Key term
Eduqas A-Level Economics A520QS
Scarcity, Choice and the Economic Problem
Topic overviewScarcity, choice and the basic economic problemThe factors of production and their rewardsOpportunity cost for individuals, firms and governmentEconomic goods, free goods and the three fundamental questionsThe production possibility frontier and its shapeMovements along and shifts in the frontierEfficiency, unemployed resources and the frontierSpecialisation, the division of labour and exchangeProductivity and how it is raised
Demand, Supply and Market Equilibrium
Topic overviewProduct markets and the objectives of economic agentsMarginal utility and the derivation of demandThe demand curve and why it slopes downwardThe conditions of demand and shifts in the demand curveSupply and why the supply curve slopes upwardThe conditions of supply and shifts in the supply curveEquilibrium price and output in a competitive marketShifts in demand and supply and the new equilibriumConsumer surplus, producer surplus and market welfare
Elasticities of Demand and Supply
Topic overviewPrice elasticity of demand and its calculationWhat determines price elasticity of demandPrice elasticity of demand and total revenueElasticity along a straight-line demand curveIncome elasticity of demand, normal and inferior goodsCross price elasticity of demand, substitutes and complementsPrice elasticity of supply and its determinantsElasticity and the incidence of taxes and subsidiesElasticity in decision-making by firms and government
The Labour Market
Topic overviewThe demand for labour and what shifts itThe supply of labour and what shifts itWage determination in a competitive labour marketThe elasticity of demand and supply of labourWage differentials and their causesLabour market flexibility and trade union powerWelfare payments, income tax and labour market performanceThe national minimum wageMigration and the labour market
Costs, Revenues, Profits and the Growth of Firms
Topic overviewPrices, profit and the allocation of resourcesThe short run, the long run and diminishing returnsTotal, average and marginal productFixed and variable costs in the short runAverage and marginal cost curves and their shapesTotal, average and marginal revenueEconomies and diseconomies of scale and the long run average cost curveProfit maximisation and the MC = MR ruleNormal profit, abnormal profit and economic profitInternal and external growth and types of integrationProductive, allocative, dynamic and Pareto efficiency
Market Structures
Topic overviewMarket structure, contestability and barriers to entryBusiness objectives and satisficingPerfect competition and its assumptionsShort run and long run equilibrium in perfect competitionThe efficiency of perfect competitionMonopolistic competition and its assumptionsShort run and long run equilibrium in monopolistic competitionThe efficiency of monopolistic competitionMonopoly and its assumptionsMonopoly compared with perfect competitionThe costs and benefits of monopolyOligopoly, interdependence and concentration ratiosPrice and non-price competition, collusion and price leadershipGame theory and the Nash equilibrium
Competition Policy and Privatisation
Topic overviewWhy governments are concerned about monopoly powerMerger control and market investigationsCartels, restrictive practices and abuse of dominanceCompetition authorities and how they workRegulating natural monopolies and the utilitiesContestable markets and barriers to entryThe limits of competition as a policy goalPrivatisation and the forms it takesEvaluating privatisation and the case for renationalisation
Market Failure and Government Intervention
Topic overviewMarket failure and economic efficiencyExternalities, welfare loss and the socially efficient outputPublic goods, free riding and property rightsMerit goods, demerit goods and information failureMonopoly power, factor immobility and volatile pricesTaxation, subsidies and tradable pollution permitsRegulation, state provision and information provisionMaximum and minimum prices in agriculture, housing and labourGovernment failure and distortions in marketsIncome inequality as a market failure
The Circular Flow and Aggregate Demand
Topic overviewThe circular flow of incomeInjections, withdrawals and equilibrium national incomeThe multiplierThe acceleratorAggregate demand and its componentsConsumption and savingInvestment and its determinantsGovernment spending and net tradeThe AD function: why it slopes down and what shifts it
Aggregate Supply and the Phillips Curve
Topic overviewAggregate supply and the AD/AS frameworkThe short run aggregate supply curveShifts in short run aggregate supplyThe Neo-Classical long run aggregate supply curveThe Keynesian long run aggregate supply curveShifts in long run aggregate supplyMacroeconomic equilibrium and adjustment to the long runThe short run Phillips curveExpectations, the long run Phillips curve and the NAIRUShifts in the long run Phillips curve
Economic Growth
Topic overviewMacroeconomic policy objectives and the conflicts between themMeasuring economic growthActual growth and potential growthIllustrating growth on the PPF and in AD/AS analysisOutput gapsThe business cycle and recessionThe causes of economic growthPolicy instruments used to create growthThe benefits and costs of economic growth
