OxfordAQA International AS and A-level Economics: Unemployment and inflation (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 sections 3.2.3.2 (employment and unemployment) and 3.2.3.3 (inflation and deflation) of the OxfordAQA International AS and A-level Economics (9640) specification, version 1.2. Section 3.2 is International AS content. All countries, firms and figures are invented. Start with the study guide or use the revision notes. Course page: OxfordAQA A-level Economics; checklist.

Questions

Try each question without the notes first. Show every step of a calculation and write the unit. For the longer questions, build a chain of reasoning (cause, effect, effect on jobs or prices) and finish with a judgement. Questions 10 and 11 reward evaluation as well as explanation, so allow time for both.

1. Distinguish between deflation and disinflation. [2]

2. Country Epsilon has 2,376,000 people employed, 99,000 unemployed on the ILO measure and 925,000 economically inactive.

(a) Calculate the unemployment rate. [2] (b) Calculate the participation rate, as a percentage of the working-age population, to one decimal place. [1]

3. State whether each person is employed, ILO unemployed, economically inactive or underemployed. (i) A retiree not looking for work. (ii) A laid-off driver who is searching and could start next week. (iii) A shop assistant on 15 hours a week who wants 35. (iv) A full-time carer who is not seeking a job. [4]

4. In Country Epsilon the next year, employment is unchanged, unemployment falls from 99,000 to 81,000 and the other 18,000 become inactive.

(a) Calculate the new unemployment rate to one decimal place. [2] (b) Explain why this fall is weak evidence of a stronger labour market. [1]

5. In Country Epsilon, 297,000 of the 2,376,000 employed want more hours.

(a) Calculate the underemployment rate. [1] (b) Explain why underemployment means a low unemployment rate may understate spare capacity. [3]

6. A consumer price index rises from 108.0 to 111.2. Nominal pay rises 3.4%.

(a) Find the rate of inflation, to one decimal place. [2] (b) Calculate the change in real pay to one decimal place. [2]

7. A furniture workshop’s cost per table is 200: timber 50%, labour 30%, other 20%. Timber costs rise 8% and labour costs rise 3%. Other costs are unchanged. Calculate the percentage rise in cost per table and the new cost. [4]

8. The same rise in aggregate demand has these effects: Economy X, price level 100 to 102, real GDP 440 to 470; Economy Y, price level 100 to 109, real GDP 497 to 500.

(a) Calculate the percentage change in the price level in each. [2] (b) Explain the difference using aggregate demand and aggregate supply. [3]

9. An imported good costs 60 foreign units. The exchange rate falls from 1 domestic unit = 3.0 foreign units to 1 domestic unit = 2.4 foreign units.

(a) Calculate the domestic price before and after, and the percentage change. [3] (b) Imports are 15% of the consumer basket and pass-through is complete. Calculate the effect on the price level. [1] (c) Explain one other way the fall affects inflation. [2]

10. Country Zeta has 8% unemployment. Evaluate whether expansionary demand policy is the best way to reduce it. [8]

11. Country Omega exports one manufactured product. World demand for it falls and cheaper foreign rivals enter its market. Discuss the effects on employment and unemployment in Country Omega. [9]

Answers

1. Deflation means the price level is falling [1]. Disinflation means inflation is slowing: prices still rise, but more slowly [1]. [2] Examiner insight: A contrast needs both definitions; answers that define only one term leave the distinction unstated.

2. (a) Labour force = 2,376,000 + 99,000 = 2,475,000 [1]. Rate = 99,000 ÷ 2,475,000 × 100 = 4.0% [1]. (b) Working-age population = 3,400,000; 2,475,000 ÷ 3,400,000 × 100 = 72.8% [1]. [3] Examiner insight: Using 2,376,000 or 3,400,000 as the denominator in part (a) is the usual slip; show the labour force line so the method is visible.

3. (i) Economically inactive [1]. (ii) ILO unemployed [1]. (iii) Employed and underemployed [1]. (iv) Economically inactive [1]. [4] Examiner insight: Use the three-part test: no job, searching, available. Underemployed people are in work, so do not label them unemployed.

