PRACTICE EXAM PAPER

OCR AS
Economics (Macro)
Paper B
 Section A
ANSWER ALL QUESTIONS IN THIS SECTION

1. A good tax is one that is

A. Expensive to collect
B. Convenient for households to pay
C. Difficult for households to plan for
D. Uncertain in terms of the revenue raised

2. A depreciation in a countrys currency will lead to

A. A fall in the price of imports into that country
B. A fall in unemployment
C. A fall in the rate of economic growth
D. A fall in the rate of inflation

3. The following table gives information about the UKs marginal propensity to save in the period
2004 to 2014.

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
MPS 7.8 7 6.6 7.3 5.8 9.8 11.6 9.1 8.7 6.3 4.9

Which of the following statements can be inferred from the table?

A. The multiplier would have been highest in 2010

B. The multiplier would have been lowest in 2014
C. The multiplier did not change over the period shown
D. The multiplier would have been highest in 2014

4. The table below provides information about the number of labour hours required to produce one
unit each of tea and Potatoes. You may assume that other factors of production are used in
equal quantities in each of the two countries.

Tea Potatoes
Country X 30 20
Country Y 80 10

Which of the following statements is correct?

A. Country Y has a comparative advantage in the production of Potatoes

B. Country X has a comparative advantage in the production of Tea
C. Country X has an absolute advantage in the production of Tea
D. All of the above.

Page 2 Practice exam paper - OCR AS Economics (Macro) Paper B

5. Inflation is best defined as
A. A sustained increase in the general level of prices
B. Two successive quarters of growth in real GDP
C. A sustained rise in household income
D. An increase in the level of net exports

6. Which of the following is an example of capital spending by the government?

A. The salaries of teachers working in state schools
B. The purchase of medicine for the National Health Service
C. Improvements on the railways to increase peak-time capacity
D. The spending on utility bills to heat local government buildings

7. Which of the scenarios below is most likely to cause the Production Possibility Frontier for a country
to shift to the right?
A. An increase in spending on capital
B. A fall in unemployment
C. An increase in consumer spending
D. A rise in the value of net exports

8. The following table gives information about the rate of inflation, according to the Consumer Prices
Index (CPI) from 2004 to 2014.

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
CPI 1.3 2.1 2.3 2.3 3.6 2.2 3.3 4.5 2.8 2.6 1.5
inflation
rate (%)

Which of the following statements is true?

A. In 2014 average prices were lower than they were in 2013
B. There was deflation in 2004
C. Average prices were highest in 2014
D. Average prices were highest in 2011

9. The unemployment rate in the UK rose from 4.8% in 2005 to 8.1% in 2011. Which of the following
types of unemployment was the most likely to have been experienced?

A. Structural
B. Frictional
C. Classical
D. Cyclical

Practice exam paper - OCR AS Economics (Macro) Paper B Page 3

 10. Which of the following is an example of a monetary policy?
A. An increase in spending on Londons transport network
B. A reduction in the base rate of interest
C. An increase in the level of earnings on which income tax is paid
D. A fall in government spending on benefits

11. Which of the following scenarios is most likely to result in a depreciation of the pound sterling ()?
A. An increase in the UK interest rate and a decrease in demand for imports
B. A fall in demand for UK exports and fall in overseas interest rates
C. A belief by investors that the value of the pound sterling will fall and an increase in demand for imports
D. An increase in inwards Foreign Direct Investment and an increase in demand for imports

12. The table below provides data on the UKs current account from 2010 to 2014 (all data in m)

Year Value of Value of Investment Net Transfers Current Account Balance

Exports Imports Income
2010 444 372 487 417 20 193 -20 662 -43 514
2011 497 079 523 289 20 483 -21 673 -27 400
2012 501 734 535 617 1 098 -21 913 -54 698
2013 521 039 - -16 833 -26 842 -77 908
2014 515 191 549 723 -33 108 - 25 249 -92 889

What is the missing value for the Value of Imports in 2013?

