Edexcel A-Level Past Paper Questions on Trade-offs between Macroeconomic Objectives

This page brings together Edexcel A-Level Economics past paper questions focused specifically on trade-offs between macroeconomic objectives, so students can practise one of the most common themes in Paper 2 and Paper 3 without spending hours searching through past papers.

Trade-off questions test whether you can explain why governments and central banks often cannot achieve every objective at the same time. For example, policies designed to reduce inflation may increase unemployment, while policies intended to boost economic growth may worsen the fiscal deficit or increase inequality. These questions reward students who can weigh competing outcomes, apply context from an extract, and reach a balanced judgement.

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How to use these questions for exam revision

These questions work best as timed practice. Start by identifying the two objectives in tension (e.g., inflation vs unemployment), then build two clear arguments supported by definitions, diagrams where relevant, and evaluation. If you want more practice with evaluation-heavy questions, you can pair this page with a dedicated list of Edexcel A-Level Economics 12-marker questions.

If you’re also organising revision by question style, you may find it useful to practise shorter “examine” responses as well — especially for building fast chains of analysis before moving into longer evaluation — using the Edexcel A-Level Economics 8-marker microeconomics questions list.

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Why macro trade-offs matter in Edexcel Economics

Trade-offs sit at the heart of macro policy because every intervention has opportunity costs. For example, expansionary fiscal policy might raise AD and reduce cyclical unemployment, but it can also increase inflationary pressure and public borrowing. Similarly, tight monetary policy can stabilise prices but weaken consumption and investment, reducing economic growth.

If you want a quick refresher on how firms respond to changing costs and revenues — which often links back into macro outcomes like investment and profitability — you can also practise relevant diagram-based questions from Business Costs and Revenue.

Question 1: Edexcel A-Level Economics 9EC0 Paper 2 November 2021

It has been estimated that if climate change led to the world’s temperature rising 2.5 °C compared to the temperature in 2010, then global GDP per capita would be 15% lower by 2100. If temperatures rise by 4 °C compared to the temperature in 2010, then by 2100 global GDP per capita would decline by more than 30%. 

Evaluate the potential trade-offs between environmental protection and other macroeconomic objectives. (25 points)

Question 2: Edexcel A-LEvel Economics 9EC0 Paper 2 June 2018

Extract A

UK companies use forward currency market

The Norfolk-based picture frames maker Nielsen Bainbridge recently made forward contracts in the foreign exchange market to reduce the impact of currency fluctuations. The pound’s post-Brexit referendum depreciation has been a test of nerve for Nielsen Bainbridge and many other importers. At present the company’s suppliers are located in Europe or China. “Currency therefore has a big impact on our business and the margins we can obtain,” says Ms Burdett, the Finance Director. Forward contracts enable institutions, businesses and individuals to lock in an exchange rate over a certain period of time regardless of how the rate moves during that time. Ms Burdett buys currency as soon as Nielsen Bainbridge confirms a large order as a way to fix costs. One third of UK business managers are considering shifting from EU to UK suppliers.

Extract B

Bank of England seeking to prevent future bank bailouts

The Bank of England has ordered big lenders in the UK to find £116 billion of funding to ensure that taxpayers will never again have to bail out the banking sector. The Bank intends to publish details of how each of the big lenders would cope in the event they find themselves in a situation similar to Royal Bank of Scotland and Lloyds Banking Group, which needed £65 billion of taxpayer bailouts during the 2008 Global Financial Crisis. This had a significant negative impact on the UK government’s national debt and, many would argue, increased the need for contractionary fiscal policy. Having said that, the UK government sold all its shares in Lloyds Banking Group in 2017 and, according to the Chancellor of the Exchequer, “recovered every penny of its investment in Lloyds”. Sir Jon Cunliffe, the deputy governor at the Bank responsible for financial stability, said regulators needed to let banks fail in a similar way that traditional companies collapse. This has not been possible in the past because of the risk that savers lose their money and because a system did not exist to allow banks to be put into insolvency. “Just like when other businesses fail, losses arising from bank failure would be imposed on shareholders and investors. This protects the public from loss and incentivises banks to operate more prudently,” said Cunliffe.

Extract C

Bank of England tells lenders to increase capital reserves

The Bank of England has told lenders they will need to build a special reserve worth £11.4 billion by the end of 2018 as it tries to make banks more resilient to the risk posed by mounting consumer debt. This reserve of assets that can be readily turned into cash is a way of forcing banks to set aside capital reserves in good times in order to keep lending to the wider economy at a steady level, even during an economic downturn. In 2017 the Bank of England told UK banks it would raise the reserve ratio, relative to all assets, from zero to 0.5% and also forecast a further increase to 1% by the end of 2017. The move is not intended to directly reduce consumer demand for credit, which in 2017 grew by 10.3% on an annual basis, but it may well lead to banks becoming less willing to lend to consumers. Since the Bank of England has recently become increasingly concerned about consumer borrowing, including rising car loans and credit card debt, this may be no bad thing as far as the Bank of England is concerned, even if it does have a negative impact on the wider economy.

Analysts are concerned about the impact on consumer confidence of rising inflation, partly caused by a falling pound. With falling real incomes consumers could become more vulnerable to falling behind with their credit card and personal loan repayments. Despite these concerns, the UK economy recently recorded the lowest rate of unemployment since 1975.

(a) With reference to Extract A, explain the role of forward markets in currencies. (5 points)

(b) With reference to Extract A and Figure 1, examine the likely impact of the change in the sterling exchange rate on the UK economy. (8 points)

(c) With reference to the last paragraph in Extract C, assess the impact of a fall in real incomes on subjective happiness. (10 points)

(d) With reference to Extract C, discuss the potential conflicts between macroeconomic objectives when the central bank attempts to control inflation. (12 points)

(e) Discuss whether providing substantial government financial support to banks is the best policy response during a financial crisis. (15 points)

Question 3: Edexcel A-Level Economics 9EC0 Paper 3 June 2023

Evaluate the likely microeconomic and macroeconomic effects of tax cuts in the UK (25 points).