as redistributing income to the
poor in the form of subsidies and financial aid. For example, the UK government can use the
higher tax revenue to provide more subsidies for healthcare and education or higher welfare
payments to the unemployed. This will ensure that the economic growth benefits the poor as
well, thus achieving more inclusive growth.

Intermediate Evaluation:
A progressive tax system may not be sufficient to promote inclusive growth as income is only
one aspect of inclusiveness. As mentioned in Extract 6, inequality is not just about income, but
extends into educational attainment, employment opportunities and health status. Given the
large disparity of income where the income of the richest 20% is more than twelve times that
of the poorest 20%, a progressive tax system may only reduce the gap to a small extent. This
is especially so if the poor have an extremely low level of income such that a lower tax rate
translates into only a small absolute amount of tax reduction. Moreover, to address
inclusiveness in the longer term, it is more important to ensure that the poor are able to climb
up the educational ladder and earn higher income from employment. Investment in education
and training is thus important to ensure that those who are structurally unemployed are able
to find jobs, and existing workers can upgrade their skills to move into higher-paying jobs. In
addition, healthcare inequality needs to be addressed to ensure that the lower income have
adequate access to healthcare so as to raise their life expectancy and productivity, thus
increasing their lifetime income. Without a progressive benefit framework to systemically
transfer these tax receipts to “those who need it the most” in areas of basic need such as
education, health & employment, it cannot bring about significant reductions in inequity and
bring about inclusive growth since access by the poor to basic goods and necessities is not
significantly improved as their incomes are still low.

KR2: Progressive income tax would not help to promote sustainable growth in UK

The increase in production generated by economic growth could result in more carbon
emissions into the atmosphere, causing climate change which could cause damage to life and
property by extreme weather conditions such as heat wave, typhoons and floods. Moreover,
the increase in output could mean that non-renewable resources such as crude oil and mineral
deposits are being depleted. Such environmental degradation and depletion of non-renewable
resources mean that the economic growth is not sustainable. A progressive tax system merely
 12

transfers more income from the rich to the government, but does nothing to make economic
growth more sustainable.

As mentioned in Extract 7, UK is falling behind in its plans to reach net-zero emissions. Without
other policies to address carbon emissions, a progressive income tax system by itself will not
help the UK to reduce carbon emissions and achieve its target of zero-emissions.

Moreover, a progressive tax system by increasing taxation as income rises may have a
dampening effect on actual economic growth by reducing disposable income and consumption
especially by the higher income households. It also does not help to promote potential growth
in any way, as it could have a disincentive effect on work effort and reduce labour supply. This
is because the higher tax rates imposed on higher income brackets reduce the opportunity
cost of leisure and make it less attractive for people to move into the higher income brackets.
Hence, people may opt to reduce their work effort and enjoy more leisure instead of earning
more income and having to pay more taxes. This leads to a fall in labour supply, causing a fall
in productive capacity and thus a leftward shift of the LRAS, resulting in a fall in potential
growth. By itself, a progressive tax system is thus unable to promote sustained economic
growth.

Intermediate Evaluation
Progressive income tax can help to promote sustainable growth to some extent if the higher
tax revenue can be invested into R&D and innovation to develop more environment-friendly
products and methods of production. As mentioned in Extract 7, UK will have to invest in
innovation and skills in the areas of “green” technology and sustainable methods of production.
Over time, this will reduce carbon emissions and help the UK to achieve its zero emission
target, thus achieving sustainable growth. Moreover, if the increase in tax revenue is spent on
infrastructure and skills training, it will help to increase productive capacity and potential growth
together with increasing AD, thus enabling the economy to achieve sustained economic
growth.

Evaluative Conclusion

A progressive tax system by itself only helps to reduce the income disparity to a smal extent
by reducing the disposable income of the rich by a larger proportion and raising the disposable
income of the poor by taxing them at a lower rate. However, the extent to which it will help to
promote inclusive and sustainable growth also depends on how the government spends the
increase in tax revenue. If the higher tax revenue is spent on investing in innovation and skills
particularly in the area of environmental conservation as well as income transfers to the poor,
it will help to promote inclusive and sustainable growth more significantly.

Therefore, a progressive income tax system may help promote inclusive and sustainable
growth to some extent, but is insufficient to achieve these dual objectives adequately and
needs to be complemented by SS-side policies and redistributive measures to bring about
inclusive and sustainable growth more effectively and in the longer term.