A. 555 272m
B. 399 456m
C. 486 806m
D. 642 622m

13. National debt can best be defined as:

A. The annual difference between government spending and tax receipts
B. The total amount of money owed by households
C. The total amount owed by other governments to our government
D. The total amount owed by our government

Page 4 Practice exam paper - OCR AS Economics (Macro) Paper B

 14. Study the information below on the income tax rates for 4 countries.
Country W Country X Country Y Country Z
Rate of tax on 15% 20% 0% 20%
income under
$10000pa
Rate of tax on 15% 15% 10% 20%
income between
$10000pa and
$40000pa
Rate of tax on 15% 12% 30% 25%
income over
$40000pa

Which of the following statements can be correctly inferred from the table?
A. Country Z has the most progressive income tax system
B. Country W has a regressive income tax system
C. Country W has a proportional income tax system
D. Country X has a progressive income tax system

15. The following chart provides data on the value of the UKs budget deficit in real terms from 2004
to 2014.

UK Budget Deficit (m)

140000

120000

10000

80000

Budget deficit (m)

60000

40000

20000

0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Which of the following statements regarding the UKs budget deficit is true?
A. The budget deficit increased by approximately 210% from 2004 to its peak in 2010.
B. The8
budget deficit increased by approximately 70% from 2004 to its peak in 2010
C. The budget deficit has decreased by approximately 40% from its peak in 2010 to 2014
7
6
D. The5
budget deficit has increased by approximately 55% between 2004 and 2014
Growth (%)

2014 (actual)
4
2015 (projected)
3
2
1
0
-1
-2
Global High Eurozone UK Emerging China India Latin Brazil
economy income economies America
Costs and benefits

Practice exam paper - OCR AS Economics (Macro) Paper B Page 5

000

000

000

Budget deficit (m)

000

000
Section B
ANSWER ALL QUESTIONS IN THIS SECTION

000

0 Global slowdown in 2015

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
According to the International Monetary Fund (IMF), global growth in 2015 is slowing down. Forecast growth for the
world economy is forecast to be 3.1 per cent this year (at purchasing power parity) and 3.6 per cent in 2016.

Figure 1: GDP growth for selected economies

8
7
6
5
Growth (%)

2014 (actual)
4
2015 (projected)
3
2
1
0
-1
-2
Global High Eurozone UK Emerging China India Latin Brazil
economy income economies America

The IMF reported that the underlying drivers for a gradual acceleration in economic activity in advanced
economieseasy financial conditions, more neutral fiscal policy (replacing austerity measures) in the euro area,
lower fuel prices, and improving confidence and labour market conditionsremained intact. However, factors such
as lower commodity prices, rebalancing in China, and economic distress related to geopolitical factors were the
chief problems for emerging market growth. These factors combine to create increased financial market volatility
and disruptive asset price shifts, alongside lower potential output growth in the higher income economies.

While the advanced economies are gradually recovering from the global financial crash in 2008-2009, their growth
is not sufficient to take up the slack created by the slowdown in recently-booming economies such as Brazil and
China. Economies which produce commodities such as oil, metals and cement have benefitted from the massive
demand for those goods created by that boom, and have invested in raising their capacity to produce and export
the commodities. They are now suffering a demand-side shock as the need for their exports shrinks away. The
richer economies are in no position to make up for that shortfall in demand, as their recovery still leaves their output
some way short of their potential.

Page 6 Practice exam paper - OCR AS Economics (Macro) Paper B

One effect of the slowing growth in emerging economies is lower risk of cost-push inflation pressures. This allows the
central banks in the richer economies to delay decisions to raise interest rates from their historically low levels as they
continue to use monetary policy to stimulate economic growth. Janet Yellen, chair of the Federal Reserve Board in the
US had indicated early in 2015 that strong US GDP growth meant that rates were likely to rise before the end of the
year, and one result of this hint was strengthening of the dollar. However by mid-October growth in employment had
stalled and rates had not been increased, and the dollar weakened again.

Ian Stewart, Chief Economist of Deloitte, wrote that Having taken great pains to nurture a recovery, policymakers
are wary of jeopardising it with premature interest rate rises. The Fed needs to be confident that the first rate rise will
be the first of many. Until there is greater confidence that growth can be sustained central banks are likely to keep
interest rates at rock bottom levels.

