ECONOMICS A PAPER 2 THE UK ECONOMY:
PERFORMANCE AND POLICIES 2026
COMPLETE EXAM PRACTICE WITH MARK
SCHEME
◉ Closed economy. Answer: An economy where there is no foreign
trade.
◉ Income. Answer: Rent, interest, wages and profits earned from
wealth owned by economic actors.
◉ Injections. Answer: In the circular flow of income, spending which
is not generated by households including investment, government
spending and exports.
◉ National income. Answer: The value of the output, expenditure or
income of an economy over a period of time.
◉ Open economy. Answer: An economy where there is trade with
other countries.
,◉ Wealth. Answer: A stock of assets which can be used to generate a
flow of production or income. For example, physical wealth such as
factories and machines is used to make goods and services.
◉ Withdrawals or leakages. Answer: In the circular flow of income,
spending by households which does not flow back to domestic firms.
It includes savings, taxes and imports.
◉ Marginal propensity to import (MPM). Answer: The increase in
imports divided by the increase in income that caused them (i.e.
change in M / change in Y)
◉ Marginal propensity to save (MPS). Answer: The increase in
saving divided by the increase in income that caused it (i.e. change in
S / change in Y)
◉ Marginal propensity to tax (MPT). Answer: The increase in tax
revenues divided by the increase in income that caused them (i.e.
change in T / change in Y)
◉ Marginal propensity to withdraw (MPW). Answer: The increase in
withdrawals from the circular flow (S + T + M) divided by the
increase in income that caused them (i.e. change in W / change in Y);
this is the same as the sum of the marginal propensity to save, tax
and import (MPS + MPT + MPM).
, ◉ Multiplier or national income multiplier or Keynesian multiplier
or real multiplier. Answer: The figure used to multiply a change in an
injection into the circular flow, such as investment, to find the final
change in income (assuming the injection is not determined by
income). It is the ratio of the final change in income to the initial
change in an injection. It can be calculated as
1
________
1 - MPC
or
1
___________________
MPS + MPT + MPM
or
1
____
MPW
PERFORMANCE AND POLICIES 2026
COMPLETE EXAM PRACTICE WITH MARK
SCHEME
◉ Closed economy. Answer: An economy where there is no foreign
trade.
◉ Income. Answer: Rent, interest, wages and profits earned from
wealth owned by economic actors.
◉ Injections. Answer: In the circular flow of income, spending which
is not generated by households including investment, government
spending and exports.
◉ National income. Answer: The value of the output, expenditure or
income of an economy over a period of time.
◉ Open economy. Answer: An economy where there is trade with
other countries.
,◉ Wealth. Answer: A stock of assets which can be used to generate a
flow of production or income. For example, physical wealth such as
factories and machines is used to make goods and services.
◉ Withdrawals or leakages. Answer: In the circular flow of income,
spending by households which does not flow back to domestic firms.
It includes savings, taxes and imports.
◉ Marginal propensity to import (MPM). Answer: The increase in
imports divided by the increase in income that caused them (i.e.
change in M / change in Y)
◉ Marginal propensity to save (MPS). Answer: The increase in
saving divided by the increase in income that caused it (i.e. change in
S / change in Y)
◉ Marginal propensity to tax (MPT). Answer: The increase in tax
revenues divided by the increase in income that caused them (i.e.
change in T / change in Y)
◉ Marginal propensity to withdraw (MPW). Answer: The increase in
withdrawals from the circular flow (S + T + M) divided by the
increase in income that caused them (i.e. change in W / change in Y);
this is the same as the sum of the marginal propensity to save, tax
and import (MPS + MPT + MPM).
, ◉ Multiplier or national income multiplier or Keynesian multiplier
or real multiplier. Answer: The figure used to multiply a change in an
injection into the circular flow, such as investment, to find the final
change in income (assuming the injection is not determined by
income). It is the ratio of the final change in income to the initial
change in an injection. It can be calculated as
1
________
1 - MPC
or
1
___________________
MPS + MPT + MPM
or
1
____
MPW
