Cambridge O Level Economics: The role of government and macroeconomic aims (2281) – 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.

The questions below test 4.1 and 4.2 of the Cambridge O Level Economics 2281 syllabus for examination in 2026: what governments do, the five aims and the clashes between them. All candidates take the same content. Every country and number is made up. Read the study guide and the revision notes. See also the Cambridge O Level Economics hub and the printable checklist.

Questions

1. State three macroeconomic aims of government. [3]

2. Explain what is meant by a criterion for a macroeconomic aim, giving an example. [2]

3. Country K has 12,350 people in work and 650 unemployed (thousands).

(a) Calculate the unemployment rate. [2] (b) The criterion is an unemployment rate of 4%. Calculate how many fewer people must be unemployed, assuming the labour force is unchanged. [2]

4. Country L’s nominal GDP rises from 2,000 to 2,226 (invented units) while its price index rises from 100 to 106.

(a) Calculate real GDP in the second year. [2] (b) Work out the real growth rate. [1] (c) Explain why a government states its growth target in real GDP rather than nominal GDP. [2]

5. Choose a different role of government for each of the local, national and international levels, and say why that level suits it. [6]

6. Explain two reasons why a government might choose stable prices as an aim. [4]

7. The table shows Country T. Criteria: real growth at least 3%, unemployment no more than 5%, inflation between 1% and 3%, a current account balance no bigger than 3% of GDP, whether in deficit or in surplus.

	Year 1	Year 2	Year 3
Real GDP growth (%)	2.0	4.0	6.0
Unemployment rate (%)	8.0	6.0	4.0
Inflation rate (%)	2.0	3.5	6.5
Current account (% of GDP)	+1.0	-1.5	-4.0

(a) In which year does unemployment first meet its criterion? [1] (b) By how many percentage points does inflation rise between year 1 and year 3? [1] (c) How many of the four criteria does Country T meet in year 2? [1] (d) Use the figures to explain one conflict between two aims. [4] (e) Discuss whether the government has good reason to be pleased with year 3. [5]

8. Country M’s GDP rises from 1,200 to 1,260 (invented units). Imports are 30% of GDP. Exports are 340 in the first year.

(a) Find the percentage increase in GDP. [1] (b) Find the value of imports at each GDP level. [2] (c) Find exports minus imports at each GDP level if exports stay at 340. [2] (d) Exports instead rise by 5%. Calculate the new balance and explain what it suggests about the conflict. [3]

9. Country N taxes income at 0% on the first 10,000, 10% on income from 10,000 to 30,000 and 25% above 30,000 (invented).

(a) Calculate the tax on an income of 45,000. [2] (b) Calculate the tax on an income of 18,000. [1] (c) Calculate both average tax rates to one decimal place. [2] (d) Explain how this system aids redistribution of income. [2]

10. Discuss whether a government can achieve full employment and stable prices together. [8]

11. Country V has unemployment of 12%, inflation of 2% and a current account deficit of 4% of GDP, and most citizens have low incomes. Discuss which macroeconomic aim its government should prioritise. [8]

Answers

1. Any three from: economic growth; full employment (low unemployment); stable prices (low inflation); a stable balance of payments; redistribution of income [1] [1] [1]. [3] Examiner insight: Use the aim names the syllabus uses; vague phrases such as “a strong economy” are unlikely to earn credit.

2. A criterion is a measurable standard the government sets to judge whether an aim is met [1]; for example, inflation between 1% and 3% a year [1]. [2] Examiner insight: Answers gain credit by giving a number or range, not just a restated aim.

3. (a) Labour force = 12,350 + 650 = 13,000 [1]; rate = 650 / 13,000 x 100 = 5.0% [1]. [2] (b) 4% of 13,000 = 520 [1]; fall = 650 - 520 = 130 thousand [1]. [2] Examiner insight: Showing the labour force line makes it clear which denominator you used, and a slip in the denominator is easier to see.

4. (a) Real GDP = 2,226 / 1.06 [1] = 2,100 [1]. [2] (b) (2,100 - 2,000) / 2,000 x 100 = 5.0% [1]. [1] (c) Nominal GDP can rise just because prices rise [1]; real GDP shows the change in goods and services produced, which is what raises living standards [1]. [2] Examiner insight: Quoting the contrast between nominal growth (11.3%) and real growth (5.0%) supports the explanation.

5. Local: a council grants permission for building or maintains local drains [1], because it knows local needs [1]. National: the government makes laws or taxes and spends on defence or schools [1], because only it has authority and revenue across the country [1]. International: governments agree limits on a shared problem such as fishing in joint waters [1], because one country cannot stop others acting alone [1]. [6] Examiner insight: Each level needs a role that fits that level plus a reason; a national role placed under local scores less.

