OxfordAQA AS and A-level Economics: Index numbers and money to real terms (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 practise quantitative skills QS5 (calculate and interpret index numbers) and QS7 (make calculations to convert from money to real terms) from section 3.5 of the OxfordAQA International AS and A-level Economics (9640) specification, version 1.2. The specification says these skills could be assessed in any of the assessments, so no stage applies. All countries, firms and data are invented. Learn the methods first in the study guide and the revision notes. Track coverage on the OxfordAQA Economics hub and the printable checklist. The free diagnostics are a quick way to find weak spots.

Questions

1. (a) Explain what is meant by the base year of an index number. [2] (b) Distinguish between a nominal value and a real value. [2]

2. Country D records tourist arrivals (thousands): 2019: 320, 2020: 240, 2021: 272, 2022: 368. Using 2019 as the base year, calculate the index for 2020 and 2022, and state what the 2021 index means. [3]

3. A house price index rises from 125 to 140. Calculate the rise in index points and the percentage rise. [3]

4. A consumer price index has four categories. Weights and category indices are: food (40, 104), rent (30, 110), travel (20, 90), clothing (10, 120). Calculate the weighted index. [4]

5. The basket of goods used for a price index cost 250 in the base year. It costs 297.5 in 2023. (a) Calculate the index for 2023. [1] (b) The index for 2022 was 114.0. Calculate the inflation rate between 2022 and 2023, to 1 decimal place. [2]

6. In Country E (base year index 100), a teacher earned 3,120 a month in year 1, when the price index was 104. In year 4 she earned 3,540 and the index was 118. (a) Calculate her real wage in each year, in base-year prices. [2] (b) Comment on the change in her living standards. [2]

7. Country F has nominal GDP of 1,500 in year 1, 1,590 in year 2 and 1,704 in year 3. The price index is 100, 106 and 112. (a) Calculate real GDP for each year in year 1 prices. [2] (b) Calculate real growth in year 2 and year 3, to 1 decimal place. [2] (c) State nominal growth in year 2 and explain why it gives a misleading picture of output. [2]

8. Nominal national income per head in Country G rises by 9% while the price index rises by 6%. Calculate real growth, to 1 decimal place, using exact working. [3]

9. An export volume index has 2015 = 100, 2020 = 130 and 2023 = 143. Rebase the series so that 2020 = 100. State the value for 2023 and for 2015 (1 decimal place), and explain what the new 2023 value shows. [4]

10. For Country H, the export index is 126 and the import index is 138 in 2023, both with 2018 = 100. (a) Calculate which grew faster between 2018 and 2023, giving the growth rates. [2] (b) Explain why these figures cannot show that the country has a trade deficit. [2]

11. A small coffee shop charged 3.50 for a coffee in the base year (index 100). Six years later it charges 4.20 and the price index is 126. (a) Calculate the nominal price rise. [1] (b) Calculate the real price in base-year prices. [2] (c) Calculate the real price change. [1] (d) Explain what this tells you about the coffee relative to prices in general. [1]

12. In Country J, the price index uses two groups: necessities (weight 55) and discretionary goods (weight 45). Three years after the base year their price indices are 118 and 106. A worker’s monthly pay rose from 2,400 in the base year to 2,700 in year 3. (a) Calculate the weighted price index for year 3. [2] (b) Calculate the worker’s real pay in year 3 in base-year prices, and the real percentage change, to 1 decimal place. [3] (c) A low-income household spends 80% of its budget on necessities. Calculate its own price index and its real pay change, to 1 decimal place, if it earns the same pay. [3] (d) Assess whether the official index is a reliable guide to this household’s experience. [3]

Answers

1. (a) The base year is the year chosen as the reference point for the index [1], and its value is set at 100, so other years are measured as a percentage of it [1]. [2] (b) A nominal value is measured at the prices of the year it was recorded [1]. A real value has been adjusted for price changes, so it shows purchasing power [1]. [2] Examiner insight: Definitions tend to gain more credit when each term is explained in its own right, and a contrast (“whereas”) makes a distinction answer clearer.

2. 2020: 240 / 320 x 100 = 75 [1]. 2022: 368 / 320 x 100 = 115 [1]. 2021: 272 / 320 x 100 = 85, meaning arrivals were 15% below the 2019 level [1]. [3] Examiner insight: Writing the division before the answer lets a slip in one year still show correct method for the others.

3. Points: 140 - 125 = 15 points [1]. Percentage: (140 - 125) / 125 x 100 [1] = 12% [1]. [3] Examiner insight: Questions that ask for both points and percent test whether you divide by the earlier value, not by 100.

4. Products: 40 x 104 = 4,160; 30 x 110 = 3,300; 20 x 90 = 1,800; 10 x 120 = 1,200 [2]. Sum = 10,460 [1]. Divide by the weights total of 100: 104.6 [1]. [4] Examiner insight: Showing each weight-times-index product makes your method easy to credit even if the final addition goes wrong.

