OxfordAQA International AS and A-level Economics: Economic growth and the cycle (9640) – 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 OxfordAQA International AS and A-level Economics (9640), specification section 3.2.3.1, Economic growth and the economic cycle (version 1.2). It is International AS content. All countries and figures are invented and illustrative. Read the study guide or the revision notes first. Course pages: the OxfordAQA Economics hub and the printable checklist.

Questions

1. In Country A (illustrative), nominal GDP rises from 6,300 to 6,741 and the price index rises from 100 to 104. Calculate the growth in real GDP, to one decimal place. [3]

2. Country B has potential output of 4,000 and actual real GDP of 4,148. (a) Work out the output gap, expressed as a percentage of potential. [2] (b) Explain one likely consequence of this gap. [2]

3. Country C’s real GDP rises from 500 to 600 over five years. Calculate the average annual (compound) growth rate, to one decimal place. [3]

4. Distinguish between short-run and long-run economic growth, referring to an AD/AS diagram or a production possibility diagram. [4]

5. The table shows Country N, which has a trend growth rate of 2.5%.

Year	Real GDP growth	Inflation	Unemployment	Investment
1	+3.6%	3.9%	4.6%	+10%
2	-1.1%	3.1%	5.8%	-12%
3	+0.9%	1.8%	6.9%	-3%
4	+3.2%	1.6%	6.5%	+8%

Identify the phase of the economic cycle in each year, using the indicators to support each choice. [5]

6. Country D’s real GDP index (base year = 100) is 100, 104.0, 96.0 and 103.2 in years 1 to 4. (a) Find the percentage change in real GDP between year 2 and year 3. [2] (b) Find the percentage change between year 3 and year 4. [1] (c) State whether real GDP in year 4 has returned to its year 2 level, with a reason. [1]

7. Explain one demand-side factor that can raise short-run growth and one supply-side factor that can raise the long-run trend rate of growth. [6]

8. Using an AD/AS diagram, explain the likely effect on output and the price level of a sharp rise in the price of an imported raw material. [5]

9. Country P’s exports are 25% of its GDP of 2,000. A recession among its trading partners cuts its exports by 8%. The multiplier is 1.6. (a) Calculate the fall in GDP, in value and as a percentage of GDP. [3] (b) Explain two other ways a global event could affect domestic economic activity. [4]

10. Country E’s potential output grows 3% a year. Actual real GDP rises from 1,000, which equals potential, to 1,020 in the next year. (a) Calculate the growth of actual real GDP. [1] (b) Calculate potential output and the output gap after one year, to one decimal place. [2] (c) Explain how the gap can widen when real GDP is rising. [1]

11. Evaluate the view that a global demand-side shock causes only temporary harm to a domestic economy. [10]

Answers

1. Real GDP = 6,741 / 104 x 100 = 6,481.7 [1]. Growth = (6,481.7 - 6,300) / 6,300 [1] = 2.9% [1]. [3] Examiner insight: Show the deflating step. Writing 7.0% - 4.0% = 3.0% is a different, approximate method and gives a different answer.

2. (a) (4,148 - 4,000) / 4,000 [1] = +3.7% [1] [2] (b) The gap is positive, so demand is above normal capacity [1], which creates inflationary pressure as firms compete for scarce labour and materials [1]. [2] Examiner insight: A consequence needs a reason that links to the gap. Stating “inflation” alone is a bare assertion.

3. 600 / 500 = 1.2 [1]. 1.2^(1/5) = 1.0371 [1]. Growth = 3.7% a year [1]. [3] Examiner insight: Dividing 20% by 5 gives 4.0%, which ignores compounding. State the method you use.

4. Short-run growth is a rise in actual real GDP [1], shown by AD moving right along SRAS, or a point moving towards the boundary [1]. Long-run growth is an increase in productive capacity [1], shown by LRAS shifting right or the boundary moving outwards [1]. [4] Examiner insight: Name the curve that moves in each case. A rightward AD shift alone does not show long-run growth.