Unemployment
Topic overviewThe labour force, economic activity and inactivityMeasuring unemploymentProblems in measuring unemployment accuratelyThe economic and social costs of unemploymentCyclical unemployment and demand side causesFrictional, structural and seasonal unemploymentReal wage unemployment and incentives to workThe natural rate of unemploymentDemand side solutions to unemploymentSupply side solutions to unemploymentChoosing between demand side and supply side approaches
Inflation and Deflation
Topic overviewInflation, deflation and disinflation definedPrice indices, the basket and weightingCalculating index numbers and the inflation rateThe main measures of inflation comparedDemand-pull inflationCost-push inflationThe quantity theory of money and inflation expectationsThe costs of inflationPolicies to control inflationDeflation and the deflationary spiral
The Balance of Payments
Topic overviewThe balance of payments accountsThe current account and its four componentsThe capital and financial accountsWhy the balance of payments sums to zeroCauses of current account imbalancesThe terms of trade and the current accountThe consequences of a deficit or a surplusPolicies to correct a current account deficit
Control of the National Debt
Topic overviewDeficits, surpluses and the national debtMeasurement of the deficit and the debtStructural and cyclical deficitsDiscretionary policy and automatic stabilisersThe cost of servicing debt and credit ratingsRefinancing, confidence and market disciplineCrowding out and the effect of debt on growthAusterity in a downturn and whether debt is always bad
Fiscal Policy
Topic overviewThe budget and the fiscal stanceGovernment spending and where it goesTaxation and the sources of government revenueDirect and indirect taxesFiscal policy, aggregate demand and AD/AS analysisThe Keynesian case for demand side fiscal policyCriticisms of demand side fiscal policyThe Laffer curve and tax ratesSupply side fiscal policy
Monetary Policy and Financial Stability
Topic overviewThe Bank of England and monetary stabilityThe inflation target and the Bank of England remitThe Monetary Policy Committee and how Bank Rate is setThe transmission mechanism of monetary policyInterest rates, aggregate demand and inflationInterest rates and the exchange rateEvaluating interest rates as a policy toolQuantitative easing and how it worksThe risks of quantitative easing and its unwindingDirect intervention in bank lendingThe financial sector and the real economyAsset bubbles and the financial crisis of 2007-08Systemic risk, moral hazard and the lender of last resortRegulating the financial systemUK economic turning points since 1990
Exchange Rates and Supply Side Policies
Topic overviewExchange rate determination in a free marketFactors that cause a currency to appreciate or depreciateThe exchange rate index and effects on households and firmsExchange rates, aggregate demand and the macroeconomic objectivesManaged floats, fixed rates and central bank interventionThe terms of trade and the Marshall-Lerner conditionSupply side policies and long-run aggregate supplyMarket-based and interventionist supply side policiesEvaluating supply side policies
International Trade and Protectionism
Topic overviewWhy countries tradeAbsolute and comparative advantageCalculating comparative advantageThe gains from trade and the terms of tradeLimits and criticisms of comparative advantageThe case for free tradeThe case against free tradeTariffs and their effectsQuotas, subsidies and other methods of protectionThe arguments for and against protectionism
Globalisation and the UK in the World Economy
Topic overviewWhat globalisation is and what drives itThe benefits of globalisationThe costs of globalisationThe United Kingdom in the world economyThe World Trade OrganisationEconomic problems of developed, developing and emerging economiesThe European Union and the single marketThe advantages and disadvantages of membershipEnlargement of the European UnionEconomic and monetary union and the euroOptimal currency areas and the European Central Bank
Economic Development
Topic overviewWhat economic development meansNational income as a measure of developmentPurchasing power parity and comparing countriesThe Human Development IndexOther indicators of developmentEconomic structure and developmentObstacles: health, education and populationObstacles: capital, infrastructure and institutionsObstacles: trade, resources and external conditionsSolutions: liberalisation and foreign investmentSolutions: aid and debt reliefSolutions: industrialisation strategies
The Circular Flow and Aggregate Demand
- 9 subtopics
- 27 things to know
- All three components
What The Circular Flow and Aggregate Demand covers
The Circular Flow and Aggregate Demand is examined in Macroeconomics — assessed across all three components. It covers the circular flow of income, injections, withdrawals and equilibrium national income, the multiplier, the accelerator, aggregate demand and its components, consumption and saving, investment and its determinants, government spending and net trade and the AD function: why it slopes down and what shifts it.
