AQA A Level Economics
AQA A Level Economics 3.2.6 The International Economy Exam Questions
Free AQA A Level Economics exam questions for 3.2.6 The International Economy, with a mark scheme for every pack. Covers globalisation, comparative advantage, protectionism, trading blocs, the balance of payments, exchange rates and economic development.
3.2.6 The International Economy exam questions
5 question packs of real past exam questions, each with its mark scheme. Do not stop after a few: answer as many as you can without notes, then mark every answer with the mark scheme. The more questions you do, the more quickly you will spot how examiners ask about each idea.
About AQA A Level Economics 3.2.6 The International Economy
The international economy is section 3.2.6 of AQA A Level Economics and is examined on Paper 2. It covers globalisation, multinational corporations, specialisation and trade based on absolute and comparative advantage, the terms of trade, trading blocs and the World Trade Organization, and restrictions on free trade such as tariffs, quotas and export subsidies. It then covers the balance of payments and its components, causes and consequences of current account deficits and surpluses, fixed, floating and managed exchange rate systems, the effects of exchange rate changes, and economic growth and development, including indicators of development and the barriers and policies involved. Examiners expect diagrams and careful evaluation.
What you need to know
- Globalisation Globalisation is the increasing integration of economies through trade, capital flows, migration and the spread of technology. Multinational corporations play a major role. Costs and benefits differ for developed and developing countries.
- Trade and comparative advantage A country has a comparative advantage when it can produce a good at a lower opportunity cost than another country. Specialisation and trade increase world output. Terms of trade = index of export prices / index of import prices x 100.
- Protectionism and trading blocs Tariffs, quotas, export subsidies and non-tariff barriers protect domestic industries but reduce consumer surplus and create welfare losses. Know free trade areas, customs unions, common markets and monetary unions, and the role of the WTO.
- Balance of payments The current account records trade in goods and services, primary income and secondary income; the financial account records investment flows. Persistent current account deficits may reflect low competitiveness. Policies include expenditure-switching and expenditure-reducing measures.
- Exchange rates Floating rates are set by demand and supply of a currency; fixed and managed rates involve central bank intervention. A depreciation makes exports cheaper and imports dearer; it improves the current account only if the Marshall-Lerner condition holds, and the J-curve shows it may worsen first.
- Growth and development Development is broader than growth, measured by the HDI and other indicators. Barriers include poor infrastructure, corruption, debt and reliance on primary products. Strategies include aid, trade, FDI, microfinance and the work of the IMF and World Bank.
Common mistakes in 3.2.6 The International Economy
- Confusing absolute and comparative advantage. Trade is beneficial when opportunity costs differ, even if one country is better at producing both goods.
- Saying an improvement in the terms of trade always helps the current account. Higher export prices may reduce demand for exports if demand is price elastic.
- Assuming a depreciation immediately reduces a current account deficit. The J-curve shows it may worsen first, and the Marshall-Lerner condition must hold.
- Treating the balance of payments as always balancing at zero for the current account. The overall balance of payments balances, but the current account can be in deficit or surplus.
- Using growth and development as the same thing. Development includes health, education and freedoms, not just higher GDP.
Try three 3.2.6 The International Economy exam-style questions
1. Country A can produce 10 units of wheat or 5 units of cloth; Country B can produce 6 units of wheat or 6 units of cloth. Identify which country has a comparative advantage in cloth and explain why. (4 marks)
Show the mark scheme answer
Opportunity cost of 1 cloth in A = 2 wheat; in B = 1 wheat; B has the lower opportunity cost of cloth so has the comparative advantage in cloth; A has the comparative advantage in wheat (0.5 cloth per wheat compared with 1 in B).
2. Using a diagram, explain the effects of a tariff on imports of steel. (9 marks)
Show the mark scheme answer
Tariff raises the domestic price above the world price; domestic production extends and domestic consumption contracts; imports fall; government gains tariff revenue; consumer surplus falls; deadweight welfare loss triangles from inefficient production and lost consumption; correctly drawn diagram with world supply, tariff-inclusive price and areas labelled.
3. Evaluate the view that a depreciation of the pound is the best way to reduce a UK current account deficit. (25 marks)
Show the mark scheme answer
Depreciation makes UK exports cheaper and imports dearer, improving price competitiveness; improves the current account if the Marshall-Lerner condition holds; evaluate: J-curve delays; imported inflation raises costs and may erode competitiveness; low price elasticity for many imports; deficits may reflect non-price competitiveness or low saving; supply-side policies or expenditure-reducing policies as alternatives; supported judgement.
3.2.6 The International Economy FAQs
What does AQA A Level Economics 3.2.6 cover?
It covers globalisation, comparative advantage and trade, terms of trade, protectionism, trading blocs and the WTO, the balance of payments, exchange rate systems, and economic growth and development.
Which paper is 3.2.6 examined in?
It is assessed on Paper 2, National and international economy, and can also appear on Paper 3, Economic principles and issues, which draws on the whole specification.
Which international diagrams do I need?
Learn the tariff diagram with welfare losses, demand and supply diagrams for a currency, the J-curve, and how to show the effects of an exchange rate change on AD. Practise comparative advantage calculations using opportunity cost.
