How the Macroeconomy Works | AQA A-Level Economics (7136)
How the Macroeconomy Works
- 176 questions
- 9 subtopics
- Paper 2: The national and international economy, and available on Paper 3
- Paper 2 and Paper 3
How the macroeconomy works is examined on Papers 2 and 3, and provides the model the rest of macroeconomics uses.
It runs from the circular flow through the AD/AS diagram to the components of aggregate demand and the multiplier.
Sample questions from How the Macroeconomy Works
Answer each one closed book first, then open the answer.
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The circular flow of income
What are withdrawals (leakages) in the circular flow model?
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Withdrawals are income that leaves the circular flow and is not spent on domestic goods and services. -
The aggregate demand and aggregate supply curves
What happens to the AD curve when government spending rises?
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Higher government spending shifts the AD curve rightward. -
What shifts short-run and long-run aggregate supply
How do subsidies affect the short-run aggregate supply curve?
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Subsidies reduce production costs for firms, shifting the SRAS curve rightward. -
Macroeconomic equilibrium and economic shocks
What is stagflation, and how is it caused in the AD/AS model?
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Stagflation is a situation of lower real output combined with a higher price level. It is caused by a negative supply-side shock that shifts the SRAS curve leftward. -
Consumption and investment
Explain how interest rates influence consumption.
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Higher interest rates increase the reward for saving and the cost of borrowing, reducing consumption; lower interest rates encourage borrowing and spending. -
Government spending and net exports
How do global economic conditions influence a country's exports?
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Strong global growth boosts demand for exports; global recessions or uncertainty reduce export demand. -
The accelerator, saving and investment
What happens to investment when the rate of income growth slows, according to the accelerator?
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Investment falls, even if national income is still rising, because the need for additional capacity diminishes. -
Aggregate demand and the level of economic activity
Name the three main withdrawals that diminish the multiplier effect.
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Savings, taxation, and imports.
The 9 subtopics
One subtopic is one session. Work down the list.
| Subtopic | What it covers | Questions |
|---|---|---|
| The circular flow of income | Money flowing between households and firms, and the injections and withdrawals that change it. | 27 |
| The aggregate demand and aggregate supply curves | What each curve shows, why it slopes the way it does, and what shifts aggregate demand. | 16 |
| What shifts short-run and long-run aggregate supply | Costs and wages in the short run, and productive capacity in the long run. | 10 |
| Macroeconomic equilibrium and economic shocks | Where AD meets AS, and the effect of demand-side and supply-side shocks including stagflation. | 11 |
| Consumption and investment | Disposable income, interest rates, confidence and the wealth effect, and what drives firms to invest. | 19 |
| Government spending and net exports | What determines the level of government spending, and the influences on exports and imports. | 16 |
| The accelerator, saving and investment | The accelerator theory, why investment is volatile, and the difference between saving and investment. | 11 |
| Aggregate demand and the level of economic activity | The multiplier process, why each round shrinks, and how the multiplier is calculated. | 30 |
| The determinants of aggregate supply | Wage rates, raw material prices and taxation in the short run, productivity and mobility in the long run. | 36 |
How the guide is worked
Answering a question from memory stores it far better than reading the answer again. The guide runs that as a fixed procedure on one subtopic at a time, about twenty minutes a session.
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Step 1 · Closed book
Cover the answers. Work through one subtopic and write down what you can. Leave blanks where you have nothing.
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Step 2 · Open book
Go back to the top. Read each printed answer and write it out in full, including the ones you had right.
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Step 3 · Closed book again
Same questions, same order, from memory. The gap between pass one and pass three is the session result.
Read the full method, the return schedule and the research behind it.
Nearby topics
AQA A-Level Economics Active Recall Guide
Every topic, not just this one. 2,344 questions with their answers.