AQA GCSE Economics: Balance of payments and distribution of income (8136) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover sections 3.2.2.5 Balance of payments and 3.2.2.6 Distribution of income in the AQA GCSE Economics (8136) specification for first teaching from September 2017. There are no tiers. All countries and numbers are made up. For explanations, see the study guide and revision notes. Other links: the AQA GCSE Economics hub, the checklist and the free diagnostics.

Questions

1. State what is meant by the balance of trade. [1]

2. Country C’s figures (billion units) are: exports of goods 85, imports of goods 97, exports of services 41, imports of services 22, net income from abroad +2. (a) Calculate the balance of trade. [2] (b) Calculate the current account balance and state whether it is a deficit or a surplus. [2]

3. Country D’s current account moved from a deficit of 14 to a deficit of 9 (billion units). Calculate the percentage change in the size of the deficit. [2]

4. Explain two reasons why a country may have a current account deficit. [4]

5. Explain why a large and persistent current account deficit may be a problem for a country. [3]

6. Explain how a supply-side policy could reduce a current account deficit in the long run. [3]

7. Distinguish between income and wealth, giving an example of each. [4]

8. Explain two causes of income inequality. [4]

9. Country E taxes the first 10,000 of income at 0% and income above that at 30%. Calculate the tax paid, as a percentage of income, by someone earning 15,000 and by someone earning 50,000. State whether the tax is progressive. [4]

10. Explain how government spending on education can redistribute income over time. [3]

11. “Raising the top rate of income tax is the best way to reduce inequality.” Evaluate this view. [9]

Answers

1. The value of exports minus the value of imports of goods and services [1]. [1]

2. (a) Goods: 85 − 97 = −12; services: 41 − 22 = +19 [1]; balance of trade = +7 [1]. (b) Current account = 7 + 2 = +9 [1], a surplus [1]. [4] Examiner insight: A trade deficit in goods does not mean a current account deficit; services and income can outweigh it.

3. (9 − 14) ÷ 14 × 100 [1] = −35.7%, so the deficit shrank by about 36% [1]. [2]

4. Any two developed: domestic goods are less competitive [1], so consumers buy imports and foreigners buy fewer exports [1]; strong consumer spending [1] increases demand for imports [1]; a strong exchange rate [1] makes exports more expensive abroad and imports cheaper at home [1]. [4]

5. Money spent on imports supports jobs abroad rather than at home [1]; the deficit must be financed by borrowing from abroad or selling assets [1], and it may show that domestic firms are uncompetitive, which harms growth [1]. [3]

6. For example, training or investment incentives [1] raise productivity and quality, so domestic firms become more competitive [1]; exports rise and consumers switch from imports, narrowing the deficit [1]. [3]

7. Income is a flow of money received over a period [1], e.g. wages [1]. Wealth is a stock of assets owned at a point in time [1], e.g. a house or savings [1]. [4]

8. Any two developed: differences in skills [1] mean skilled workers command higher wages [1]; ownership of wealth [1] gives some people extra income from rent, interest or dividends [1]; unemployment [1] leaves people relying on lower benefit incomes [1]. [4]

9. Earner on 15,000: tax = 0.3 × 5,000 = 1,500, which is 10% [1]. Earner on 50,000: tax = 0.3 × 40,000 = 12,000, which is 24% [1] [1]. The percentage paid rises with income, so the tax is progressive [1]. [4]

10. Free education is used by low-income families who could not afford it otherwise [1]; it raises their skills and qualifications [1], so they can earn higher wages later, narrowing income gaps [1]. [3]

11. For:

• A higher top rate takes a larger share of the highest incomes [1], narrowing after-tax inequality [1].
• The revenue could fund benefits or services for low-income households [1].

Against:

• High earners may work less, move abroad or avoid tax, so revenue may not rise much [1] [1].
• Income tax does not tackle wealth inequality, which is larger [1].
• Spending on education and training tackles a cause of low income rather than the outcome [1].

Judgement: For example, a higher top rate helps but is unlikely to be the best single policy, because combining progressive taxes with spending on skills tackles both the outcome and the cause [1] [1]. [9]

Where marks are usually lost

• Leaving out “deficit” or “surplus” after a calculation.
• Treating a trade deficit in goods as a current account deficit.
• Mixing up income and wealth.
• Calling a tax progressive because rich people pay more money in total, rather than a higher percentage.
• Giving a 9-mark answer with no judgement.

Frequently asked questions

What should I write after a current account calculation? State whether the answer is a deficit or a surplus. Leaving out the word deficit or surplus after the number is a common way to lose a mark in AQA GCSE Economics.

Is a trade deficit in goods the same as a current account deficit? No. The current account also includes trade in services and primary and secondary income, so a deficit in goods alone does not tell you the current account balance.

How do I show a tax is progressive? Show that it takes a higher percentage of income from richer people, not just more money in total.

Which AQA GCSE Economics sections do these questions cover? They cover AQA GCSE Economics 8136 sections 3.2.2.5 Balance of payments and 3.2.2.6 Distribution of income.

Next steps

• Revise with the revision notes and re-read the study guide.
• Check coverage on the checklist and see the AQA GCSE Economics hub.
• Take one of the free 10-minute diagnostics.

Official syllabus

AQA GCSE Economics (8136) specification, for first teaching from September 2017, published by AQA: sections 3.2.2.5 Balance of payments and 3.2.2.6 Distribution of income.