OxfordAQA International AS and A-level Economics: Supply-side policies (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 test supply-side policies in the OxfordAQA International AS and A-level Economics (9640) specification, version 1.2, section 3.2.4.3. Section 3.2 is International AS content, and every country and number here is made up. If a topic feels new, begin with the revision notes or the study guide. The OxfordAQA Economics hub, the printable checklist and the free diagnostics are also useful.

Questions

1. A freight firm in Country W installs routing software of its own choice. Deliveries per driver rise 8%. State whether this is a supply-side policy and explain your answer. [2]

2. In Country W, income tax is 25% on income above a 6,000 cu tax-free allowance. A worker earns 20,000 cu.

(a) Calculate the tax paid. [1] (b) Calculate the tax saved under each reform: raising the allowance to 8,000 cu, or cutting the rate to 22%. [2] (c) State which reform gives this worker a bigger incentive to earn an extra 1,000 cu, and give the evidence. [1]

3. Explain how government spending on education and training may shift the long-run aggregate supply curve to the right. [4]

4. Capital spending on roads is 2.7 billion cu this year, when the price index is 108 (base year = 100). Last year’s spending was 2.25 billion cu in base-year prices.

(a) Convert this year’s spending to real terms. [2] (b) Calculate the percentage change in real spending. [2] (c) Give one reason why the spending will not raise potential output at once. [1]

5. Country W has a labour force of 4.0 million. Structural unemployment is 160,000. A retraining scheme moves 12.5% of the structurally unemployed into jobs.

(a) Calculate the structural unemployment rate before the scheme. [1] (b) Calculate the number and the rate after the scheme. [2] (c) Explain how the scheme may also reduce inflationary pressure. [3]

6. In a model of Country W, AD is Y = 1,260 − 3P and SRAS is Y = 420 + 5P, where Y is real output in billion cu and P is the price index.

(a) Find the equilibrium price level and output. [2] (b) Supply-side policies shift SRAS to Y = 468 + 5P. Find the new equilibrium. [2] (c) Work out how far the price level and real output have each moved, as percentages. [2]

7. Country W exports goods worth 520 million cu and imports goods worth 560 million cu. Supply-side policies raise exports by 7% and cut imports by 3%.

(a) State the original goods balance. [1] (b) Calculate the new exports, imports and balance. [3] (c) Explain why the current account as a whole might still be in deficit. [2]

8. A weekly job pays 200 cu. Out-of-work support is withdrawn at 70% of earnings above 50 cu. A reform cuts the withdrawal rate to 50%.

(a) Calculate the net gain from taking the job before the reform. [2] (b) Calculate it after the reform, and the percentage increase. [2] (c) Evaluate whether this reform will reduce unemployment. [4]

9. The government of Country W gives 150 million cu in subsidies to a new-technology sector, linked to 2,000 jobs. 35% of these jobs would have existed anyway.

(a) Calculate the cost per net job. [3] (b) Evaluate industrial policy as a way to raise potential output. [6]

10. Country W (illustrative) introduced training schemes, deregulation and a lower corporation tax over five years.

	Year 1	Year 5
Unemployment rate	7.5%	6.0%
Inflation rate	3.8%	2.6%
Current account deficit (% of GDP)	4.0%	3.1%

(a) Calculate the change in the unemployment rate in percentage points and as a percentage. [2] (b) To what extent do the data support the claim that supply-side policies explain the improvement in all three indicators for Country W? [10]

Answers

1. It is not a supply-side policy because the firm chose to buy the software and the government took no action [1]. It is a supply-side improvement, a rise in productivity that started in the private sector [1]. [2] Examiner insight: Answers usually gain credit by separating who acted from what changed. Calling the rise a policy without naming government action is a common slip.

2. (a) Tax = 0.25 × (20,000 − 6,000) = 3,500 cu [1]. (b) Allowance 8,000: 0.25 × 12,000 = 3,000, saving 500 [1]. Rate 22%: 0.22 × 14,000 = 3,080, saving 420 [1]. (c) The rate cut [1]. The worker keeps 78% of extra earnings instead of 75%, while a bigger allowance leaves the marginal rate at 25%. [4] Examiner insight: A comparison needs both sets of figures. Stating the rate cut with no marginal-rate evidence is a bare assertion.

3. Spending on education and training raises the skills of workers (human capital) [1]. Workers with more skills get more done in each hour, which lifts productivity [1]. Better skills match more people to vacancies, reducing structural unemployment, so more labour is employed [1]. Higher productivity and employment raise potential output, so LRAS shifts right and the trend rate of growth can rise [1]. [4] Examiner insight: A full chain ends at the curve that moves. Answers that stop at “workers are better trained” leave the last link unmade.

4. (a) Real spending = 2.7 / 1.08 [1] = 2.5 billion cu [1]. (b) 2.5 / 2.25 − 1 [1] = 11.1% [1]. (c) Construction takes time, so the extra capacity appears only when the road opens [1]. [5] Examiner insight: Real terms means dividing by the price index over 100. Comparing 2.7 with 2.25 directly mixes money values with base-year values.