Where it is assessed
All three components
Macroeconomics, assessed across Components 1, 2 and 3.
Check the Eduqas specification ↗The 9 subtopics
Each one has its own page.
- The circular flow of incomeIdentity at the heart of the circular flow, three methods of measuring national income and closed economy in this model.Open →
- Injections, withdrawals and equilibrium national incomeWithdrawal from the circular flow, three withdrawals from the circular flow and injection into the circular flow.Open →
- The multiplierMultiplier process in words, marginal propensity to consume and multiplier formula for a closed economy with no government.Open →
- The acceleratorAccelerator principle and capital-output ratio.Open →
- Aggregate demand and its componentsAggregate demand, consumption in the national accounts and investment in the national accounts.Open →
- Consumption and savingMost important determinant of consumption, disposable income and average propensity to consume.Open →
- Investment and its determinantsInvestment as economists use the term and depreciation in this context.Open →
- Government spending and net tradeThree determinants of a country's exports and marginal propensity to import.Open →
- The AD function: why it slopes down and what shifts itPlotted on each axis of an aggregate demand diagram, shape and slope of the aggregate demand function and real balance effect.Open →
What you need to know
Answer each one before you reveal it.
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Name the three withdrawals from the circular flow.
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Name the three injections into the circular flow.
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Trace the first three rounds of a £100 million injection when the marginal propensity to consume is 0.5.
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Name three determinants of a country's exports.
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Name four events that would shift aggregate demand to the right.
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Name three events that would shift aggregate demand to the left.
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State the accelerator principle.
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Define aggregate demand.
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What is the most important determinant of consumption?
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Define investment as economists use the term.
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What does the circular flow of income model show?
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Define the multiplier.
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Define the capital-output ratio.
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State the aggregate demand equation.
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Define disposable income.
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How do interest rates affect investment?
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Distinguish current from capital government spending.
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In the two-sector model, what do households supply and what do they receive?
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Define a withdrawal from the circular flow.
Numbers
Who first set out the multiplier, and when?
Numbers
Calculate induced investment when output rises by £10 million and the capital-output ratio is 3.
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Define consumption in the national accounts.
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Define the average propensity to consume.
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Why does the level of profit affect investment?
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How does a recession affect government spending automatically?
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What is plotted on each axis of an aggregate demand diagram?
Take The Circular Flow and Aggregate Demand further
The same content, four other ways.
Questions from this topic
Each one with the model answer underneath.
- 1
What does the circular flow of income model show?
Model answer
The circular flow model shows the movement of income, output and spending between households and firms. The model traces how money passes around an economy.
- 2
In the two-sector model, what do households supply and what do they receive?
Model answer
Households supply land, labour, capital and enterprise to firms. Households receive rent, wages, interest and profit in return.
- 3
What do firms supply to households, and what do they receive?
Model answer
Firms supply goods and services to households. Firms receive consumer expenditure in return.
- 4
Distinguish the real flow from the money flow.
Model answer
The real flow is the movement of factor services and finished goods. The money flow is the movement of income and expenditure in the opposite direction.
- 5
State the identity at the heart of the circular flow.
Model answer
National income equals national output, and national output equals national expenditure. The three are measures of the same flow.
- 6
Why must income, output and expenditure be equal?
Model answer
Every pound of output sold becomes a pound of expenditure by a buyer. The same pound is paid out as income to the owners of the factors used.
What is inside Levo
Six ways to work the same material.
The Circular Flow and Aggregate Demand revision questions
- What does The Circular Flow and Aggregate Demand cover in Eduqas A-Level Economics?
- 9 subtopics: the circular flow of income, injections, withdrawals and equilibrium national income, the multiplier, the accelerator, aggregate demand and its components, consumption and saving, investment and its determinants, government spending and net trade and the ad function: why it slopes down and what shifts it. Each one has its own page with questions and model answers.
- How is The Circular Flow and Aggregate Demand organised?
- By the Eduqas A520QS specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in The Circular Flow and Aggregate Demand, on a schedule.
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