Evaluation
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
How the Macroeconomy Works
- 9 subtopics
- 30 things to know
- Papers 2 and 3
What How the Macroeconomy Works covers
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.
Where it is assessed
Papers 2 and 3
The national and international economy, then the synoptic paper.
Check the AQA specification ↗The 9 subtopics
Each one has its own page.
- The circular flow of incomeMoney flowing between households and firms, and the injections and withdrawals that change it.Open →
- The aggregate demand and aggregate supply curvesWhat each curve shows, why it slopes the way it does, and what shifts aggregate demand.Open →
- What shifts short-run and long-run aggregate supplyCosts and wages in the short run, and productive capacity in the long run.Open →
- Macroeconomic equilibrium and economic shocksWhere AD meets AS, and the effect of demand-side and supply-side shocks including stagflation.Open →
- Consumption and investmentDisposable income, interest rates, confidence and the wealth effect, and what drives firms to invest.Open →
- Government spending and net exportsWhat determines the level of government spending, and the influences on exports and imports.Open →
- The accelerator, saving and investmentThe accelerator theory, why investment is volatile, and the difference between saving and investment.Open →
- Aggregate demand and the level of economic activityThe multiplier process, why each round shrinks, and how the multiplier is calculated.Open →
- The determinants of aggregate supplyWage rates, raw material prices and taxation in the short run, productivity and mobility in the long run.Open →
What you need to know
Answer each one before you reveal it.
Your recallNot started
Process
What are injections and withdrawals in the circular flow?
Process
Why are taxation, saving and imports treated as withdrawals?
Numbers
If households increase their rate of saving, what happens to national income?
Process
What do the AD, SRAS and LRAS curves look like, and why?
Evaluation
What shifts the aggregate demand curve to the right?
Process
How do raw material prices and net exports shift the curves?
Process
What distinguishes short-run from long-run shifts in aggregate supply?
Process
What are the short-run effects of a positive demand-side shock on output and the price level?
Process
How does short-run economic growth differ from long-run economic growth on an AD/AS diagram?
Numbers
What are the components of aggregate demand, and what does each cover?
Numbers
How do corporation tax and access to credit affect business investment?
Numbers
What are net exports, and how do they affect aggregate demand?
Numbers
How do the exchange rate and tax revenues affect exports and government spending?
Process
How do competitiveness and incomes abroad affect a country's exports?
Process
How do consumer preferences influence imports?
Evaluation
How do changes in global commodity prices affect a country's exports and imports?
Process
How does consumer confidence influence savings?
Numbers
What is the multiplier process, and how does it begin?
Numbers
What happens to the money at each round of the multiplier process?
Numbers
Why does each round of the multiplier get smaller?
Numbers
How is the multiplier calculated from changes in income and spending?
Numbers
How do wage rates affect short-run aggregate supply?
Process
What shifts the SRAS curve leftward, and what shifts it right?
Process
Why is productivity a fundamental determinant of long-run aggregate supply?
Numbers
What is factor mobility, and how do factor mobility and economic incentives affect long-run aggregate supply?
Process
What is the shape of the long-run aggregate supply curve?
Numbers
State the formula for calculating aggregate demand.
Numbers
State the formula for net exports.
Numbers
State the formula for calculating the multiplier using changes in national income and injections.
Take How the Macroeconomy Works further
The same content, four other ways.
Commonly confused
Pairs that lose marks when they are blurred together.
Injection vs Withdrawal
Injection: spending entering the circular flow. Withdrawal: income leaving the circular flow.
Aggregate demand vs Aggregate supply
Aggregate demand: total planned expenditure on domestic output. Aggregate supply: total domestic output producers are willing to provide.
Marginal propensity to consume vs Average propensity to consume
Marginal propensity to consume: share of extra income used for spending. Average propensity to consume: share of total income used for spending.
Questions from this topic
Each one with the model answer underneath.
- 1
What does the circular flow of income model illustrate?
Model answer
It shows how money flows between households and firms in an economy through factor markets and product markets.
- 2
What happens to the income that households receive in the simple circular flow model?
Model answer
Households spend their income on goods and services produced by firms in product markets.
- 3
How do firms benefit from household spending in the circular flow?
Model answer
Firms receive revenue from the sale of goods and services to households.
- 4
What role do households play in supplying resources within the circular flow?
Model answer
Households provide factors of production (land, labour, capital, enterprise) to firms through factor markets.
- 5
How are households compensated for providing factors of production to firms?
Model answer
Firms pay factor incomes to households: rent for land, wages for labour, interest for capital, and profit for enterprise.
- 6
Define injections in the context of the circular flow of income.
Model answer
Injections are additions to the circular flow that do not originate from household spending.
What is inside Levo
Six ways to work the same material.
How the Macroeconomy Works revision questions
- What does How the Macroeconomy Works cover in AQA A-Level Economics?
- 9 subtopics: the circular flow of income, the aggregate demand and aggregate supply curves, what shifts short-run and long-run aggregate supply, macroeconomic equilibrium and economic shocks, consumption and investment, government spending and net exports, the accelerator, saving and investment, aggregate demand and the level of economic activity and the determinants of aggregate supply. Each one has its own page with questions and model answers.
- How is How the Macroeconomy Works organised?
- By the AQA 7136 specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in How the Macroeconomy Works, on a schedule.
Attempt a question from memory, write the correct version, then attempt it again. Levo records the jump between your first attempt and your last, and brings each question back on the day you are due to forget it.
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