OCR A Level Economics: Inflation, deflation and index numbers (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 test the topic Inflation in Component 2, Macroeconomics, of the OCR A Level Economics (H460) specification, Version 3.0 (June 2026), first assessed in 2021. Teaching is in the study guide and the revision notes. Also see the hub for OCR A Level Economics, the checklist and the free diagnostics. Every country and figure is invented.

Questions

1. Define hyperinflation. A good costs 40 z. Prices rise 60% a month for three months. Calculate its price at the end. [3]

2. Country Y’s price index starts at 100. Inflation is 6.0% in year 1, 3.5% in year 2 and −0.5% in year 3.

(a) Calculate the index at the end of years 2 and 3. [2] (b) Identify the year of disinflation and the year of deflation. [2]

3. Country Y’s price index is 138.2 in 2023 and 143.6 in 2024. Calculate the inflation rate to one decimal place. [3]

4. A worker earns 28,000 z when the index is 104.0 and 30,100 z four years later when it is 119.6.

(a) Calculate her later pay in the earlier year’s prices. [2] (b) Calculate the change in real pay and comment on the nominal rise. [2]

5. An index (2019 = 100) is 107.5 in 2021, 121.0 in 2023 and 127.8 in 2025.

(a) Calculate the inflation rate between 2023 and 2025 to one decimal place. [2] (b) Rebase the index so that 2023 = 100 and give the values for 2021 and 2025. [3]

6. A basket has these categories. Treat each weight as the category’s share of spending and its contribution to inflation as weight × price change.

Category	Weight (%)	Price change (%)
Food	28	5.0
Housing	34	2.0
Transport	16	9.0
Leisure	12	3.0
Other	10	−1.0

(a) Calculate the overall inflation rate. [3] (b) Explain which category contributed most. [2]

7.

(a) Explain how the official UK measure of inflation is constructed. [4] (b) Explain one reason why a pensioner’s experience of inflation may differ from the headline figure. [2]

8. Evaluate the view that the Retail Prices Index is a less useful measure of inflation than the Consumer Prices Index. [6]

9. In an economy, wages rise 7% and output per worker rises 2.5%.

(a) By what percentage do unit labour costs increase? Give one decimal place. [3] (b) Explain how this could cause cost-push inflation. [3]

10. In Country X, spending grows 6% a year while productive capacity grows 2% a year. The currency also falls 15% against trading partners, and imports are a large part of firms’ inputs. Evaluate the main causes of inflation in Country X. [9]

11. A household has a fixed debt of 75,000 z and an income of 30,000 z. Prices and incomes then fall 3% a year for three years.

(a) Calculate the debt in the original prices and the debt-to-income ratio after three years. [4] (b) Evaluate whether deflation is always harmful. [6]

12. Explain why governments aim for low and stable inflation rather than zero inflation. [4]

Answers

1. Hyperinflation is extremely rapid, usually accelerating, inflation [1]. Price = 40 × 1.6³ [1] = 163.84 z [1]. [3] Examiner insight: Compounding is the point. Adding 60% three times (to 112 z) is the common slip, so show the power.

2. (a) Year 2: 100 × 1.06 × 1.035 = 109.71 [1]. Year 3: 109.71 × 0.995 = 109.16 [1]. (b) Year 2 is disinflation, since inflation falls from 6.0% to 3.5% but prices still rise [1]. Year 3 is deflation, since the rate is negative and the index falls [1]. [4] Examiner insight: Back each label with the numbers, not just the word.

3. Change = 143.6 − 138.2 = 5.4 [1]. 5.4 ÷ 138.2 × 100 [1] = 3.9% [1]. [3] Examiner insight: The old index is the denominator. Writing the formula before substituting shows your method.

4. (a) Real pay = 30,100 ÷ 119.6 × 104.0 [1] = 26,174 z [1]. (b) Change = (26,174 − 28,000) ÷ 28,000 = −6.5% [1]. Nominal pay rose 7.5% but prices rose 15.0%, so she can buy less [1]. [4] Examiner insight: Comment on the gap between nominal and real, not only the figure.

5. (a) (127.8 − 121.0) ÷ 121.0 × 100 [1] = 5.6% [1]. (b) Divide by the 2023 value and multiply by 100 [1]. 2021: 107.5 ÷ 121.0 × 100 = 88.8 [1]. 2025: 127.8 ÷ 121.0 × 100 = 105.6 [1]. [5] Examiner insight: A rebased value below 100 for an earlier year is expected, so a sense check helps.

