OCR A Level Economics: Aggregate supply and the AD/AS model (H460) – 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 practise Aggregate supply, Aggregate demand and aggregate supply, and the first two outcomes of Macroeconomic equilibrium (Component 2, Macroeconomics) from the OCR A Level Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021. Teaching is in the study guide and the revision notes. See also the course hub, a topic checklist and diagnostics. Every country and number is made up.

Questions

1. Define short-run aggregate supply and explain why the SRAS curve slopes upwards. [3]

2. In Country X, AD and SRAS (real output, in units) are as follows. LRAS is vertical at 700.

Price level	100	110	120	130	140
AD	800	750	700	650	600
SRAS	600	650	700	750	800

(a) State the equilibrium price level and real output. [2] (b) AD rises by 100 at every price level. Find the new short-run equilibrium and the percentage changes in the price level and real output. [4] (c) Explain the long-run adjustment and give the long-run price level. [3]

3. Distinguish between the Keynesian and neo-classical approaches to long-run aggregate supply. [4]

4. For each event, state whether SRAS, LRAS or both shift, and in which direction. (i) A subsidy on firms’ energy use. (ii) A training programme that raises productivity. (iii) A storm destroys one season’s crops. (iv) Emigration reduces the labour force permanently. [4]

5. In Country Y the price level is 100 and real output 2,500 in year 1. After a rise in AD, the price level is 104 and real output 2,650 in year 2. Calculate real growth, inflation, and the growth of nominal GDP (price level × real output / 100). [5]

6. Explain two assumptions of the AD/AS model and explain how one of them limits the conclusions you can draw. [6]

7. Country J has output 5% below potential, unemployment of 10% and inflation of 0.8%. Country K has output 4% above potential, unemployment of 3.2% and inflation of 6.5%. Using AD/AS, explain which policy approach suits each country, and one limit of this data. [6]

8. In Country Z the AS curve is flat at a price level of 100 up to output 800, rises with output = 8 × price level up to a price level of 125 (output 1,000), then is vertical. AD starts at output = 940 − 2P. (a) AD shifts to output = 1,000 − 2P. Find the new equilibrium and the percentage changes. [3] (b) AD then shifts to output = 1,100 − 2P. Find the new equilibrium and the percentage changes. [3] (c) Explain why the results differ. [2]

9. Evaluate whether supply-side policies are more appropriate than demand-side policies for managing an economy. [10]

10. In Country W, AD is output = 1,000 − 4P and SRAS is output = 6P. LRAS is vertical at 600. (a) A cost shock shifts SRAS to output = 6P − 90. Find the new equilibrium and the percentage changes. [4] (b) The government raises AD to restore output of 600. Find the price level and the new AD equation. [2] (c) Comment on the outcome. [2]

11. Evaluate how an increase in aggregate demand may affect economic growth, unemployment and inflation. [12]

Answers

1. SRAS is the total real output firms will supply at each price level when some costs, such as wages, are fixed [1]. If prices rise while wage costs are fixed, profit per unit rises [1], so firms increase output, giving an upward slope [1]. [3] Examiner insight: the link from fixed costs to profit to output is the explanation; a statement that “supply rises with price” repeats the question.

2. (a) AD equals SRAS where both are 700 [1]: price level 120, output 700 [1]. (b) New AD is 1,400 − 5P and SRAS is 100 + 5P, so they are equal where 10P = 1,300 [1]. New equilibrium price level 130, output 750 [1]. Price level +10/120 = 8.3% [1]. Output +50/700 = 7.1% [1]. (c) Output 750 is above potential 700, so labour and inputs are scarce [1] and wages and costs rise, shifting SRAS left [1]. Equilibrium returns to output 700 on the new AD (1,400 − 5P): P = 140 [1]. [9] Examiner insight: percentage changes should use the starting value as the base, and a long-run answer should end with the stated price level, not only a direction.

3. Neo-classical: LRAS is vertical at potential output [1] because wages and prices are flexible, so markets clear in the long run [1]. Keynesian: LRAS can slope upwards or be flat at low output [1] because wages are sticky downwards, so the economy can stay below full employment [1]. [4] Examiner insight: the contrast needs both the shape and the reason (flexibility of wages and prices); a shape alone describes rather than distinguishes.

4. (i) SRAS shifts right [1]. (ii) Both shift right [1]. (iii) SRAS shifts left [1]. (iv) Both shift left [1]. [4] Examiner insight: the long-run test is whether productive capacity changes. A one-season shock or a subsidy does not change it.

5. Real growth = 2,650/2,500 − 1 = 6.0% [1]. Inflation = 104/100 − 1 = 4.0% [1]. Nominal GDP year 1 = 100 × 2,500/100 = 2,500 [1]. Year 2 = 104 × 2,650/100 = 2,756 [1]. Nominal growth = 2,756/2,500 − 1 = 10.24% [1]. [5] Examiner insight: show that nominal growth is about real growth plus inflation (1.06 × 1.04 = 1.1024) as a check on your own working.