Slowing growth in China, which is some way below the governments target of 7%, has an impact on all global
markets from commodities to luxury goods. Chinese imports slumped 20.4% year-on-year to USD145.22 billion, and
had fallen for the eleventh consecutive month. While Chinese exports declined by 3.7% year-on-year to USD205.56
billion in September, the governments desire to rebalance the Chinese economy away from investment and exports
towards domestic consumption is proving difficult with investment falling far short of its previous level of 40% of GDP,
and domestic consumption failing to take up the shortfall. While it may still be true that, if America sneezes, the world
catches a cold, we should probably now say the same about China.

Practice exam paper - OCR AS Economics (Macro) Paper B Page 7

 16 (a) One effect of the slowing growth in emerging economies is lower risk of cost-push inflation pressures.
State one possible cause of cost-push inflation. [1 mark]

(b) With reference to Fig. 1, compare GDP growth for 2014 and 2015 for the High Income Economies and the
Emerging Economies. [2 marks]

(c) (i) Calculate Chinas balance of trade in September 2015. [2 marks]

(c) (ii) Explain one reason why an expectation that the US Federal Reserve might raise interest rates in the
future, would cause the dollar to strengthen on currency markets. [2 marks]

(d) (i) State two possible causes of a demand-side shock. [2 marks]

(d) (ii) State the components of a countrys Balance of Payments. [2 marks]

(e) Use a diagram to show how Investment that amounts to 40% of GDP is likely to have affected the Chinese
economy. [4 marks]

(f)* Until there is greater confidence that growth can be sustained central banks are likely to keep interest
rates at rock bottom levels. Evaluate the options that central banks have to encourage confidence and
growth at such a point in the economic cycle. [10 marks]

Page 8 Practice exam paper - OCR AS Economics (Macro) Paper B

Section C
ANSWER EITHER QUESTION 17 OR QUESTION 18
17* The Chinese government is regularly accused of competitive devaluation of their currency.

Evaluate, using an appropriate diagram(s), whether manipulation of exchange rates or supply side
policies are likely to be more effective in achieving Chinas aim of rebalancing their economy from ex
ports and investment towards domestic consumption and imports.
[20 marks]

OR

18* In the Institute of Fiscal Studies Green Budget of 2010, analysts considered estimates of the
effect of the 2008-9 recession on the UKs productive capacity which suggested a loss of
between 7% and 10% of potential GDP.

Evaluate, using an appropriate diagram(s), whether a decrease in aggregate supply is always harmful to
national economic performance. [20 marks]

Practice exam paper - OCR AS Economics (Macro) Paper B Page 9

Mark scheme

Answers
1. B 6. C 11. C
2. B 7. A 12. A
3. D 8. C 13. D
4. D 9. D 14. C
5. A 10. B 15. A

Page 10 Practice exam paper - OCR AS Economics (Macro) Paper B

16.

Answer Marks Guidance
(a) Relevant answers may include: 1 Accept only a first answer
Rise in wages (AO1 x 1)
Rising cost of materials
Rising cost of imports / weakening currency
Rise in indirect tax eg VAT
Reduced subsidies
Lower productivity

(b) Possible valid responses may include: 2 Up to two marks:

In the High Income countries projected growth for 2015 ( AO2 Two points of comparison required
is greater than actual growth in 2014, whereas in the x 2)
Emerging countries projected growth for 2015 is lower than One mark for each point of
actual growth in 2014 comparison offered
Actual and Projected growth in the Emerging Economies
are both higher than Actual and Projected growth in Implied comparison through data
the High Income countries; figures are 4.5% and 4.1% commentary should not be credited
compared with 1.9% and 2.0% (allow up to 0.2% either
side of each figure)
Actual and Projected growth in the Emerging Economies
are both higher than the Global average figures of 3.2%
and 3.1%, whereas Actual and Projected growth in the
High Income countries is below the Global average.

