CCEA A Level Economics
CCEA A Level Economics AS 2 Economic Growth Exam Questions
Free CCEA A Level Economics revision for AS 2 Economic Growth: what you need to know, common mistakes and exam-style questions with answers. Covers actual and potential growth, the business cycle, output gaps, causes of growth, and the benefits and costs of economic growth.
Practise AS 2 Economic Growth with past papers
Once you have learnt this topic, find the AS 2 Economic Growth questions in real CCEA A Level Economics past papers and mark them with the mark scheme. Doing lots of real questions is the quickest way to learn how examiners ask about each idea.
About CCEA A Level Economics AS 2 Economic Growth
Economic growth is one of the main objectives studied in Unit AS 2: Managing the National Economy. You need to distinguish actual growth (an increase in real GDP) from potential growth (an increase in productive capacity), and show both on a PPF and an AD/AS diagram. You then explain the business cycle with its phases of boom, downturn, recession and recovery, and positive and negative output gaps. You must analyse the causes of growth, both demand-side and supply-side, and evaluate the benefits and costs of growth, including environmental and distributional effects. CCEA papers often ask you to interpret growth data, define an output gap and weigh up whether growth is desirable.
What you need to know
- Actual and potential growth Actual growth is a rise in real GDP, often from higher AD and using spare capacity. Potential growth is a rise in productive capacity, shown by an outward shift of the PPF or LRAS.
- Business cycle Fluctuations of actual GDP around its trend: boom, downturn, recession (two consecutive quarters of negative growth) and recovery.
- Output gaps A positive output gap occurs when actual output exceeds potential output, causing inflationary pressure. A negative output gap occurs when actual output is below potential, with spare capacity and cyclical unemployment.
- Causes of growth Short run: increases in C, I, G or net exports. Long run: more or better quality labour and capital, technology, investment in education and infrastructure, and productivity improvements.
- Benefits of growth Higher living standards, lower unemployment, higher tax revenue for public services and reduced absolute poverty.
- Costs of growth Inflation if growth is too rapid, environmental damage and resource depletion, widening inequality and a worse current account as imports rise.
Common mistakes in AS 2 Economic Growth
- Treating a rise in nominal GDP as economic growth; growth refers to real GDP.
- Showing potential growth with an AD shift; it is an outward shift of LRAS or the PPF.
- Calling any slowdown a recession; a recession requires negative growth for two consecutive quarters.
- Mixing up positive and negative output gaps.
- Presenting only the benefits of growth without evaluation of sustainability or distribution.
Try three AS 2 Economic Growth exam-style questions
1. Distinguish between actual and potential economic growth. (4 marks)
Show the mark scheme answer
Actual growth is an increase in real GDP; it can come from using spare capacity; potential growth is an increase in the productive capacity of the economy; shown by an outward shift of LRAS or the PPF.
2. Explain what is meant by a negative output gap and one consequence. (3 marks)
Show the mark scheme answer
Actual real GDP is below potential (trend) output; there is spare capacity; so cyclical unemployment is high and inflationary pressure is low.
3. Evaluate the view that economic growth always improves living standards. (8 marks)
Show the mark scheme answer
Higher real incomes and more goods and services; jobs and tax revenue for public services; but gains may be unequally distributed; pollution and congestion reduce welfare; longer working hours; growth may be unsustainable; real GDP per capita may hide these effects; conclusion based on type and distribution of growth.
AS 2 Economic Growth FAQs
What does CCEA A Level Economics AS 2 Economic Growth cover?
Actual and potential growth, the business cycle, positive and negative output gaps, the causes of growth and the benefits and costs of growth.
Which unit is this topic examined in?
It is in Unit AS 2: Managing the National Economy, a 1 hour 30 minute paper with short-answer questions, a case study and an extended response question.
Which diagrams show economic growth?
An outward PPF shift or LRAS shift for potential growth, an AD shift for actual growth using spare capacity, and a business cycle diagram showing actual GDP against trend growth.