* Optional diagrammatic analysis to illustrate how skills training ↓Y inequality:

Impact on the market for low skilled workers:

Education and training of low skilled, increases the skills level of these workers who
become more efficient and hence are able to produce more output/man hour. This
increase in productivity increases their employability. The demand for these workers
increases from DD1 to DD2. At the same time, some of these workers may be
equipped with the necessary skills to move to the market for high skilled labour,
 13

reduces the supply for unskilled workers from SS1 to SS2. Wages increase to W2
and there will be higher income for low-skilled workers and lower income inequality

Market for low skilled labour Market for high skilled labour
Impact on the market for high skilled workers:
Education and training increases the supply for skilled workers. At every wage rate,
the quantity supplied of labour increases and the supply curve shifts to the right to
SS4 and the wage rate from decreases from W3 to W4. This lowers the income for
the skilled workers and reduces income inequality. As shown from the diagram,
education and training, reduces the income gap between the low skilled and high
skilled workers from W1-W3 to W2-W4 and reduces income inequality.

Mark Scheme

Levels Descriptors

For an answer that demonstrates knowledge, understanding, application and

analysis:

➢ EXCELLENT breadth that considers the following economic concepts in

explaining multiple and balanced perspectives, viewpoints, relationships
and factors. ALL points chosen should be of relevance and significance
in answering the question.

✓ EXCELLENT breadth covers 2 key requirements of the

question, including accurate application and explanation of
relevant economic concepts, theories and principles.

o Key requirement 1: Progressive Y Tax is sufficient to bring about

High L2 inclusive growth in UK.
6m - 7m
o Key requirement 2: Progressive Y Tax is not sufficient to bring
about sustainable growth in UK.

➢ EXCELLENT depth in economic analysis that reflects the following in

MOST explanations.

➢ Accurate use of economic concepts, clear elaboration, and

precise use of economic terminologies, language and phrasing.
➢ Coherent economic arguments.
➢ Clear well-written explanation supported by tools of analysis such
as well-labelled and well-referred to diagram(s).
➢ Relevant examples and accurate use of facts.
➢ Well-organised ideas and relevant material that is well focused
on answering the question.
 14

o EXCELLENT depth in economic analysis refers to an analytical (A)

response which demonstrates EXCELLENT ability to explain economic
concepts, theories and principles in a precise, logical and reasoned
manner.

➢ The overall answer should also be well-organised with a coherent

structure.

For an answer that demonstrates knowledge, understanding but lacks application

and analysis:

➢ At least GOOD breadth that considers the following economic concepts

in explaining multiple and balanced perspectives, viewpoints,
relationships and factors. MOST points chosen should be of relevance
and significance in answering the question.

✓ GOOD breadth covers at least 1 key requirement of the

question, including some ability in accurate application and
explanation of relevant economic concepts, theories and
principles.
Low L2
➢ At last GOOD depth in economic analysis that reflects the following in
4m - 5m
MOST explanations.

✓ Accurate use of economic concepts, clear elaboration, and

precise use of economic terminologies, language and phrasing.
✓ Relevant material that is focused on answering the question.
✓ Diagram(s) /tool(s) of analysis that may not be well-labelled, may
not be well-referred to and may not be drawn with precision
(where appropriate).
✓ Example(s) used to support or illustrate arguments, but may not
be the most relevant or suitable.

o GOOD depth in economic analysis refers to a cursory (C) response which

demonstrates the ability to explain economic concepts, theories and
principles, although in a descriptive or incomplete manner.

For an answer that demonstrates knowledge but lacks understanding, application

and analysis:

➢ INSUFFICIENT breadth that considers the following economic

concept(s). Point(s) chosen may be of relevance but may not be of
significance in answering the question.

✓ INSUFFICIENT breadth covers only 1 key requirement of the

question adequately or covers 2 key requirements of the
L1 question inadequately.
1m - 3m
➢ INSUFFICIENT depth in economic analysis that may reflect the following:
➢ Lack of accuracy in the use of economic concepts, lack of clarity
in elaboration, and lack of precision in the use of economic
terminologies, language and phrasing.
➢ Lack of relevance in the material or explanation given.
➢ Basic errors of theory
➢ Insufficient or incomplete explanation

o INSUFFICIENT depth in economic analysis refers to a response which

demonstrates basic knowledge (K) of economic concepts, theories and
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principles (e.g. basic definition and description), but without adequate

explanation, or the explanation is largely flawed and inaccurate.

Evaluation Marks

Levels Descriptors

For an evaluation that contains:

➢ One well-explained contextualised evaluative judgement/decision, supported

E3
by arguments presented in the answer.
3
➢ A synthesis of earlier economic arguments to arrive at the judgement
/decision, and it must answer the question.
➢ A good summative conclusion.

For an evaluation that contains:

E2
2 ➢ One well-explained contextualised evaluative judgement/decision, supported
by arguments presented in the answer.

For an evaluation that contains:

E1
1 ➢ One unexplained evaluative statement. The statement is not supported by
arguments presented in the answer and they may not be linked to the context.