(c) i Balance of Trade = Value of Exports minus Value of Imports. 2 Up to two marks:
Chinas exports = USD205.56bn (AO1 x 1 Two marks for correct answer
Chinas imports = USD145.22bn AO2 x1) USD60.34bn
Balance = USD60.34bn One mark if either USD or billion is
omitted
Where candidates have used the
correct formula OFR applies one
mark for formula.

(c) ii If US interest rates rise from their current low rate there is 2 Up to two marks:
more incentive to buy dollars for investment (1 mark) which (AO1 x One mark for understanding that
would raise demand for the dollar on international exchange 1 AO2 exchange rates are the result of the
markets and so make it more expensive ie cause it to x 1) interaction of supply and demand for
strengthen (1 mark) the currency (AO1)
One mark for understanding that
raising US interest rates from
historically low levels creates an
incentive to invest in USD accounts
(AO2)

Practice exam paper - OCR AS Economics (Macro) Paper B Page 11

 (d) i Possible valid responses may include: 2 Up to two marks:

Price level
Price level
A capital investment boom LRAS LRAS1 (AO1 One mark for each validAggregate
causesupply
given

Aggregate supply
A big rise or fall in the exchange rate x 2)
A contraction in consumer demand abroad in the P1
country of a major trading partner P*
A large slump
P*
in asset prices AD1
AD
An event such as the global credit crunch Aggregate demand 1
Aggregate demand
An unexpected change in interest rates or in
Aggregate demand
government taxation Y* Y1 Real GDP
Aggregate demand 1 Y* Y1 Real GDP

Price level
LRAS
Y* Real GDP
(d) ii Current account (1 mark) 2 Up to two marks:
Price level

Capital account and Financial Account

AS
(1 mark) (AO2 Accept components of the Current
AS1 x 2) Account only if all components are
P*
given
P1
Accept Capital and Financial
AD AD1
accounts
S = AC
P* as one combined
Y*
or
Y
two Real
separate
1 GDP

components.
AD

(e) Accept Real National Output Y*instead

Y of Real
Real GDP.
GDP 1 4 Up to four marks:
Current
Diagram should show a rightward shift of AS (AO1 x One mark for the correct labelling of
account
surplus
Other acceptable versions of the standard diagram should be 2 AO2 the axes plus AD/AS.
accepted.
D x 2) One mark for labelling the initial
Q2 Q1 Q3 QL Recovery Boom
equilibrium points. Time
Real GDP

Trend
One mark for a rightward shift in the
Peak
AS curve.
One mark for the new equilibrium
Current
account

Trough
points.
deficit

Aggregate supply
Contraction Expansion

Time
Price
Level
Price level

AS1 AS2

Aggregate supply P1
Aggregate demand 1
Aggregate demand P2

Y* Y1 Real GDP P1
AD
P*

Aggregate demand 1 Y1 Y2 Real GDP

Aggregate demand

Y* Y1 Real GDP

Quantity of cars

Page 12 Practice exam paper - OCR AS Economics (Macro) Paper B

(f) Level 3 (7- 10 marks) 10 Evaluation of the options that central
Good knowledge and understanding of monetary policy (AO2 x banks have to encourage confidence
instruments used by central banks. 1 AO3 x and growth might include:
4 AO4 Consideration of the relative
Strong analysis of how those instruments might impact x 5) effectiveness of alternative policies
upon business and consumer confidence, and how stronger which are beyond the scope of
confidence might lead to growth eg of investment and central banks such as fiscal/supply
consumption, and therefore of AD. side policy
Consideration of which policies
Good to Strong evaluation of the extent to which monetary might be more effective when
policy can achieve those outcomes, and the role of other interest rates are at rock bottom
policy instruments and/or factors such as demand and levels
supply side shocks domestically and overseas. Consideration of other factors which
Good evaluation would be awarded in the lower portion of will affect confidence and growth
the band and strong evaluation in the upper portion of the such as macroeconomic conditions
band. in other economies particularly
those that are trading partners
There is a well-developed line of reasoning which is clear and Conflict between effects on
logically structured. The information presented is relevant and confidence and growth, and other
substantiated. macroeconomic objectives such as
inflation
Level 2 (6-10 marks) The importance of the stage in the
Good knowledge and understanding of monetary policy economic cycle
instruments used by central banks.
Analysis of the options that central
Good analysis of how those instruments might impact upon banks have to encourage
business and consumer confidence, and how stronger confidence and growth might
confidence might lead to growth eg of investment and include:
consumption, and therefore of AD. How and why monetary policy
A relevant and accurately labelled diagram(s) is provided and instruments may affect business
is linked to the analysis. and consumer confidence
How and why business and
Reasonable evaluation of the extent to which monetary consumer confidence may affect
policy can achieve those outcomes, and the role of other GDP growth
policy instruments and/or factors such as demand and Use of a fully labelled diagram to
supply side shocks domestically and overseas. show these effects: AD shifting to
the right, from a low level of read
There is a line of reasoning presented with some structure. GDP
The information presented is in the most-part relevant and How and why other policy
supported by some evidence. instruments such as fiscal policy
may affect business and consumer
confidence, and also growth