6. (a) Contributions: food 1.40, housing 0.68, transport 1.44, leisure 0.36, other −0.10 [1]. Sum = 3.78 [1]. Inflation = about 3.8% [1]. (b) Transport contributed most (1.44 points), because its large 9.0% price rise outweighs its smaller weight of 16% [1], though food (1.40) is close because its weight is larger [1]. [5] Examiner insight: Weight and price change both matter. Name both factors to explain a contribution.

7. (a) Choose a basket of goods and services that households buy [1]. Collect prices regularly [1]. Weight categories by their share of household spending [1]. Set a base year equal to 100 and express later prices against it, updating the basket and weights over time [1]. (b) The weights reflect an average household [1]. A pensioner may spend a larger share on heating or food, so if those prices rise faster, personal inflation is higher than the headline [1]. [6] Examiner insight: The strongest answers to (b) link a specific spending pattern to a specific price movement.

8. For the view: RPI uses an arithmetic average, which tends to give higher figures [1], so it may overstate the rise in the cost of living [1]. Against: RPI includes owner-occupier housing costs and council tax [1], which CPI mostly excludes, so it can reflect a homeowner’s costs better [1]. Judgement: usefulness depends on purpose: CPI suits comparison with other countries and policy [1], while RPI may suit those concerned with housing costs. [1] [6] Examiner insight: Finish with a judgement that names who or what each index suits.

9. (a) Unit labour cost rise = 1.07 ÷ 1.025 [1] − 1 [1] = 4.4% [1]. (b) Costs per unit of output rise 4.4% [1], reducing profit unless prices rise [1]. Firms pass costs on, shifting SRAS left and raising the price level while output falls [1]. [6] Examiner insight: Compare wages with productivity; wage growth alone does not show a rise in unit costs.

10. Demand-pull: spending growth of 6% exceeds capacity growth of 2% [1], so AD shifts right faster than supply and prices rise as spare capacity is used [1]. Cost-push: a 15% fall in the currency raises import prices [1], and imports are a large part of inputs, so unit costs rise and SRAS shifts left [1]. Interaction: stronger export demand from the weaker currency adds to AD [1]. Evidence: the gap between 6% and 2% suggests demand pressure is persistent [1], while the currency fall may be a one-off shift in the price level [1]. Judgement: demand-pull is probably the main cause if the gap persists [1], but missing information (spare capacity, wage data, how fast costs are passed on) limits the conclusion [1]. [9] Examiner insight: Use the figures given and then say what further information would settle the judgement.

11. (a) Debt in original prices = 75,000 ÷ 0.97³ [1] = 82,176 z [1]. Income = 30,000 × 0.97³ = 27,380 z [1]. Ratio = 75,000 ÷ 27,380 = 2.74, up from 2.5 [1]. (b) Harmful: real debt rises, so spending on other goods falls [1]. Households postpone purchases expecting lower prices, cutting AD [1]. Falling revenue with fixed costs reduces profit and jobs [1]. Not always harmful: deflation from lower costs or higher productivity raises real incomes without lost output [1]. Exports become cheaper [1]. Judgement: the cause, size and persistence decide [1]. [10] Examiner insight: Separate deflation caused by weak demand from deflation caused by supply gains.

12. Low inflation protects purchasing power [1]. Stable inflation makes prices predictable, helping contracts and investment [1]. A small positive rate leaves room for real wages to adjust without money pay cuts [1], and reduces the risk of deflation [1]. [4] Examiner insight: Say why zero is not the target; describing low and stable inflation on its own leaves the question unanswered.

Where marks are usually lost

• Labelling slower inflation as deflation.
• Using the new index value as the denominator.
• Adding percentage changes instead of compounding them.
• Leaving real values unadjusted or forgetting to multiply by 100.
• Rebasing with the wrong year.
• Describing cost-push without a shift of SRAS or any link to unit costs.
• Listing effects of inflation without saying who gains and who loses.
• Concluding without a reasoned judgement.
• Giving advantages of CPI or RPI with no reason.

Next steps

• Revise with the revision notes and the study guide.
• Tick off outcomes on the checklist and see the course hub.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OCR, A Level Economics (H460) specification, Version 3.0 (June 2026), first assessment 2021, Component 2 (H460/02), Economic policy objectives and indicators of macroeconomic performance, topic Inflation.