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AQA A-Level Economics 7136
Economic Methodology and the Economic Problem
Individual Economic Decision Making
Price Determination in a Competitive Market
Topic overviewDemand, the demand curve, income and wealthSubstitutes, complements and consumer preferencesPrice elasticity of demand and total revenueThe determinants of price elasticity of demandIncome and cross elasticity of demandThe determinants of supplyPrice elasticity of supplyEquilibrium, disequilibrium and how a market clearsShifts in demand and supply, and the price mechanismThe interrelationship between markets
Production, Costs and Revenue
Perfect Competition, Imperfectly Competitive Markets and Monopoly
Topic overviewThe characteristics of the four market structuresPrice takers, price makers and non-price competitionCompetitive marketsThe objectives of firmsProfit maximisation and the divorce of ownership from controlProfit maximisation and the shutdown conditionPrice taking, entry and exit, and long-run equilibriumEfficiency in perfect competition and its assumptionsMonopolistic competition in the short runMonopolistic competition in the long runThe characteristics of oligopoly and barriers to entryThe kinked demand curve and price rigidityCollusion, cartels and price leadershipNon-price competition in oligopolyThe advantages and disadvantages of oligopolyMonopoly power and barriers to entryThe monopoly diagram and supernormal profitThe costs and benefits of monopolyPrice discriminationThe dynamics of competitionCreative destruction and the competitive market processContestable and non-contestable marketsStatic and dynamic efficiencyMarket structure and resource allocationConsumer and producer surplus
The Labour Market
The Distribution of Income and Wealth: Poverty and Inequality
Topic overviewIncome, wealth and the causes of their distributionEquality, equity, the Lorenz curve and the Gini coefficientThe arguments about inequalityThe problem of povertyProgressive taxation and transfer paymentsMeans-tested benefits, universal benefits and the poverty trapWealth taxes and state provisionEvaluating redistribution
The Market Mechanism, Market Failure and Government Intervention
Topic overviewHow markets and prices allocate resourcesThe meaning of market failurePublic goods, private goods and quasi-public goodsPositive and negative externalitiesMerit and demerit goodsMarket imperfectionsAn inequitable distribution of income and wealthIndirect taxes and subsidiesPrice controls, state provision and regulationPollution permits and the extension of property rightsEvaluating intervention and the mixed economyGovernment failureCompetition policyPublic ownership, privatisation, regulation and deregulation
The Measurement of Macroeconomic Performance
How the Macroeconomy Works
Topic overviewThe circular flow of incomeThe aggregate demand and aggregate supply curvesWhat shifts short-run and long-run aggregate supplyMacroeconomic equilibrium and economic shocksConsumption and investmentGovernment spending and net exportsThe accelerator, saving and investmentAggregate demand and the level of economic activityThe determinants of aggregate supply
Economic Performance
Topic overviewShort-run and long-run economic growthThe economic cycle and output gapsDemand-side and supply-side shocksMeasuring unemployment and the types of unemploymentThe determinants of employment and policies to reduce unemploymentInflation and deflationThe quantity theory of moneyConsequences of inflation and deflationThe balance of payments on current accountOutput gaps and the growth-inflation conflictReconciling policy objectives in the AD/AS model
Financial Markets and Monetary Policy
Topic overviewThe characteristics and functions of moneyFinancial markets and their roleDebt, equity and bond yieldsCommercial banks, investment banks and the balance sheetLiquidity, profitability, security and credit creationThe instruments and institutions of monetary policyHow bank rate changes affect the economyWhat the MPC considers, and the exchange rate channelThe functions of a central bankThe bank rate and the MPC's decisionsExchange rate movements and the macroeconomyThe monetary policy transmission mechanismQuantitative easing and unconventional policyThe regulators and the risks banks faceLiquidity ratios, capital ratios and systemic risk
Fiscal Policy and Supply-Side Policies
Topic overviewFiscal policy and aggregate demandTypes of taxThe budget balance and the national debtThe purposes of public expenditure and taxationThe principles of taxationBudget deficits, surpluses and their effectsThe national debt and fiscal rulesSupply-side policies and how they workMarket-based and interventionist supply-side policies
The International Economy
Topic overviewThe causes and characteristics of globalisationThe impact of globalisation on developed and developing economiesMultinational corporationsComparative and absolute advantageThe effects of trade and changing trade patternsTariffs, quotas and the tariff diagramArguments for and against protectionismTrading blocs and the World Trade OrganisationThe components of the balance of paymentsCauses of current account imbalances and investment flowsCorrecting imbalances and their consequencesHow exchange rates are determined in a floating systemGovernment intervention and fixed exchange ratesFloating rates and currency unionsGrowth, development and less-developed economiesMeasuring development: the HDI and other indicatorsInvestment and education as drivers of developmentCorruption, governance and institutional barriersInfrastructure, human capital and property rightsMarket-based and interventionist development strategiesAid and trade as development strategiesGrowth, globalisation and inequality
Financial Markets and Monetary Policy
The bank rate and the MPC's decisions
- 3 things to know
- Papers 2 and 3
Overview
The inflation target, who sets bank rate, and the conditions for raising or lowering it.
What you need to know
Answer each one before you reveal it.
Your recallNot started
Numbers
Why do growth, expectations and unemployment inform the MPC's decision?
Numbers
Why do consumer spending, wage growth and business investment matter to the MPC?
Questions from this subtopic
Each one with the model answer underneath.
- 1
What is the bank rate (base rate) and who sets it?
Model answer
The bank rate is the interest rate at which the Bank of England lends to commercial banks; it is set by the MPC.
- 2
Under what inflation condition would the MPC typically consider raising bank rate?
Model answer
When inflation is above the 2% target.
- 3
What action does the MPC take when inflation exceeds the target?
Model answer
It raises the bank rate.
- 4
What happens to aggregate demand when the MPC raises bank rate in response to above-target inflation?
Model answer
Aggregate demand falls because borrowing becomes more expensive and saving more attractive.
- 5
What is the intended effect on inflation when the MPC raises bank rate and aggregate demand falls?
Model answer
Inflation decreases towards the 2% target.
- 6
Under what economic conditions would the MPC consider lowering bank rate?
Model answer
When inflation is below target or the economy is in recession.
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