Process
OCR A-Level Economics H460
Introduction to Microeconomics
Topic overviewEconomic and free goods, scarcity and positive and normative statementsEconomic agents and the factors of productionFactor rewards, rationality and the objectives of economic agentsIncentives and the functions of the price mechanismMarket, planned and mixed economies and allocative and productive efficiencyOpportunity cost, trade-offs and the production possibility curveShifts of the production possibility curve and uses of opportunity cost
Microeconomics: The Role of Markets
Topic overviewSpecialisation, the division of labour and barterMoney as a medium of exchange and the gains from specialisationIndividual and market demand and joint, competitive and composite demandMovements along and shifts of the demand curveIndividual and market supply and joint and competitive supplyMovements along and shifts of the supply curveConsumer surplus and producer surplusHow changes in price affect consumer and producer surplusCeteris paribus and market equilibrium and disequilibriumChanges in demand and supply and their effects on related marketsPrice and income elasticity of demand and total revenueCross elasticity, price elasticity of supply and the uses of elasticityMarginal utility, marginal cost and decisions at the marginMarket failure and marginal social cost and benefitPositive and negative production and consumption externalitiesInformation failure, asymmetric information and merit and demerit goodsMerit and demerit good diagrams and correcting information failurePublic, private and quasi-public goodsThe free rider problem and the provision of public goodsIndirect taxes and subsidies to correct market failureState provision, price controls, buffer stocks and legislationRegulation, tradable pollution permits and government failure
Microeconomics: Business Objectives
Topic overviewProfit maximisation and alternative business objectivesCorporate social responsibility and the principal-agent problemFixed, variable, average and marginal costsDiminishing returns and economies and diseconomies of scaleTotal, average and marginal revenueProfit, loss and normal and supernormal profit
Microeconomics: Market Structures
Topic overviewPerfect competition in the short and long run and allocative efficiencyProductive efficiency and perfect competition as a benchmarkMonopoly characteristics, equilibrium and static efficiencyDynamic efficiency, price discrimination and natural monopolyCharacteristics of monopolistic competition and its short run equilibriumLong run equilibrium and efficiency in monopolistic competitionCharacteristics of oligopoly, concentration ratios and the kinked demand curveNon-price competition, collusion and the pros and cons of oligopolyCharacteristics of contestable markets, sunk costs and hit-and-run entryEfficiency, barriers and the limits of contestable markets
Microeconomics: The Labour Market
Topic overviewDerived demand for labour and wage elasticity of demandLabour productivity, unit labour costs and marginal revenue productSupply of labour and wage elasticity of supplyShort and long run labour supply, transfer earnings and economic rentWage differentials, labour mobility and monopsonyTrade unions, bilateral monopoly and the effects of monopsonyWage determination in a competitive labour market and labour market flexibility
Macroeconomics: Aggregate Demand and Aggregate Supply
Topic overviewThe circular flow of income, injections and leakagesMethods of measuring national incomeComponents of aggregate demand and their determinantsThe slope of the aggregate demand curve and what shifts itConsumption, income and the role of expectationsShort run and long run aggregate supply curvesShifts in short run and long run aggregate supplyMacroeconomic equilibrium and the effects of demand and supply shiftsThe national income multiplier and marginal propensitiesThe accelerator, the economic cycle and output gaps
Macroeconomics: Economic Policy Objectives
Topic overviewEconomic growth, real and nominal GDP and GDP per capitaShort and long run growth, the economic cycle and the effects of growthEconomic structure, deindustrialisation and sustainable developmentLimitations of GDP and the Human Development IndexEmployment, unemployment rates and the objective of full employmentMeasures, types and costs of unemployment and the effects of full employmentInflation, deflation, real values and the CPI and RPICalculating inflation with index numbers and its causes and consequencesBalance of payments accounts and current account calculationsCauses and consequences of current account imbalancesKey trends in UK macroeconomic performanceComparing UK performance internationally and the limits of economic dataIncome and wealth, redistribution and absolute and relative povertyLorenz curves, the Gini coefficient and the causes of povertyThe natural rate of unemployment and Keynesian and neo-classical aggregate supplyShort and long run Phillips Curves and their usefulness
Macroeconomics: Implementing Policy
Topic overviewThe government budget, types of tax and the budget balanceNational debt, cyclical and structural deficits and crowding outThe Laffer curve, average and marginal tax rates and limits of fiscal policyInterest rates, the money supply and inflation targetsQuantitative easing, the exchange rate and limits of monetary policyPrivatisation, deregulation and subsidies as supply side policiesCompetition policy, infrastructure, education and tax and benefit reformLabour market flexibility, immigration control and limits of supply side policyConflicts between macroeconomic policy objectives
Macroeconomics: The Global Context
Topic overviewPatterns of international trade and global supply chainsAdvantages and disadvantages of international tradeExchange rate calculations and how exchange rates are determinedExchange rate changes, the Marshall-Lerner condition and exchange rate systemsGlobalisation, international competitiveness and comparative advantageTerms of trade and the impact of globalisation and emerging economiesProtectionism and the effects of a tariffQuotas, trade creation, economic integration and the World Trade Organisation
Macroeconomics: The Financial Sector
Topic overviewFunctions of money, credit creation and narrow and broad moneyThe quantity theory of money and interest rates in the money marketRoles of the financial sector, saving and investmentThe Harrod-Domar model and microfinanceFinancial regulation and the functions of a central bankMonetary policy effectiveness, limits of regulation and the IMF
Quantitative Skills for Economics
Themes in Economics: Synoptic Application
Macroeconomics: Aggregate Demand and Aggregate Supply
- 10 subtopics
- 28 things to know
- Component 02
What Macroeconomics: Aggregate Demand and Aggregate Supply covers
Aggregate Demand and Aggregate Supply is examined on component 02 of OCR Economics, Macroeconomics. 112 recall questions across 10 subtopics.
