Cambridge A Level Economics: Unemployment and price stability (9708) – 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 4.5 and 4.6 of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. They are AS Level content, assumed knowledge for A Level Papers 3 and 4. All countries and figures are invented, and money is in currency units (cu). Read the study guide and revision notes first. The course hub and checklist show the rest of the syllabus, and the free diagnostics help you find weak spots.

Questions

1. Define unemployment. [2]

2. Country B has 7.20 million people employed, 0.45 million unemployed and a working-age population of 10.2 million.

(a) Calculate the labour force. [1] (b) Calculate the unemployment rate, to one decimal place. [2] (c) Calculate the participation rate. [2]

3. Region R has 9,200 people in work and 800 unemployed.

(a) Calculate its unemployment rate. [2] (b) Next year employment is unchanged, but 400 of the unemployed stop looking for work. Calculate the new rate, to one decimal place. [2] (c) Explain why the fall in the rate overstates the improvement. [2]

4. Identify the type of unemployment in each case.

(i) A trainee accountant takes eight weeks to find a better-matched job. [1] (ii) A shipyard closes, and its welders cannot do the digital work on offer in distant cities. [1] (iii) Falling consumer spending leads firms across the economy to cut staff. [1] (iv) Fruit pickers lose work when the harvest ends. [1] (v) A warehouse installs robotic pickers. [1]

5.

(a) Explain why structural unemployment tends to last longer than frictional unemployment. [3] (b) Using the AD/AS model, explain how a fall in aggregate demand causes cyclical unemployment. [3]

6. Country C has 0.6 million unemployed. Each would produce 25,000 cu a year if employed. The government pays each 5,000 cu in benefits and loses 3,500 cu in tax from each.

(a) Calculate the output lost per year. [2] (b) Calculate the annual cost to the government budget. [3] (c) Explain one consequence for the unemployed themselves, other than lower income. [3]

7.

(a) Define inflation, deflation and disinflation. [3] (b) A consumer price index is 100 in year 1, 104 in year 2, 106.1 in year 3 and 105.0 in year 4. Calculate the inflation rate for years 2, 3 and 4, to one decimal place, and say which year shows disinflation and which deflation. [5]

8. A CPI has four categories with weights of 40, 25, 20 and 15. In year 0 every index is 100. In year 1 the indices are 104, 110, 95 and 102 in that order.

(a) Calculate the CPI for year 1. [3] (b) State the inflation rate. [1] (c) Give one reason why the CPI may not reflect the price changes a pensioner faces. [1]

9. A worker earns 1,800 cu a month in year 0, when the CPI is 100, and 1,872 cu in year 1, when the CPI is 106.

(a) Calculate the real wage in year 1 at year 0 prices. [2] (b) Calculate the percentage change in the real wage, to one decimal place. [2] (c) State what this shows about the worker’s living standards. [1]

10. In Economy X the price level rises from 100 to 106 and real output from 600 to 620. In Economy Y the price level rises from 100 to 106 and real output falls from 600 to 575.

(a) Identify which economy is experiencing demand-pull and which cost-push inflation, with a reason for each. [4] (b) Give one possible cause of each. [2]

11. A pensioner receives a fixed pension of 1,500 cu a month. Prices rise by 8%.

(a) Calculate the real value of the pension after the rise, to the nearest cu. [2] (b) Evaluate whether inflation harms all households and firms equally. [8]

Answers

1. Unemployment is where people are able and willing to work at the going wage [1] and actively seek a job but do not have one [1]. [2] Examiner insight: A definition that says only “people without jobs” omits the conditions, so state that they are willing, able and looking.

2. (a) 7.20 + 0.45 = 7.65 million [1]. [1] (b) 0.45 ÷ 7.65 × 100 [1] = 5.9% [1]. [2] (c) 7.65 ÷ 10.2 × 100 [1] = 75.0% [1]. [2] Examiner insight: The base for the rate is the labour force, not the population, and showing that base is where the working earns credit.

3. (a) Labour force = 10,000 [1]; rate = 800 ÷ 10,000 × 100 = 8.0% [1]. [2] (b) Unemployed = 400 and labour force = 9,200 + 400 = 9,600 [1]; rate = 400 ÷ 9,600 × 100 = 4.2% [1]. [2] (c) The 400 still have no job [1], but they have left the labour force, so they are no longer counted as unemployed [1]. [2] Examiner insight: Remember to shrink the labour force as well as the unemployed total; changing only the numerator is a common slip.