6. First: rising prices cut what incomes can buy, which hits low earners and savers [1], so living standards fall [1]. Second: unpredictable prices make planning hard for firms [1], and if domestic prices rise faster than abroad, exports become less competitive [1]. [4] Examiner insight: Two distinct reasons, each developed, tend to be needed; restating one point in new words is unlikely to gain extra credit.

7. (a) Year 3 [1]. [1] (b) 6.5 - 2.0 = 4.5 percentage points [1]. [1] (c) Year 2 growth of 4.0 is met, unemployment of 6.0 is not, inflation of 3.5 is not, and the current account of -1.5 is met, so 2 criteria [1]. [1] (d) The clash is between low unemployment and low inflation [1]. Over the three years unemployment drops from 8.0% to 4.0% as inflation climbs from 2.0% to 6.5% [1]. Rising demand for workers and for goods [1] bids up wages and prices [1]. [4] (e) Growth of 6.0% and unemployment of 4.0% both meet their criteria [1]. Inflation of 6.5% is above the 3% limit and the 4.0% deficit is outside the 3% limit [1]. Rising prices cut purchasing power, and a big deficit has to be paid for by borrowing or selling assets [1]. Against that, the job and output gains are large and the price and trade problems could fade if demand cools [1]. Supported judgement, for example that the government should not be fully content, since half the criteria are missed and both gaps widened after year 1 [1]. [5] Examiner insight: Answers tend to gain more by comparing the figures with each criterion than by describing the table in general terms, and then committing to a judgement.

8. (a) (1,260 - 1,200) / 1,200 x 100 = 5% [1]. [1] (b) At 1,200: 30% of 1,200 = 360 [1]. At 1,260: 30% of 1,260 = 378 [1]. [2] (c) At 1,200: 340 - 360 = -20 [1]. At 1,260: 340 - 378 = -38 [1]. [2] (d) Exports = 340 x 1.05 = 357, so balance = 357 - 378 = -21 [1]. The deficit is almost unchanged, compared with -38 when exports are flat [1]. The conflict between growth and the balance of payments is weaker when growth is led by exports [1]. [3] Examiner insight: State the direction and size of the change in the balance, not just the new figure.

9. (a) 10% band: 20,000 x 10% = 2,000 [1]; 25% band: 15,000 x 25% = 3,750; total 5,750 [1]. [2] (b) (18,000 - 10,000) x 10% = 800 [1]. [1] (c) 5,750 / 45,000 x 100 = 12.8% [1]; 800 / 18,000 x 100 = 4.4% [1]. [2] (d) The higher earner pays a bigger share of income [1], and the revenue can fund services and benefits that help lower earners, narrowing the gap [1]. [2] Examiner insight: Applying a rate only to the part of income in each band, as shown, avoids the common slip of taxing all income at the top rate.

10. Conflict: higher demand reduces unemployment but scarce workers push up wages and costs, and strong demand lets firms raise prices [1] [1]. The clash is sharper near full capacity, when output cannot rise [1]. With spare capacity, firms can raise output without raising prices [1]. If unemployment falls because training improves skills, supply rises and the conflict is weaker [1]. Over time, persistent inflation may erode competitiveness, so any gain in jobs may not last [1]. Both aims can be met together when supply expands [1]. Judgement, for example that they can be met together mainly when growth comes from supply, but demand-led job creation near capacity usually raises prices [1]. [8] Examiner insight: Write when the conflict arises and when it does not, then commit; “yes, always” or “no, never” is rarely well supported.

11. For prioritising jobs: 12% unemployment wastes resources and leaves many in hardship, and low incomes mean unemployment may mean poverty [1] [1]. Inflation is low at 2%, so there is room to raise demand with little price risk [1]. For the balance of payments: a deficit of 4% of GDP must be financed by borrowing or selling assets [1], and more jobs and income may raise imports and worsen it [1]. Evaluation: unemployment is the larger problem now, and spare capacity makes the clash with prices weak [1]. Policies that create jobs in export or import-replacing industries ease the deficit conflict [1]. Judgement, for example priority to jobs, with the deficit watched and growth led by exports, because the harm from unemployment is greater and more immediate [1]. [8] Examiner insight: Use the figures given for Country V in the argument; a general list of aims scores less than a judgement tied to this case.

Where marks are usually lost

• Listing an aim without a reason for choosing it.
• Using employment, not the labour force, as the base for the unemployment rate.
• Quoting nominal GDP where real growth is wanted.
• Writing a percentage change where percentage points are wanted.
• Stating that two aims clash without showing how.
• Taking full employment to mean no unemployed at all.
• Finishing a discussion with no judgement linked to the case.

Next steps

• Go back over the study guide and the revision notes for any question you lost marks on.
• Check the Cambridge O Level Economics hub and the printable checklist.
• Find weak spots with the free diagnostics.
• Book a free trial class.

Official syllabus

Source: Cambridge O Level Economics 2281 syllabus, for examination in 2026, version 2, from Cambridge University Press & Assessment (Cambridge International). Content points: 4.1.1, 4.2.1, 4.2.2.