AQA A Level Economics
AQA A Level Economics 3.2.2 How the Macroeconomy Works Exam Questions
Free AQA A Level Economics exam questions for 3.2.2 How the Macroeconomy Works, with a mark scheme for every pack. Covers the circular flow of income, aggregate demand, the multiplier and accelerator, and short-run and long-run aggregate supply.
3.2.2 How the Macroeconomy Works exam questions
6 question packs of real past exam questions, each with its mark scheme. Do not stop after a few: answer as many as you can without notes, then mark every answer with the mark scheme. The more questions you do, the more quickly you will spot how examiners ask about each idea.
About AQA A Level Economics 3.2.2 How the Macroeconomy Works
How the macroeconomy works is section 3.2.2 of AQA A Level Economics and is examined on Paper 2. It covers the circular flow of income with injections and withdrawals, aggregate demand and aggregate supply analysis, the determinants of consumption, investment, government spending and net exports, the multiplier and accelerator processes, the determinants of short-run aggregate supply, and long-run aggregate supply from both Keynesian and classical perspectives. This AD/AS model is the main tool used in later sections on growth, unemployment, inflation and policy. Examiners expect accurate AD/AS diagrams, multiplier calculations and clear chains of analysis from a shock to output, employment and the price level.
What you need to know
- Circular flow of income Income flows between households and firms. Injections are investment, government spending and exports; withdrawals (leakages) are saving, taxation and imports. National income rises if injections exceed withdrawals.
- Aggregate demand AD = C + I + G + (X - M). AD slopes downward because of the effects of the price level on real wealth, interest rates and international competitiveness. Determinants include interest rates, confidence, wealth, income, fiscal policy and the exchange rate.
- Consumption and investment Consumption depends on disposable income, interest rates, wealth and confidence; know the marginal propensity to consume and save. Investment depends on interest rates, expected profits, business confidence and the accelerator, which links investment to the rate of change of output.
- The multiplier An initial injection leads to a larger final change in national income. Multiplier = 1 / (1 - MPC) in a closed economy with no government, or 1 / marginal propensity to withdraw (MPS + MPT + MPM) more generally.
- Short-run aggregate supply SRAS shows output firms will supply at each price level with given costs. It shifts with changes in wages, raw material and energy prices, productivity, taxes on business and exchange rates affecting import costs.
- Long-run aggregate supply LRAS reflects the productive potential of the economy. The classical LRAS is vertical at full employment output; the Keynesian AS curve is horizontal with spare capacity and becomes vertical at full capacity. LRAS shifts with the quantity and quality of factors of production and technology.
Common mistakes in 3.2.2 How the Macroeconomy Works
- Including imports as an injection. Imports are a withdrawal; exports are the injection.
- Shifting AD for a change in the price level. A change in the price level causes a movement along AD; shifts come from changes in its components.
- Using 1/MPC for the multiplier. The multiplier is 1/(1 - MPC) or 1/MPW.
- Treating SRAS and LRAS shifts as the same. Higher oil prices shift SRAS left, while better education or technology shifts LRAS right.
- Ignoring the starting position on the AS curve. The effect of a rise in AD on prices and output depends on how close the economy is to full capacity.
Try three 3.2.2 How the Macroeconomy Works exam-style questions
1. In an economy the marginal propensities to save, pay tax and import are 0.1, 0.15 and 0.25. Calculate the multiplier and the final increase in national income from a 10 billion pound rise in investment. (3 marks)
Show the mark scheme answer
MPW = 0.1 + 0.15 + 0.25 = 0.5; multiplier = 1/0.5 = 2; increase in national income = 2 x 10 = 20 billion pounds.
2. Explain why the aggregate demand curve slopes downwards. (4 marks)
Show the mark scheme answer
A lower price level raises the real value of wealth and income, increasing consumption; it tends to reduce interest rates, raising consumption and investment; domestic goods become more competitive relative to foreign goods so net exports rise; so real output demanded rises as the price level falls.
3. Using an AD/AS diagram, explain the likely effects of a large rise in global energy prices on the UK economy. (9 marks)
Show the mark scheme answer
Energy is an input so firms' costs rise; SRAS shifts left; price level rises (cost-push inflation); real output falls and unemployment may rise; consumer real incomes fall reducing consumption, so AD may also shift left; correctly labelled diagram; application to UK context such as reliance on imported gas.
3.2.2 How the Macroeconomy Works FAQs
What does AQA A Level Economics 3.2.2 cover?
It covers the circular flow of income, aggregate demand and its components, consumption and saving, investment and the accelerator, the multiplier, and short-run and long-run aggregate supply.
Which paper is 3.2.2 examined in?
It is assessed on Paper 2, National and international economy, and can also appear on Paper 3, Economic principles and issues, which draws on the whole specification.
Which diagrams should I learn for AD and AS?
Learn AD/AS with SRAS, the classical vertical LRAS, the Keynesian AS curve, and how to show demand-side shocks, supply-side shocks and long-run growth. Practise explaining each shift step by step.
