A-level ECONOMICS Paper 2 National and International Economy. EXAM QUESTIONS PREDICTIONS

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EITHER Context 1 Total for this context: 40 marks National debt and government spending Study Extracts A, B and C and then answer all parts of Context 1 which follow. Extract A Figure 1: Annual a... verage yields on long-term bonds, Greece and the UK, selected years, 2007 to 2019 Figure 2: Selected statistics for Greece and the UK, 2012 Greece UK GDP ($bn) 245.7 2662.1 GDP per capita ($) 22 242 41 791 National debt ($bn) 391 2243 Population (millions) 11.1 63.7 Source: Official statistics, 2020 Source: ONS, Eurostat, World Bank 2020 Extract B: Government debt: a Greek tragedy In 2018, after years of tough government spending cuts (austerity), the Greek government emerged from its third and final international financial rescue package, although economists warned that the country still had a “long way to go”. The European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF) have loaned Greece a total of €289bn (£240bn) since 2010. The EU and IMF insisted that, in return for help, economic reforms were necessary to reduce Greece’s structural budget deficit. For many Greeks, especially the young, the years of economic hardship were severe. Higher taxes and reduced salaries and pensions led to riots on the streets. The government spending cuts also severely damaged private-sector jobs. In 2012–13, the unemployment rate peaked at 27.5%, but for those under 25 it was 58%. Eight years after austerity began, GDP was 25% below its 2010 level. How did Greece find itself in this position in the first place? In 2007–08, the global financial crisis caused a worldwide recession. Many countries had huge government debts, but Greece was the worst affected with an unsustainable budget deficit following years of high government spending. In 2010, the country revealed the size of its huge budget deficit which led bond yields to soar and to a sovereign debt crisis. International lenders labelled Greek debt as ‘junk’ and the Greek Government was unable to borrow on financial markets. Greece was forced to ask for financial help. But what now? In 2019, the Greek economy grew by 1.9%. It had a budget surplus (excluding interest payments on its debt) and the unemployment rate had fallen below 20%. However, the pandemic has harmed the Greek economy and the Greek government’s budget is again in deficit. 1 5 10 15 20 Source: News reports, 20203 IB/M/Jun21/7136/2 Turn over ► Extract C: The end of government cutbacks in the UK? In 2019, the UK government’s debt repayment burden was at its lowest level in years and it was able to borrow at record low interest rates. Before the pandemic altered every governments’ fiscal plans, the UK government said they would rip up years of self-imposed budgetary constraints and increase spending to improve living standards. For years, austerity had led to under-funded public services and a low level of investment in the nation’s infrastructure. The Chancellor of the Exchequer announced a planned increase in government expenditure of 4.1% in 2020, equivalent to £13.8bn, in a move designed to signal an end to austerity. This would have been the largest increase in 15 years. The Chancellor said he was in a position to announce an [Show More]

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