6. Assumption one: a single price level and output represent the whole economy [1], so the model hides which sectors or groups gain or lose [1]. Assumption two: wages and costs are sticky in the short run but flexible in the long run [1], which gives SRAS its slope and LRAS its vertical shape [1]. Limitation: if wages are in fact sticky for years, the long-run return to potential output may take far longer than the diagram suggests, [1] so a policy conclusion could be wrong [1]. [6] Examiner insight: naming an assumption earns less than saying what it does to the curves and so to the conclusion.

7. J: weak AD with spare capacity, high unemployment and low inflation [1], so a demand-side boost shifting AD right raises output with little inflation risk [1]. K: output above capacity, low unemployment and rising prices [1], so restraining AD, or raising capacity with supply-side measures, reduces pressure on prices [1]. Both countries might also need supply-side action to raise potential output over time [1]. Limit: the data do not show the cause of the problem, for example whether SRAS or AD moved, so the best policy is uncertain [1]. [6] Examiner insight: tie each recommendation to a figure in the data, such as the output gap or inflation rate, rather than naming a policy in general terms.

8. (a) At P = 100, AD = 940 − 200 = 740, which is on the flat section, so equilibrium is (100, 740). After the shift AD = 800 at P = 100, which is the end of the flat section [1]: equilibrium (100, 800). Output +60/740 = 8.1% [1]. Price level 0% [1]. (b) On the rising section: 1,100 − 2P = 8P, so P = 110 [1], output = 880. Output +80/800 = 10.0% [1]. Price level +10/100 = 10.0% [1]. (c) With spare capacity, extra demand is met by extra output at stable costs [1]. As capacity is approached, bottlenecks raise costs, so more of the demand boost shows up as higher prices [1]. [8] Examiner insight: identify which section of the curve each equilibrium is on before calculating, so the working matches the zone.

9. Supply-side policies aim to shift LRAS right [1], raising potential output and growth and often lowering the price level [1]. They tackle causes where weak capacity, skills or high costs hold the economy back [1]. Demand-side policies shift AD [1]. They are effective when there is spare capacity and weak demand [1], but at full capacity they raise the price level more than output [1]. Evaluation: supply-side policies are slow and their results uncertain [1], and may cost the government large sums [1]. Demand-side policies work faster but often only temporarily [1]. The better choice depends on diagnosis: demand shortfall favours demand-side policy, sustained growth favours supply-side, and many economies need both [1]. [10] Examiner insight: a one-sided case is limited. Answers that reach a conditional judgement (“it depends on whether the problem is demand or capacity”) show evaluation.

10. (a) Set 1,000 − 4P = 6P − 90: P = 109 [1], output = 564 [1]. Price level +9/100 = 9.0% [1]. Output −36/600 = −6.0% [1]. (b) Restoring output 600 on the new SRAS: 600 = 6P − 90, so P = 115 [1]. New AD passes through (115, 600): output = 1,060 − 4P [1]. (c) Output is restored [1] but the price level is 15.0% above its start, so demand policy trades higher inflation for higher output; a supply-side response that cuts costs would avoid this [1]. [8] Examiner insight: using the numbers you have calculated, such as the 15.0% rise, makes the comment specific rather than general.

11. An AD rise shifts the AD curve right, raising equilibrium output (growth) [1], which needs more labour so unemployment falls [1], and raises the price level (inflation) [1]. A diagram with the old and new equilibrium labelled on both axes [1]. The size of each effect depends on spare capacity: with a flat or shallow AS, output and jobs rise with little inflation [1]; near capacity, a steep AS means mostly inflation [1]. In the short run output rises above potential, but on the neo-classical view wages rise and SRAS shifts left, so the long-run effect is only a higher price level [1] and no lasting fall in unemployment [1]. A bigger or repeated rise, and any multiplier effect, increases the impact [1]. If workers expect higher inflation, SRAS shifts sooner and output gains fade faster [1]. Judgement: AD helps most in a deep recession with idle resources, but it cannot raise potential output [1], so sustained growth also needs supply-side action [1]. [12] Examiner insight: addressing all three variables, growth, unemployment and inflation, and then separating short run from long run, is what turns a list of effects into an evaluated answer.

Where marks are usually lost

• Writing “supply” or “demand” as a vague cause without naming the curve that shifts.
• Treating a price-level change as a shift.
• Giving a percentage change without stating the base.
• Forgetting the long-run adjustment when output is above potential.
• Using a Keynesian curve for a neo-classical question, or the reverse.
• Describing a diagram without actually using it to answer the question.
• Writing a one-sided case on policy questions.
• Quoting data in the answer but not comparing it with potential output or the inflation rate.

Next steps

• Review the revision notes and the study guide.
• Check coverage on the OCR Economics checklist and the course hub.
• Find weak spots with a free 10-minute diagnostic.
• Book a free trial class.

Official syllabus

OCR, A Level in Economics (H460) specification, Version 3.0 (June 2026), first assessment 2021: Aggregate supply (AS); Aggregate demand and aggregate supply; first two outcomes of Macroeconomic equilibrium.