Practice exam paper - OCR AS Economics (Macro) Paper B Page 13

 Level 1 (1-3 marks) Explanation of the relevant stage
Reasonable knowledge and understanding of monetary of the economic cycle, which may
policy instruments used by central banks. include a fully labelled diagram
Limited or no analysis of how those instruments might impact of the economic cycle indicating
upon business and consumer confidence, and how stronger recession and slow recovery
confidence might lead to growth eg of investment and
consumption, and therefore of AD. Knowledge of the options that central
banks have to encourage confidence
Limited or no evaluation. and growth ie a use of interest rates,
The information is basic and communicated in an money supply, techniques such as
unstructured way. The information is supported by limited quantitative easing and exchange
evidence and the relationship to the evidence may not be rates.
clear.

0 marks no response or no response worthy of credit

17.

Answer Marks Guidance
(a) Level 4 (16-20 marks) 20 This question requires an evaluation
Good knowledge and understanding of management of (AO1 x 3 of the relative impact of exchange
exchange rates and of demand side policies. AO2 x 4 rate management and of demand
AO3 x 6 side measures on the different com-
Strong analysis of how and why exchange rate management AO4 x 7 ponents of Aggregate Demand.
and demand side policies might impact upon an economy
such as China. Answers are likely to set out how
A relevant and accurately labelled diagram is provided and is exchange rate management works,
linked to the analysis. and the current balance of compo-
nents of aggregate demand in China,
Strong evaluation of the relative impact of exchange rate followed by a discussion about the
management and demand side policies on the balance of the effectiveness of each in rebalancing
components of Aggregate Demand. the economy.

There is a well-developed line of reasoning which is clear and Answers that refer to manipulation
logically structured. The information presented is relevant and of exchange rates only or to demand
substantiated. side policies only will be capped
at the midpoint of the appropriate
level.

Answers should evaluate the extent

to which one of the suggested poli-
cies may be more effective than the
other.

Page 14 Practice exam paper - OCR AS Economics (Macro) Paper B

Level 3 (11-15 mark)
Good knowledge and understanding of management
of exchange rates and of demand side policies.
Good analysis of how and why exchange rate
management and demand side policies might impact
upon an economy such as China. A relevant diagram is
provided and is linked to the analysis.
Good evaluation of the relative impact of exchange rate
management and demand side policies on the balance
of the components of Aggregate Demand.
There is a line of reasoning presented with some
structure. The information presented is in the most-part
relevant and supported by some evidence
Practice exam paper - OCR AS Economics (Macro) Paper B Page 15
Examples of possible evaluation might
include:
Consideration of the Marshall Lerner
condition and the extent to which a
reverse J-curve might take effect
Whether demand for Chinese exported
goods is price inelastic, and the impact
on the balance of trade
The extent to which reduced government
revenue income from import tariffs would
be offset by increased revenue from other
domestic sources
Whether a stronger currency would deter
inward foreign direct investment, and how
this might affect growth and employment
The extent to which higher inflation might
become a problem for policymakers
The extent to which higher domestic
spending might stimulate further domestic
and foreign investment
The extent to which domestic producers
might be forced out of business by
imports
The impact of exchange rate manipulation
and demand side policies will be analysed
through shifts in the aggregate demand
curve.
Analysis may also examine the J curve
effect resulting from intervention to maintain
a weak currency, possibly with a graph as
below, or one which shows the opposite
effect from a strengthening currency:
 Level 2 (6-10 marks)

