OCR A Level Economics: Policy conflicts and the evolution of macroeconomic policy (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 cover Policy conflicts and Approaches to policy and macroeconomic context (Component 2, Macroeconomics) in the OCR A Level Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021. All countries and figures are invented. Pages to read first: the study guide and revision notes. Also see the OCR Economics hub and checklist.

Questions

1. Explain why a policy to reduce unemployment through higher aggregate demand may conflict with the inflation objective. [4]

2. Country J has actual output of 900 and potential output of 950 (illustrative units). The government raises spending by 24. The multiplier is 2.5. Calculate the new level of output and comment on the consequence for inflation. [3]

3. In Country K, GDP is 1,200, the marginal propensity to import is 0.4 and GDP grows by 2.5%. Exports rise by 4. Calculate the change in the current account balance. [3]

4. In Country L, domestic prices rise 4.0% and foreign prices 1.5%. The nominal exchange rate is 1.80 units of foreign currency per unit of domestic currency and does not change. Calculate the percentage change in the real exchange rate, then the nominal rate that would restore the original real rate. Give both to 2 decimal places and 3 decimal places respectively. [3]

5. Country M has two equal-sized groups. The poorer half has mean income 6,000 and the richer half 30,000. Next year the poorer half’s income rises 2% and the richer half’s 5%.

(a) Calculate the growth rate of national mean income. [2] (b) Calculate the ratio of richer to poorer mean income before and after, and state what has happened to inequality. [2]

6. In Country N, labour demand is L = 20 − 0.5w and labour supply is L = 6 + 0.9w (millions; w is the hourly wage). Equilibrium is w = 10 and L = 15. Demand then falls to L = 17.2 − 0.5w.

(a) Find the wage and employment if wages are fully flexible. [2] (b) Find the unemployment if the wage stays at 10. [2] (c) Give one reason why a wage cut may not quickly restore employment. [1]

7. Nominal aggregate demand in Country O rises 6%. Use the approximation that price change = AD growth ÷ (1 + e) and output change = AD growth × e ÷ (1 + e), where e is the elasticity of aggregate supply.

(a) Calculate the price and output changes if e = 1.5. [2] (b) Calculate the price change if e = 0.5 and explain what e = 0.5 suggests about the economy. [1]

8. The nominal interest rate in Country P is 3.5% and expected inflation is 1.5%. Calculate the real interest rate to 2 decimal places. Then calculate it if expected inflation rises to 3.5%, and comment on the effect on monetary policy. [3]

9. In a depression, Country Q’s output falls 18% and prices fall 25%. Firms owe debts of 240, fixed in money terms.

(a) Calculate the real value of the debt in the original prices. [2] (b) Calculate the rise in output needed to return to the original level, to 1 decimal place. [2] (c) Explain one reason why Keynes challenged the view that falling wages would restore full employment. [2]

10. Country R’s money supply grows 7% a year, output grows 2.5% and velocity is constant in year 1.

(a) Using MV = PY, estimate inflation in year 1 to 1 decimal place. [2] (b) In year 2 velocity falls 3% with the same money and output growth. Estimate inflation. [2] (c) Explain what (b) suggests about money supply targets. [2]

11. To what extent can supply-side policies resolve the clashes between a government’s macroeconomic aims? Evaluate. [9]

12. Assess the extent to which the 2007-08 financial crisis and its aftermath changed approaches to macroeconomic policy. [12]

Answers

1. Higher AD raises output and employment [1], so unemployment falls and labour becomes scarce [1]. Firms bid up wages and face higher costs [1], so inflation rises, especially near capacity or with high expectations [1]. [4] Examiner insight: A causal chain with each link stated usually gains credit; naming “the Phillips Curve” without the chain does not show the reasoning.

2. Injection effect = 24 × 2.5 = 60 [1], so output = 960 [1]. This is 10 above potential output (1.05%), so demand outruns capacity and inflationary pressure appears [1]. [3] Examiner insight: Comment on the result, not only the calculation. Comparing with potential output is the step that links the number to the conflict.

3. Rise in GDP = 2.5% × 1,200 = 30 [1]. Rise in imports = 0.4 × 30 = 12 [1]. Balance changes by 4 − 12 = −8 (the deficit widens by 8) [1]. [3] Examiner insight: State the sign and direction. A bare “8” is less clear than “deficit widens by 8”.

4. Real rate change = 1.04 ÷ 1.015 − 1 [1] = 2.46% [1]. Nominal rate needed = 1.80 ÷ 1.0246 = 1.757 [1]. [3] Examiner insight: Show the ratio. The nominal rate must move opposite to the real rate gain, so a fall is the expected direction.

5. (a) Mean before = 18,000; incomes after 6,120 and 31,500, mean 18,810 [1]. Growth = 4.5% [1]. (b) Ratio before = 30,000 ÷ 6,000 = 5.00; after = 31,500 ÷ 6,120 = 5.15 [1]. The ratio rose, so inequality widened although average incomes grew [1]. [4] Examiner insight: Say what the ratio means. Growth and widening inequality in one answer is the point of the conflict.