5. (a) 160,000 / 4,000,000 = 4.0% [1]. (b) Moved into jobs = 0.125 × 160,000 = 20,000, leaving 140,000 [1]. Rate = 140,000 / 4,000,000 = 3.5% [1]. (c) Retrained workers fill vacancies that employers could not fill before [1], so employers bid less aggressively for scarce skills, reducing wage pressure [1]. Higher productivity lowers unit labour costs, easing cost pressure on prices [1]. [6] Examiner insight: Answers that explain the link from unemployment to wages or costs gain more than those that only state inflation will fall.

6. (a) 1,260 − 3P = 420 + 5P, so 8P = 840 [1]. P = 105, Y = 945 [1]. (b) 1,260 − 3P = 468 + 5P, so 8P = 792 [1]. P = 99, Y = 963 [1]. (c) Price level: 99 / 105 − 1 = −5.7% [1]. Output: 963 / 945 − 1 = +1.9% [1]. [6] Examiner insight: Show the equation that sets AD equal to SRAS so your working is clear, then check the answer by substituting back into both equations.

7. (a) 520 − 560 = −40 million cu, a deficit [1]. (b) Exports = 520 × 1.07 = 556.4 [1]. Imports = 560 × 0.97 = 543.2 [1]. Balance = 556.4 − 543.2 = +13.2 million cu, a surplus [1]. (c) The current account also includes trade in services and income flows [1], and transfers. Any of these could be negative by more than 13.2, so the total could remain in deficit [1]. [6] Examiner insight: Relate the answer to the data given. Naming what else is in the current account, and saying its sign could outweigh the goods surplus, shows understanding.

8. (a) Benefit lost = 0.70 × (200 − 50) = 105 [1]. Net gain = 200 − 105 = 95 cu [1]. (b) Lost = 0.50 × 150 = 75, so net gain = 125 cu [1]. Increase = 125 / 95 − 1 = 31.6% [1]. (c) For: a bigger reward for working makes job search and acceptance more attractive, so more unemployed people may take jobs [1], and it may encourage people outside the labour force to enter [1]. Against: a lower withdrawal rate costs the government more, since more households keep some support [1], and it cannot create jobs if there is too little demand or the skills do not match [1]. The effect is likely to be modest and slow unless vacancies exist. [8] Examiner insight: Strong evaluation ends in a judgement tied to a condition, such as whether vacancies exist, rather than listing points on both sides.

9. (a) Gross cost per job = 150m / 2,000 = 75,000 cu [1]. Net jobs = 2,000 × 0.65 = 1,300 [1]. Cost per net job = 150m / 1,300 = about 115,400 cu [1]. (b) Industrial policy can raise capacity where private firms under-invest, for example in research with spillovers [1], and a young sector may need support while it builds scale [1]. It may attract private investment, raising the capital stock [1]. However, the government may back the wrong sector, as it lacks full information [1], and lobbying may distort decisions [1]. The 35% of jobs that would have existed anyway shows weak value for money. The case depends on spillovers being large and on the subsidy being time-limited [1]. [9] Examiner insight: Using the 115,400 figure in part (b) earns more than general comments. A judgement should say what the result depends on.

10. (a) 7.5 − 6.0 = 1.5 percentage points [1]. 1.5 / 7.5 = a 20% fall [1]. (b) For: training and deregulation address structural unemployment without adding to demand-pull inflation [1], lower costs and higher productivity ease inflation [1], and better competitiveness narrows the deficit, as the fall from 4.0% to 3.1% suggests [1]. Lower corporation tax can raise investment and the capital stock [1]. Against: the data show association, not proof, as other factors may have changed [1]. Supply-side effects take years and the five-year change may be partly cyclical [1]. Some measures may cost revenue or raise inequality [1]. If unemployment is partly due to weak demand, demand-side policy may work faster [1]. Evidence from one country over five years cannot show which policy mattered [1]. Judgement: the data fit the claim in direction but cannot prove it. Supply-side policies are the likeliest source of lasting gains, since they target capacity, but they work best alongside steady demand [1]. [12] Examiner insight: Use the table figures in the argument, not only general theory. Judgements gain from naming the condition that decides the outcome.

Where marks are usually lost

• Labelling private-sector improvements as government policy.
• Giving a calculation answer with no working, so the reasoning cannot be followed.
• Dividing by the price index instead of by the index over 100 in real-terms questions.
• Describing a tax cut as “more incentive” without naming whose incentive or which tax rate.
• Stopping an explanation before LRAS or SRAS moves.
• Treating a deficit in goods trade as the whole current account.
• Giving evaluation as a list, with no weighing and no conclusion.
• Overlooking deadweight, so reading gross costs as net.
• Claiming supply-side policy works fast.

Next steps

• Go through the study guide again.
• Use the revision notes for quick recall.
• Open the OxfordAQA Economics hub and the printable checklist.
• Try 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 3.2.4.3 Supply-side policies and section 3.5 Quantitative skills. First teaching September 2020; first International AS exams May/June 2021; first International A-level exams May/June 2022. Published by OxfordAQA.