Price level

Price level
Price level
Reasonable knowledge and understanding
LRAS LRAS1
of Aggregate supply

management of exchange rates and of demand side

Aggregate supply

policies. P1

P*
P*

Reasonable analysis of how and whyADexchange

P* AD1
Aggregate demand 1
rate management and demand side policies might Aggregate demand

impact upon an economy such as China. A relevant

Aggregate demand Y* Y1 Real GDP

diagram is provided, which is lessY*thanYperfect.

Aggregate demand 1 Real GDP 1

Price level
LRAS
Y1 Y* Real GDP

Price level
Price level

Reasonable evaluation of the impact of exchange

AS
rate management and demand side policies
AS1 on the
P*
balance of the components of Aggregate Demand, P1
P
butS =without
AC
a judgement being made.
1

AD AD1 P*
P*
Y* Y1 Real GDP

The information has some relevance ADand is

presented with limited structure. The information is
Y* Y Real GDP
supported by limited evidence. 1
Current
account
surplus

Capital goods
Level
D
1 (1-5 marks) X1

Q2 Q1 Q3
Limited
QL
knowledge and understanding of Recovery Boom
Time X2
management of exchange rates and of demand side
Real GDP

Trend
policies. Peak

Current
account
Limited or no analysis of how and why exchange Trough
deficit

rate
Aggregate management and demand side policies might
supply

impact upon an economy such as China. Contraction Expansion

Analysis will set out the impact of exchange
Time
rate management
Price
and demand side policies
Limited or no evaluation. on different components
Level
AS1 of aggregate
Price level

AS2

demand. P1
Aggregate supply
Aggregate demand 1
The information is basic and communicated in an
Aggregate demand
For exchange
P2
rate management this should
Y* Y1
unstructured way. The information is supported by examine the impact of a stronger Chinese
Real GDP P
limited evidence and the relationship to the evidence currency, and may include:
1
AD
P*
may not be clear. The effect of encouraging imports for
Aggregate demand 1 domestic consumption Y1 Y2and the Realimpact
GDP on
Aggregate demand
0 marks no response or no response worthy of the balance of trade
Y* Y
credit. Real GDP 1
The effect of making exports less
Quantity of cars
competitive on international markets and
impact on the balance of trade
The effect on imports of capital goods and
inward foreign direct investment

Page 16 Practice exam paper - OCR AS Economics (Macro) Paper B

 For demand side policies this may include:
The effect of expansionary monetary
policy on AD and on Real GDP
The effect of expansionary monetary
policy on other macroeconomic
objectives such as inflation and
employment
The effect of making credit more easily
available in an emerging economy
The effect of lower direct taxation and
import tariffs on government spending
The effect of higher imports on domestic
producers

For an Application of Knowledge and

Understanding of manipulation of exchange
rates, answers should recognise that in
order to promote domestic consumption
and imports, the Chinese currency should
be allowed to appreciate on foreign
exchange markets.

For an Application of Knowledge and

Understanding of demand side policies,
answers may refer to:
Expansionary monetary policy to
discourage saving and encourage
consumer spending ie lowering interest
rates, making credit more available,
raising money supply to consumers
Fiscal policy to promote consumer
spending such as lowering direct
taxation and lowering indirect sales taxes
Fiscal policy to reduce import tariffs