5. (a) 297.5 / 250 x 100 = 119 [1]. [1] (b) (119 - 114) / 114 x 100 [1] = 4.4% [1]. [2] Examiner insight: Inflation is the percentage change in the index, so dividing the 5-point rise by 100 would be a common wrong turn.

6. (a) Year 1: 3,120 / 104 x 100 = 3,000 [1]. Year 4: 3,540 / 118 x 100 = 3,000 [1]. [2] (b) Nominal pay rose by 13.5% [1], but real pay is unchanged, so her purchasing power and living standard did not improve, as prices rose as fast as pay [1]. [2] Examiner insight: A comment question rewards a conclusion that links the nominal and real figures, not a restatement of the numbers.

7. (a) Year 1: 1,500. Year 2: 1,590 / 106 x 100 = 1,500.0. Year 3: 1,704 / 112 x 100 = 1,521.4 [2]. [2] (b) Year 2: 0.0% [1]. Year 3: (1,521.4 - 1,500) / 1,500 = 1.4% [1]. [2] (c) Nominal growth in year 2 is 6.0% [1], although output did not rise: the increase is only the price rise [1]. [2] Examiner insight: Using the unrounded real figure for the growth rate avoids small rounding drift in the final answer.

8. Real growth = (1.09 / 1.06) - 1 [1]. 1.09 / 1.06 = 1.0283 [1]. Real growth = 2.8% [1]. The approximation (9 - 6 = 3%) is close but not exact. [3] Examiner insight: When a question says exact working, the approximation of subtracting inflation is likely to lose the final figure.

9. 2023: 143 / 130 x 100 [1] = 110.0 [1]. 2015: 100 / 130 x 100 = 76.9 [1]. The new 2023 value shows that export volume was 10% above its 2020 level [1], not 13% above (13 points is the gap between 130 and 143 on the old index, and it is measured against 100 rather than against 2020). [4] Examiner insight: An explanation of the rebased value gains more credit when it names the new base year and the percentage difference from it.

10. (a) Exports grew by 26% and imports by 38% between 2018 and 2023 [1], so imports grew faster [1]. [2] (b) Both indices record change since 2018, not the size of exports or imports [1]. A trade deficit depends on the actual values, and imports could still be smaller than exports if they started from a much lower level [1]. [2] Examiner insight: Mentioning that the two series start from different levels is the point that separates an index from a data value.

11. (a) (4.20 - 3.50) / 3.50 x 100 = 20% [1]. [1] (b) Real price = 4.20 / 126 x 100 [1] = 3.33 in base-year prices [1]. [2] (c) (3.333 - 3.50) / 3.50 x 100 = -4.8% [1]. [1] (d) The coffee became cheaper relative to prices in general, even though its money price rose [1]. [1] Examiner insight: State the price year for the real price, and keep the unrounded figure for part (c) to protect the percentage.

12. (a) 55 x 118 = 6,490 and 45 x 106 = 4,770 [1]. (6,490 + 4,770) / 100 = 112.6 [1]. [2] (b) Real pay = 2,700 / 112.6 x 100 [1] = 2,397.9 [1]. Change = (2,397.9 - 2,400) / 2,400 = -0.1% [1]. [3] (c) Household index = 0.8 x 118 + 0.2 x 106 = 115.6 [1]. Real pay = 2,700 / 115.6 x 100 = 2,335.6 [1]. Change = -2.7% [1]. [3] (d) The official index uses average weights, with 55% on necessities [1]. This household spends 80% on necessities, the fastest-rising group, so its personal inflation is higher and its real pay falls by 2.7% rather than 0.1% [1]. The official index is a fair guide to the average household but a poor guide to this one, and the judgement depends on how far its spending differs from the average [1]. [3] Examiner insight: An evaluation is stronger when it uses your calculated figures and ends with a judgement tied to the household’s spending pattern.

Where marks are usually lost

• Writing only a final figure, so a small slip cannot show correct method.
• Dividing by the previous year or by 100 when finding a percentage change.
• Giving index points when the question asks for a percentage.
• Forgetting to divide a weighted sum by the total of the weights.
• Multiplying by the price index instead of dividing when converting to real terms.
• Leaving out the price year when quoting a real value.
• Using the subtraction approximation for real growth when exact working is requested.
• Reading an index as an actual level, as in question 10.
• Stopping at a number in an evaluation question without a judgement.

Next steps

• Re-read the study guide and the revision notes.
• Check the OxfordAQA Economics hub and the printable checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OxfordAQA International AS and A-level Economics (9640), specification version 1.2, section 3.5 Quantitative skills (QS5 and QS7). First teaching September 2020; first International AS exams May/June 2021; first International A-level exams May/June 2022. Published by OxfordAQA.