A Level Economics: The Macroeconomy — Practice Questions (Cambridge 9708)

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 — Cambridge International holds copyright in its own papers. Use these alongside the official past papers available from your board.

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Questions

1. A consumer price index rises from 120 to 126 over one year. Calculate the rate of inflation. [2]

2. Distinguish between deflation and disinflation. [2]

3. Explain two limitations of the consumer price index (CPI) as a measure of inflation. [2]

4. State the components of aggregate demand. [2]

5. Nominal GDP grows by 8% in a year in which the inflation rate is 5%. Estimate the growth of real GDP and explain what it shows. [2]

Answers

1. Inflation = (126 − 120) ÷ 120 × 100 [1] = 5% [1].

2. Deflation is a sustained fall in the general price level (a negative inflation rate) [1]. Disinflation is a fall in the rate of inflation: prices are still rising, but more slowly [1].

Examiner insight (June 2025): most candidates could define deflation, but some confused it with disinflation. A falling inflation rate that stays above zero is disinflation, not deflation. Try the real question next: Cambridge International AS & A Level Economics 9708, June 2025, Paper 22, Question 4.

3. Any two of: the basket of goods and its weights are based on an average household and may not match a particular household’s spending [1]; it is slow to reflect changes in the quality of products and new products [1]; it may not capture changes in where people shop or switching to cheaper substitutes [1]. Maximum 2 marks.

Examiner insight (June 2025): many answers did not show a clear understanding of the limitations of the CPI as a measure of inflation; give specific reasons like those above rather than general comments. Try the real question next: Cambridge International AS & A Level Economics 9708, June 2025, Paper 21, Question 1.

4. Consumption, investment, government spending and net exports: AD = C + I + G + (X − M) [2] (1 mark for three correct).

5. Real GDP grew by about 8% − 5% = 3% [1]. The rest of the rise in nominal GDP only reflects higher prices; real GDP measures the change in the volume of output [1].

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Where marks are usually lost

• Confusing deflation (falling prices) with disinflation (prices rising more slowly).
• Stating CPI limitations without explaining why they matter.
• Treating a rise in nominal GDP as growth in output.