Practice exam paper - OCR AS Economics (Macro) Paper B Page 17

 18.
Answer
Level 4 (16-20 marks)
Good knowledge and understanding of how lower
aggregate supply may affect national performance.
Strong analysis of how lower aggregate supply
may affect national performance. A relevant and
accurately labelled diagram is provided and is linked
to the analysis.
Strong evaluation of how lower aggregate supply
may affect national performance.
There is a well-developed line of reasoning which
is clear and logically structured. The information
presented is relevant and substantiated.
Level 3 (11-15 mark)
Good knowledge and understanding of how lower
aggregate supply may affect national performance.
Good analysis of how lower aggregate supply may
affect national performance. A relevant diagram is
provided and is linked to the analysis.
Good evaluation of how lower aggregate supply
may affect national performance.
There is a line of reasoning presented with some
structure. The information presented is in the most-
part relevant and supported by some evidence.
Page 18 Practice exam paper - OCR AS Economics (Macro) Paper B
Marks Guidance
20 This question requires a discussion of how a
(AO1 x 3 decrease in productive potential/aggregate
AO2 x 4 supply may influence national economic perfor-
AO3 x 6 mance.
AO4 x 7 Answers are likely to set out how the reces-
sion of 2008-9 reduced the UKs productive
capacity, followed by a discussion of the effect
of such a fall in relation to size of the decrease,
the initial level of economic activity and the
possible adverse effects it may have.
Answers should evaluate whether a decrease
in aggregate supply is always harmful. These
should culminate in a reasoned judgement as
to the circumstances in which this might or
might not be the case:
Depending on the relative size of the
decrease in the case of the UK, between
7% and 10% would be considered significant
Depending on the initial level of economic
activity and spare capacity
Depending on the cause of the fall in
aggregate supply a decrease in investment
will be particularly harmful as it will also
decrease aggregate demand; a fall due to
eg a rise in the school leaving age may have
long term beneficial effect on aggregate
supply
Depending on the impact on governments
macroeconomic objectives
Analysis of the effect of a decrease in
aggregate supply on national economic
performance will require use of diagrams
showing a shift in aggregate supply, and
perhaps the production possibility frontier:
 Level 2 (6-10 marks)

Price level

Price level
LRAS1 LRAS
Reasonable knowledge and understanding of supply
Aggregate

how lower aggregate supply may affect national

performance.
P1

P*
Reasonable analysis of how lower aggregate supply P* AD
D1
may affect national performance. A relevant diagram is
Aggregate demand 1
provided, which is less than perfect. Aggregate demand
Y* Y1 Real GDP Y1 Y*
eal GDP
Reasonable evaluation of how lower aggregate Real GDP

supply may affect national performance, but without a

Price level

LRAS

Price level
judgement being made.
AS1
AS
The information has some relevance and is presented
with limited structure.
P* The information is supported by
P1
limited evidence.
AD AD1 P*

Real GDP
Level 1 (1-5 marks) Y* Y1
AD
Limited knowledge and understanding of how lower
aggregate supply may affect national performance. Y1 Y* Real GDP
DP
Current
Limited or noaccount
analysis of how lower aggregate supply
surplus
may affect national performance.
Capital goods

X1

Boom Limited or no evaluation. X2

Time

Trend
The information is basic and communicated in an
unstructuredCurrent
way. The information is supported by
limited evidence and the relationship to the evidence
account
deficit
may not be clear.

Y2 Y1
Expansion
0 marks no response or no response worthy of credit. Consumer goods
Time
Price
Level
AS1 AS2
Analysis of the effect of a decrease
Aggregate supply P1 in aggregate supply on national
P2 economic performance should consider
macroeconomic objectives and may
AD include:

Aggregate demand 1 Y1 Y2 Real GDP

gate demand

Real GDP

Practice exam paper - OCR AS Economics (Macro) Paper B Page 19

 The impact on Real GDP
The impact of a reduction in productive
capacity on other macroeconomic
objectives eg cost push inflation, cyclical
unemployment
The impact on competitiveness and
therefore on exports and the current
account
The impact on living standards and
equality
The impact on the ability of the
government to achieve a balanced
budget

For an application of knowledge and

understanding of a decrease in aggregate
supply on national economic performance
Candidates will demonstrate knowledge
and understanding of how lower potential/
long run aggregate supply may affect
national performance:
May cause inflation
May reduce real GDP
May reduce employment/increase
unemployment
May increase a current account deficit
May increase inequality
May make it more difficult for government
to achieve a balanced budget

Page 20 Practice exam paper - OCR AS Economics (Macro) Paper B