4. (a) Labour force = 2,376,000 + 81,000 = 2,457,000 [1]. Rate = 81,000 ÷ 2,457,000 × 100 = 3.3% [1]. (b) No extra jobs were created; the rate fell because people left the labour force [1]. [3] Examiner insight: Strong answers say what happened to employment, since that is the evidence a tighter market needs.

5. (a) 297,000 ÷ 2,376,000 × 100 = 12.5% [1]. (b) These workers count as employed [1]. They have unused hours or skills, so labour capacity is idle [1]. Output could rise without new hires, which links to a negative output gap [1]. [4] Examiner insight: Link the point back to spare capacity; restating the definition adds little.

6. (a) (111.2 − 108.0) ÷ 108.0 [1] × 100 = 3.0% [1]. (b) 1.034 ÷ 1.0296 − 1 [1] = +0.4%, so real pay rises slightly [1]. [4] Examiner insight: Dividing is the exact method. Subtracting inflation from nominal growth gives a similar figure here, but the gap widens as the rates grow.

7. Timber: 0.50 × 8 = 4.0 [1]. Labour: 0.30 × 3 = 0.9 [1]. Total rise = 4.9% [1]. New cost = 200 × 1.049 = 209.8 [1]. [4] Examiner insight: Weights matter. Adding 8% and 3% without the shares gives a wrong total.

8. (a) X: +2% [1]. Y: +9% [1]. (b) In X there is spare capacity, so firms raise output instead of price (real GDP +6.8%) [1]. In Y real GDP is near potential, so factors are scarce and costs rise (real GDP +0.6%) [1]. SRAS is flatter far from capacity and steeper near it, so AD pushes up the price level more in Y [1]. [5] Examiner insight: Use the data in the explanation, naming both price and output movements, rather than describing the diagram generally.

9. (a) Before: 60 ÷ 3.0 = 20 [1]. After: 60 ÷ 2.4 = 25 [1]. Change = +25% [1]. (b) 0.15 × 25 = 3.75 percentage points [1]. (c) Exports become cheaper abroad [1], so net exports and AD rise, adding demand-pull pressure [1]. [6] Examiner insight: Keep the direction of the exchange rate clear; a fall in the currency raises import prices in domestic currency.

10. Cyclical unemployment comes from weak AD [1]. Higher AD raises output, labour demand and jobs [1], if a negative output gap exists [1]. If the cause is structural, extra AD does not fix the skills mismatch [1]. Supply-side unemployment lowers normal capacity (LRAS further left) [1]. Stimulus near capacity raises prices [1]. Policy lags may mean it arrives late [1]. Retraining, mobility help and job information target the cause [1]. [8] Examiner insight: Reach a judgement that depends on the cause of the unemployment; a list of policies without it reads as description.

11. Falling world demand cuts export orders [1], so AD shifts left, causing cyclical unemployment [1]. Cheaper rivals take market share, so the firm closes, cutting jobs [1]. Workers’ skills are specific, so unemployment becomes structural [1]. Falling exports may weaken the exchange rate, helping competitiveness [1]. Falling AD may bring disinflation [1]. Evaluation: openness and dependence on one product make it worse [1]; flexible, skilled workers recover faster [1]; the effect is short run if switching industries is quick [1]. [9] Examiner insight: Separate the cyclical effect from the structural effect, and say which is likely to last longer.

Where marks are usually lost

• Using the working-age population instead of the labour force for the rate.
• Treating people who stop searching as employed or unemployed.
• Calling disinflation falling prices.
• Subtracting inflation from nominal growth instead of dividing.
• Adding percentage cost rises without weights.
• Assigning one policy to every cause of unemployment.
• Quoting a global influence without tracing it through AD or SRAS.
• Stopping at the first judgement without giving a reason that depends on cause or time.

Next steps

• Revision notes
• Study guide
• OxfordAQA A-level Economics course page
• Printable checklist
• All free 10-minute diagnostics
• Book a free trial class

Official syllabus

OxfordAQA International AS and A-level Economics (9640), specification version 1.2, first teaching September 2020, published by Oxford International AQA Examinations. Sections 3.2.3.2 and 3.2.3.3.