4. (i) Frictional [1]. (ii) Structural [1]. (iii) Cyclical [1]. (iv) Seasonal [1]. (v) Technological [1]. [5] Examiner insight: One-word answers are enough here, but check the cause in the scenario: a skills mismatch points to structural, a fall in demand to cyclical.

5. (a) Frictional unemployment is a delay in matching workers to vacancies [1] that better information shortens quickly [1]. Structural unemployment needs retraining or a move to another area [1], which takes longer and costs more. [3] (b) Aggregate demand shifts left along SRAS [1], so equilibrium real output falls [1] and firms need fewer workers, so employment falls and unemployment rises [1]. [3] Examiner insight: An AD/AS answer gains from naming the axes and the direction of each shift, and from finishing on employment.

6. (a) 0.6m × 25,000 [1] = 15,000 million cu [1]. [2] (b) Benefits = 0.6m × 5,000 = 3,000 million [1]; tax forgone = 0.6m × 3,500 = 2,100 million [1]; total = 5,100 million cu [1]. [3] (c) Skills become outdated while out of work [1], so employers prefer other applicants [1], which lengthens the spell and lowers later earnings [1]. [3] Examiner insight: Part (b) needs both benefits and lost tax, and the lost output belongs in part (a) only, not in the budget cost.

7. (a) Inflation: a sustained rise in the general price level [1]. Deflation: a sustained fall in the general price level [1]. Disinflation: a fall in the rate of inflation, with prices still rising [1]. [3] (b) Year 2: (104 − 100) ÷ 100 = 4.0% [1]. Year 3: (106.1 − 104) ÷ 104 = 2.0% [1]. Year 4: (105.0 − 106.1) ÷ 106.1 = −1.0% [1]. Year 3 is disinflation, because inflation slowed while prices still rose [1]. Year 4 is deflation, because the price level fell [1]. [5] Examiner insight: Keep the minus sign in year 4, and give the reason for each label as well as the label.

8. (a) Weighted products: 40×104 = 4,160; 25×110 = 2,750; 20×95 = 1,900; 15×102 = 1,530 [1]. Sum = 10,340 [1]. Divide by 100: 103.4 [1]. [3] (b) (103.4 − 100) ÷ 100 × 100 = 3.4% [1]. [1] (c) The weights reflect an average household [1], whereas a pensioner may spend more on heating or health, so their basket differs. [1] Examiner insight: A reason must be specific: say how the pensioner’s spending differs from the weights, not just that people differ.

9. (a) Real wage = 1,872 ÷ 106 × 100 [1] = 1,766 cu [1]. [2] (b) (1,766.04 − 1,800) ÷ 1,800 × 100 [1] = −1.9% [1]. [2] (c) The worker’s purchasing power fell, although the money wage rose 4% [1]. [1] Examiner insight: Divide by the index, not multiply, and finish by interpreting the figure, not just stating it.

10. (a) Economy X is demand-pull [1] because output rises with prices, as when AD shifts right [1]. Economy Y is cost-push [1] because output falls as prices rise, as when SRAS shifts left [1]. [4] (b) Demand-pull: a cut in income tax raises consumer spending [1]. Cost-push: a rise in energy costs or in wages above productivity [1]. [2] Examiner insight: The change in output is the evidence that separates the two, so quote the figures.

11. (a) 1,500 ÷ 1.08 [1] = 1,389 cu [1]. [2] (b) The pensioner’s purchasing power falls about 7.4% [1], so fixed incomes lose. Savers lose if interest is below inflation [1], while borrowers with fixed repayments gain [1]. Workers whose pay rises with prices are protected [1], but those with weaker bargaining power are not [1]. Firms face menu costs [1] and uncertainty that may delay investment [1]. The harm depends on the rate and on whether inflation is anticipated [1]. [8] Examiner insight: A judgement that names who loses and what the outcome depends on tends to gain more credit than a list.

Where marks are usually lost

• Using the population, not the labour force, as the base for the unemployment rate.
• Forgetting that discouraged workers leave the labour force, so the rate can fall without new jobs.
• Naming a type of unemployment without linking it to its cause.
• Writing the inflation formula with the new CPI as the denominator.
• Calling disinflation a fall in prices.
• Multiplying by the index instead of dividing to get a real value.
• Describing cost-push as a rise in demand, or leaving out the change in output.
• Listing consequences of inflation without saying who gains or loses.

Next steps

• Review the revision notes and the study guide.
• Check your coverage on the printable checklist and the course hub.
• Take one of the free 10-minute diagnostics.
• Book a free trial class at /trial/.

Official syllabus

Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment (Cambridge International Education). Sections 4.5.1 to 4.5.4 and 4.6.1 to 4.6.5.