OCR AS Level Economics: Trends in macroeconomic indicators (H060) – 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 the topic Trends in macroeconomic indicators in Component 02, Macroeconomics, of the OCR AS Level Economics (H060) specification, for first assessment in 2016. All countries and data are invented. Use the study guide and the revision notes. See the OCR AS Economics hub, the printable checklist and the free 10-minute diagnostics.

Questions

1. Real GDP in Country K is indexed at 100 in year 1, 104.0 in year 2 and 100.9 in year 3.

(a) Calculate the growth rate in year 2 and in year 3. [2] (b) Calculate how far output in year 3 is above or below the year 1 level. [1]

2. Unemployment in Country N is 4.0% in year 1 and 6.5% in year 2. Calculate the change in percentage points and the percentage change in the unemployment rate. [3]

3. A news report says: “Unemployment has fallen for three years, so the labour market is back to normal.” Using the ideas of level and rate, explain why this conclusion may be wrong. [4]

4. Real GDP in Country S rises from an index of 100 to 128.0 over ten years, with the growth rates varying from year to year.

(a) Calculate the average annual growth rate using the compound method. [2] (b) The sum of the ten growth rates divided by 10 is 2.8%. Explain why this is higher than your answer to (a). [2]

5. Two economies are described below, with invented data.

	Country L	Country M
Real GDP, year 1 (bn cu)	900	400
Real GDP, year 2 (bn cu)	927	436
Population, year 1 (millions)	18.0	40.0
Population, year 2 (millions)	18.18	40.8

(a) Calculate the growth in real GDP per head for Country L and for Country M. [4] (b) Country M’s real GDP per head was 10,000 cu in year 1 and about 10,686 cu in year 2. Country L’s was 50,000 cu in year 1 and about 50,990 cu in year 2. Assess whether Country M is catching up with Country L. [2]

6. Explain two reasons why unemployment may rise by less than output falls in a recession. [6]

7. Explain two key trends in UK macroeconomic performance over the last 20 years. [6]

8. The table gives average figures for three economies over a ten-year period (invented data).

	Country U (developed)	Country V (emerging)	Country W (developing)
Average annual real GDP growth (%)	1.6	7.2	3.4
Average inflation (%)	2.4	3.8	9.5
Unemployment rate (%)	5.2	4.1	11.5
GDP per head (cu)	41,000	7,800	1,900
Current account balance (% of GDP)	-2.8	+1.2	-5.5

(a) Calculate Country V’s GDP per head as a percentage of Country U’s. [1] (b) Identify the economy with the highest inflation and explain one possible reason for it. [3] (c) Country V’s unemployment rate is lower than Country U’s. Explain one reason why this may not show that V’s labour market is stronger. [2]

9. Using the data in question 8, evaluate the performance of Country U compared with Countries V and W. [8]

10. Inflation in Country X is 3.0% in year 1, 1.5% in year 2, 0.5% in year 3 and -0.4% in year 4. The price level at the start of year 1 is 100.

(a) Calculate the price level at the end of year 3. [1] (b) State the year in which the general price level fell. [1] (c) Explain why years 2 and 3 are examples of disinflation but not deflation. [2]

11. Nominal wages in Country Y rise by 3.5% in a year when inflation is 4.5%.

(a) Calculate the change in real wages. [3] (b) Explain one consequence for the economy of falling real wages. [2]

12. Evaluate the view that growth in real GDP is the best single indicator of how well an economy is performing. [10]

Answers

1. (a) Year 2: (104.0 - 100) / 100 = 4.0% [1]. Year 3: (100.9 - 104.0) / 104.0 = -2.98%, about -3.0% [1]. (b) (100.9 - 100) / 100 = 0.9% above the year 1 level [1]. [3] Examiner insight: A fall in the second year can be missed if you only compare with year 1; calculate each year’s growth from the year before it.

2. Change in percentage points = 6.5 - 4.0 = 2.5 percentage points [1]. Percentage change = (6.5 - 4.0) / 4.0 [1] = 62.5% [1]. [3] Examiner insight: Giving “2.5%” for the first part treats a rate change as a level change; use the correct unit.

3. The rate of unemployment may have fallen, but the level may still be above its previous low point [1]. A fall from 8% to 6% is still above a pre-recession 4% [1]. “Back to normal” needs other evidence, such as participation, under-employment, the quality of jobs or wage growth [1]. The fall may reflect people leaving the labour force [1]. [4] Examiner insight: Contrasting a falling rate with an unrecovered level, with a figure, gains more than a general statement.

4. (a) (128.0 / 100) to the power of 1/10 = 1.0250 [1], so average growth is about 2.5% a year [1]. (b) Simple averaging adds the rates and ignores that each year’s growth builds on a larger base [1]. Because of compounding, a smaller average rate each year gives the same total rise [1]. [4] Examiner insight: Show the power calculation. A bare answer is harder to credit if it is slightly out.

5. (a) Country L: real GDP per head year 1 = 900 / 18.0 = 50 (thousand) and year 2 = 927 / 18.18 = about 50.99 [1]; growth = 1.98% [1]. Country M: 400 / 40.0 = 10 and 436 / 40.8 = about 10.69 [1]; growth = 6.86% [1]. (b) Yes in relative terms: M’s real GDP per head rises from 20.0% of L’s to about 21.0% [1]. But the absolute gap widens, from 40,000 cu to about 40,304 cu, so M has not yet caught up in cash terms [1]. [6] Examiner insight: Separate a relative gain from a closing absolute gap; the two can differ.

