OxfordAQA International A Level Economics
OxfordAQA International A Level Economics 3.2.3 Economic Performance Exam Questions
Free OxfordAQA International A Level Economics revision for 3.2.3 Economic Performance: what you need to know, common mistakes and exam-style questions with answers. Covers economic growth and the economic cycle, output gaps, employment and unemployment, inflation and deflation, the current account and policy conflicts.
Practise 3.2.3 Economic Performance with past papers
Once you have learnt this topic, find the 3.2.3 Economic Performance questions in real OxfordAQA International 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 OxfordAQA International A Level Economics 3.2.3 Economic Performance
Economic performance applies the AD/AS model to the main macroeconomic objectives in Unit 2 of the OxfordAQA International AS Economics course. You study short-run and long-run growth, the economic cycle and output gaps, the causes and consequences of different types of unemployment, demand-pull and cost-push inflation and deflation, and the causes and effects of current account imbalances. Finally you consider why the objectives may conflict, such as low unemployment and low inflation. This topic links measurement in 3.2.1 with the policies in 3.2.4. Examiners frequently ask you to explain the causes of a specific problem shown in data and to analyse trade-offs between objectives.
What you need to know
- 3.2.3.1 Growth and the cycle Short-run growth is an increase in real GDP using spare capacity; long-run growth is an increase in productive potential. The economic cycle moves through boom, downturn, recession and recovery. A positive output gap means actual output is above potential; a negative one means below.
- 3.2.3.2 Unemployment Types include frictional, structural, seasonal and cyclical (demand-deficient) unemployment. Costs include lost output, lower tax revenue, higher benefit spending and social problems.
- 3.2.3.3 Inflation and deflation Demand-pull inflation comes from excess AD; cost-push inflation comes from rising costs shifting SRAS left. Inflation can reduce international competitiveness and the real value of savings. Deflation can delay spending and raise the real burden of debt.
- 3.2.3.4 Current account Deficits may result from strong domestic demand, an overvalued exchange rate or low productivity. Persistent deficits can be a concern if financed by borrowing; surpluses can mean lower domestic consumption.
- 3.2.3.5 Conflicts Rapid growth can increase inflation and widen a current account deficit through more imports. Reducing inflation by cutting AD can raise unemployment in the short run. Growth can also harm the environment.
Common mistakes in 3.2.3 Economic Performance
- Treating all unemployment as caused by a lack of demand. Identify the type: frictional, structural, seasonal or cyclical.
- Saying deflation is always good for consumers. Falling prices can lead to postponed spending, lower output and higher unemployment.
- Describing a recession only as 'when the economy is bad'. Use output falling, a negative output gap and rising cyclical unemployment.
- Ignoring the time period when discussing policy conflicts. Many conflicts apply in the short run but may not in the long run.
- Saying a current account deficit means the government is in debt. It relates to flows with other countries, not the budget.
Try three 3.2.3 Economic Performance exam-style questions
1. Explain the difference between demand-pull and cost-push inflation. (4 marks)
Show the mark scheme answer
Demand-pull inflation occurs when aggregate demand grows faster than aggregate supply, shown by AD shifting right near full capacity; cost-push inflation occurs when costs of production rise, for example wages or raw materials; shifting SRAS to the left; both raise the price level but cost-push also reduces real output.
2. Explain why structural unemployment may be difficult to reduce. (3 marks)
Show the mark scheme answer
Structural unemployment results from long-term changes in the structure of the economy, such as the decline of an industry; workers lack the skills needed in growing industries or live in the wrong region (occupational and geographical immobility); retraining and relocation take time and money.
3. Explain how a period of rapid economic growth may lead to a worsening of the current account. (4 marks)
Show the mark scheme answer
Rising incomes increase consumer spending; some of this is spent on imports (positive income elasticity for imports); domestic firms may divert output to the home market and inflation may reduce export competitiveness; so imports rise relative to exports and the deficit widens.
3.2.3 Economic Performance FAQs
What does OxfordAQA International A Level Economics 3.2.3 Economic Performance cover?
It covers economic growth and the economic cycle, output gaps, unemployment, inflation and deflation, the current account and conflicts between macroeconomic objectives.
Which unit is 3.2.3 Economic Performance examined in?
It is examined in Unit 2 (EC02), The national economy in a global environment, an International AS unit with multiple choice and data response questions. Units 3 and 4 are synoptic, so the ideas can also be used there.
How do I analyse conflicts between objectives?
Use the AD/AS model to show how one policy or event affects two objectives in opposite directions, then evaluate by considering timing, the size of the output gap and the cause of the problem.