5. Year 1: boom, because growth is above trend, inflation is highest and unemployment lowest [1]. Year 2: recession, because output falls and investment drops sharply [1]. Year 3: trough or early recovery, because output grows again but only 0.9%, below trend [1]. Year 4: recovery, because growth is above trend and investment rises [1]. Unemployment peaks in year 3 and falls only in year 4, so it lags real GDP [1]. [5] Examiner insight: Support every phase with at least one number, and use the trend figure when growth is positive but weak.

6. (a) (96.0 - 104.0) / 104.0 [1] = -7.7% [1] [2] (b) (103.2 - 96.0) / 96.0 = +7.5% [1] [1] (c) No, because 103.2 is below 104.0 [1]. [1] Examiner insight: Divide by the previous year’s index, not by 100. The 7.2-point rise is not the 7.5% growth.

7. Demand-side: lower interest rates [1] make borrowing cheaper, so consumption and investment rise and AD shifts right [1]. If there is spare capacity, real GDP rises [1]. Supply-side: investment in new technology [1] raises productivity and potential output [1], so LRAS moves right and the long-run trend climbs [1]. [6] Examiner insight: Each answer needs a full chain of reasoning, ending in output, not just a named factor.

8. The cost of production rises [1], so SRAS shifts left [1]. At the new equilibrium, real GDP is lower [1] and the price level is higher [1]. This may also open a negative output gap and raise unemployment [1]. [5] Examiner insight: A diagram or an exact description of the shift helps. The direction of both output and prices must be stated.

9. (a) Exports = 25% x 2,000 = 500; fall = 8% x 500 = 40 [1]. Fall in GDP = 40 x 1.6 = 64 [1], which is 64 / 2,000 = 3.2% of GDP [1]. [3] (b) Imported input prices: a global rise in commodity prices lifts costs and shifts SRAS left [1][1]. Exchange rate: a global event can change the currency’s value, altering export and import prices and net exports [1][1]. Confidence and finance are further routes. [4] Examiner insight: Apply the figures in your explanation where you can. Describe each route as a chain from event to GDP.

10. (a) 1,020 / 1,000 - 1 = 2.0% [1] [1] (b) Potential = 1,000 x 1.03 = 1,030 [1]. Gap = (1,020 - 1,030) / 1,030 = -1.0% [1] [2] (c) Actual growth (2.0%) was below the trend growth of potential (3.0%), so output fell further behind capacity [1]. [1] Examiner insight: Compare the two growth rates directly. Saying “growth is positive, so the gap closes” is the common error.

11. Indicative points, one mark each:

• AD shifts left, output falls and a negative gap opens [1].
• Exports fall, and the multiplier amplifies the loss, so investment and unemployment are hit [1].
• The harm is temporary if wages and prices adjust, since SRAS shifts right and output returns to potential [1].
• Keynesian view: an economy can stay below capacity for years without self-correction [1].
• Lasting harm: firms close and skills are lost, so LRAS may shift left [1].
• The size and duration of the shock matter [1].
• An open or undiversified economy suffers more [1].
• Policy response may shorten the downturn [1].
• Spare reserves or flexible labour markets help recovery [1].
• A judgement is made that depends on a stated condition, such as depth of the recession or how fast the economy adjusts [1]. [10] Examiner insight: Weigh the temporary and lasting arguments against each other and end with a conditional conclusion.

Where marks are usually lost

• Working with money values when the question is about real growth.
• Dividing the output gap by actual output instead of potential output.
• Calculating a simple average where compound growth is needed.
• Treating a rise in growth as an end to a negative output gap.
• Calling a slowdown a recession.
• Identifying a phase without citing the data.
• Describing shocks without the AD or SRAS shift and both of its effects.
• Giving evaluation as a list, with no judgement and no condition.

Next steps

• Revise with the revision notes and the study guide.
• Visit the OxfordAQA Economics hub and the printable checklist.
• Take one of our free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OxfordAQA International AS and A-level Economics (9640), specification version 1.2, section 3.2.3.1, first teaching September 2020, published by OxfordAQA.