6. (a) 17.2 − 0.5w = 6 + 0.9w, so 11.2 = 1.4w and w = 8; L = 6 + 0.9 × 8 = 13.2 [2]. (b) At w = 10: demand = 12.2, supply = 15 [1], so unemployment = 2.8 million [1]. (c) Lower pay reduces household spending, so AD falls further [1]. [5] Examiner insight: Giving both substituted values shows how you got the answer. In (c) a reason about demand links the model to the Keynesian argument.

7. (a) Price = 6 ÷ 2.5 = 2.4% [1]; output = 6 × 1.5 ÷ 2.5 = 3.6% [1]. (b) Price = 6 ÷ 1.5 = 4.0%, and output 2.0%, so supply is inelastic, which suggests the economy is near capacity [1]. [3] Examiner insight: Interpreting e as spare capacity (high) or tight capacity (low) is what turns arithmetic into economics.

8. Real rate = 1.035 ÷ 1.015 − 1 = 1.97% [1]. With 3.5% expectations: 1.035 ÷ 1.035 − 1 = 0.00% [1]. The same nominal rate now has no restraining effect, so monetary policy is looser than it appears [1]. [3] Examiner insight: Keep nominal and real separate. The comment should refer to what people expect, not only to the figures.

9. (a) Real debt = 240 ÷ 0.75 [1] = 320, a rise of 33.3% [1]. (b) 1 ÷ 0.82 − 1 [1] = 22.0% [1]. (c) Wage cuts reduce incomes and spending, so AD falls further [1]; firms see weak demand, so employment need not recover even at lower wages [1]. [6] Examiner insight: In (b), say the rise is larger than the fall and why. In (c) developed points that stay on Keynes’s own argument are stronger than a general list.

10. (a) 1.07 ÷ 1.025 − 1 [1] = 4.4% [1]. (b) 1.07 × 0.97 ÷ 1.025 − 1 [1] = 1.3% [1]. (c) Velocity changes can offset money growth, so targets may not control inflation [1], which weakened trust in strict money targets [1]. [6] Examiner insight: Show the formula used. Questions on monetarism usually reward the link between an unstable assumption and the failure of the policy.

11. Points that can earn credit (one each, developed): For: supply-side policy shifts long-run AS right, allowing growth with lower inflation [1]; training and investment can lower the natural rate of unemployment, easing the Phillips Curve conflict [1]; productivity gains improve competitiveness and the balance of payments [1]; it avoids sacrificing one objective for another [1]. Against: effects are slow, uncertain and costly [1]; it does not help in a short inflation spell or an external crisis [1]; gains may widen inequality, creating another conflict [1]; other methods, such as a policy mix or an exchange rate change, work faster [1]. Judgement: best for the long run and for growth-inflation conflicts, but needs support from demand policy in the short run [1]. [9] Examiner insight: A reasoned conclusion that says “it depends on time horizon and the conflict” gains more than repeating the arguments.

12. Points that can earn credit (one each, developed): Crisis: bank losses and credit freeze caused deep recession [1]; this showed that financial stability affects output [1]. Monetary: policy rates cut to very low levels, and quantitative easing used [1]; this reopened debate on the limits of interest rate policy at near-zero rates [1]. Fiscal: stimulus at first, then consolidation [1]; the multiplier size was disputed, with Keynesians arguing that cuts slowed recovery [1]. Regulation: tighter capital rules for banks, aimed at making a repeat less likely [1]; critics said this could also limit lending in recovery [1]. Continuity: inflation targets and independent central banks remained in place [1]; some earlier lessons (expectations, credibility) were kept [1]. Evaluation: change was one of emphasis, not full replacement [1]; the response differed by country and circumstance, so the extent of change depends on where you look [1]. [12] Examiner insight: A strong answer weighs change against continuity and refers to a specific mechanism. A description of events with no judgement on “the extent” leaves the question unanswered.

Where marks are usually lost

• Describing a trade-off with no step-by-step chain.
• Leaving out spare capacity as the condition that decides the conflict.
• Not stating the direction of a change in a balance or a ratio.
• Mixing nominal and real figures, or wage growth and price inflation.
• Quoting a historical event with no link to why policy changed.
• Writing a one-sided answer where the question says “evaluate” or “assess the extent”.
• Ending with a summary of points rather than a reasoned judgement.
• Rounding too early or giving a calculation with no working.

Next steps

• Review the revision notes and the study guide.
• Visit the OCR Economics hub and the checklist.
• Take one of our free 10-minute diagnostics.
• Book a free trial class at /trial/.

Official syllabus

OCR, A Level in Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021. Topics: Policy conflicts; Approaches to policy and macroeconomic context.