6. Reason 1: firms often keep skilled workers (labour hoarding) because rehiring is costly and they expect recovery [1]. This holds down job losses while output falls [1], so unemployment rises less than output has fallen [1]. Reason 2: firms may cut hours or pay instead of jobs, or government support schemes may keep workers on payrolls [1]. This spreads the fall in output across hours rather than headcount [1], so measured unemployment rises by less [1]. [6] Examiner insight: Develop each reason as far as the gap between the output fall and the rise in unemployment.

7. Two trends, each scored for the trend, the evidence or timing, and the cause.

• Persistent current account deficit [1]: the UK has run a deficit for most of the period [1], reflecting imports plus outgoing income exceeding exports plus incoming income [1].
• Weaker productivity growth after 2008 to 2009 [1]: output per worker rose more slowly than before the financial crisis [1], limiting the growth of potential output, with low investment a likely cause [1].
• Other acceptable trends include the inflation surge from 2021 and large budget deficits after 2008 to 2009 and 2020. [6] Examiner insight: Name the trend, anchor it in the period and give the cause; remembered figures should be broadly right, dated and few.

8. (a) 7,800 / 41,000 x 100 = 19.0% [1]. (b) Country W has the highest inflation (9.5%) [1]. A possible reason: heavy dependence on imported goods and a weak currency, which raise import prices (cost-push) [1], or rapid growth in the money supply or demand without matching supply [1]. (c) Unemployment data may not capture informal or part-time work [1], so a low rate may hide under-employment or low participation; definitions also differ across countries [1]. [6] Examiner insight: Use figures from the table; naming W and quoting 9.5% avoids a general answer.

9. Award up to 8 marks across knowledge, application, analysis and evaluation.

• Growth: U’s 1.6% is the lowest of the three, worse than V (7.2%) and W (3.4%) [1]. But U is far richer per head (41,000 cu against 7,800 and 1,900), so slower growth from a high base is expected [1].
• Inflation: U’s 2.4% is the lowest, better than V (3.8%) and W (9.5%), suggesting price stability [1].
• Unemployment: U’s 5.2% is higher than V’s 4.1% but far lower than W’s 11.5% [1].
• Current account: U runs a deficit (-2.8% of GDP) while V has a surplus (+1.2%) [1]; a deficit is not necessarily a problem if financed by investment [1].
• Judgement: U is strong on stability and income per head but weak on growth and the external balance, and ten-year averages hide year-to-year swings [1]. A clear overall conclusion with reasons earns the final mark [1]. [8] Examiner insight: Evaluation credit comes from weighing indicators against each other and caveating the data, not from adding more description.

10. (a) 100 x 1.03 x 1.015 x 1.005 = about 105.1 [1]. (b) Year 4, when inflation is negative [1]. (c) In years 2 and 3 the rate of inflation falls (from 3.0% to 1.5% to 0.5%) [1], but it is still positive, so prices are still rising, just more slowly [1]. [4] Examiner insight: The key is the sign of the inflation rate: falling inflation is not falling prices.

11. (a) Real wage change = (1.035 / 1.045) - 1 [1] = -0.0096 [1], so real wages fall by about 0.96% [1]. (b) Lower real wages reduce households’ purchasing power [1], so consumption and aggregate demand may fall, slowing growth [1]. [5] Examiner insight: The approximation 3.5 - 4.5 = -1.0% is close; label it approximate, as the exact method gives -0.96%.

12. Award up to 10 marks across knowledge, application, analysis and evaluation.

• Real GDP growth shows how fast output rises after removing inflation [1] and is easy to compare across time and countries [1].
• Sustained growth expands capacity and can raise living standards [1].
• Limits: it ignores population (use GDP per head) [1], the distribution of income [1], the environment and resource use [1], and unpaid and informal activity [1].
• Other indicators matter: unemployment shows spare capacity and hardship, inflation the cost of living, the current account and public finances sustainability [1].
• Judgement: growth is a necessary first indicator but not sufficient; read it with GDP per head, unemployment and inflation, and weight each by circumstances, such as recession or boom [2]. [10] Examiner insight: A reasoned conclusion about weighing indicators gains more than a longer list of the limits of GDP.

Where marks are usually lost

• Writing “2.5%” where percentage points are needed.
• Averaging growth rates by simple addition.
• Treating per-head growth as total growth.
• Saying positive growth means recovery.
• Describing a table without quoting its figures.
• Treating falling inflation as falling prices.
• Comparing countries on different years or units.
• Listing indicators with no judgement.

Frequently asked questions

What is the difference between a percentage point change and a percentage change? If unemployment rises from 4.0% to 6.5%, it has risen by 2.5 percentage points, while the percentage change in the rate is the rise divided by the starting value. Writing “2.5%” where percentage points are needed is a common error.

How do you calculate average growth over several years? Use the compound method: divide the final index by the starting index, raise it to the power of 1 divided by the number of years, and subtract 1. Adding up the yearly growth rates and dividing gives a slightly higher, approximate figure.

Does positive growth mean an economy has recovered? No. Positive growth after a recession may start from a low base, so output can still be below its previous level or below where its old trend would have taken it.

Is falling inflation the same as falling prices? No. Falling inflation (disinflation) means prices are still rising, only more slowly. Prices fall only when inflation is negative, which is deflation.

How should you compare economies in OCR AS Level Economics (H060)? Use the same years, definitions and units, quote figures from the data, prefer per-head figures for living standards, and reach a judgement rather than listing indicators.

Next steps

• Revise with the revision notes and the study guide.
• Check progress against the OCR AS Economics hub and the printable checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

These questions follow the OCR AS Level in Economics (H060) specification, for first assessment in 2016, published by OCR (Oxford Cambridge and RSA Examinations). The topic Trends in macroeconomic indicators sits in the Area of Study Economic policy objectives and indicators of macroeconomic performance, Component 02, Macroeconomics.