Where it is assessed
Component 02
Macroeconomics, the whole of the second paper.
Check the OCR specification ↗The 10 subtopics
Each one has its own page.
- The circular flow of income, injections and leakagesRecall questions on the circular flow of income between households and firms, injections and leakages, and the equilibrium condition with a worked example.Open →
- Methods of measuring national incomeRecall questions on the income, output and expenditure methods of measuring national income, transfer payments, nominal and real income, GDP and GNI, and understatement of activity.Open →
- Components of aggregate demand and their determinantsRecall questions on the four components of aggregate demand, their relative sizes, net exports, the determinants of consumption and investment, and the shape of the aggregate demand curve.Open →
- The slope of the aggregate demand curve and what shifts itRecall questions on why the aggregate demand curve slopes downwards, movements versus shifts, and how tax cuts, interest rates, depreciation, confidence and spending cuts shift it.Open →
- Consumption, income and the role of expectationsRecall questions on consumption and real disposable income, wealth effects, the marginal effect of income across households, self-fulfilling expectations and time lags in aggregate demand.Open →
- Short run and long run aggregate supply curvesRecall questions on short run and long run aggregate supply, the axes and shapes of each curve, the neo-classical vertical long run curve, and supply shocks such as oil prices.Open →
- Shifts in short run and long run aggregate supplyRecall questions on what shifts short run and long run aggregate supply, supply shocks, education and productivity, movements versus shifts, and why the distinction matters for policy.Open →
- Macroeconomic equilibrium and the effects of demand and supply shiftsRecall questions on the assumptions of the aggregate demand and aggregate supply model, short and long run macroeconomic equilibrium, demand-pull and cost-push pressure, and the model's limitations.Open →
- The national income multiplier and marginal propensitiesRecall questions on the national income multiplier, marginal and average propensities to consume, save, tax, import and withdraw, and multiplier calculations.Open →
- The accelerator, the economic cycle and output gapsRecall questions on the accelerator, how the multiplier and accelerator create the economic cycle, output gap calculations and diagrams, and the causes and consequences of output gaps.Open →
What you need to know
Answer each one before you reveal it.
Your recallNot started
Key term
State the condition for equilibrium in the circular flow of income.
Process
Why are transfer payments excluded from national income?
Numbers
Which component of aggregate demand is itself the difference between two flows, and why does that matter?
Key term
Why is the reason the aggregate demand curve slopes downwards different from the reason a market demand curve does?
Key term
What is the only change that causes a movement along the aggregate demand curve rather than a shift of it?
Evaluation
World oil prices rise sharply. Which aggregate supply curve shifts, in which direction, and why?
Key term
Long run aggregate supply shifts right. Describe the effect on growth and on inflation.
Key term
Why does a demand-led boom usually worsen the current account?
Key term
Distinguish demand-pull from cost-push pressure on the price level using this model.
Key term
Why are imports subtracted in the expenditure method?
Process
How does a rise in house prices affect consumption even when incomes have not changed?
Process
Why do expectations make aggregate demand difficult to forecast?
Process
Does an increase in aggregate demand shift the long run aggregate supply curve?
Process
Why does a major improvement in education shift long run aggregate supply but have almost no immediate effect on short run aggregate supply?
Key term
Name the three marginal propensities that together make up the marginal propensity to withdraw.
Numbers
National income rises from £800bn to £900bn and consumption rises from £640bn to £715bn. Calculate the marginal propensity to consume.
Key term
In the simple two-sector circular flow, what do households provide and what do they receive?
Key term
Define aggregate demand.
Key term
Distinguish between short run and long run aggregate supply.
Key term
In the simple two-sector circular flow, what do firms provide and what do they receive?
Key term
Name the three methods of measuring national income.
Key term
State the four components of aggregate demand.
Key term
Name the three effects that account for the negative slope of the aggregate demand curve.
Key term
Describe the relationship between consumption and real disposable income.
Key term
What is measured on each axis of an aggregate supply diagram?
Key term
Name three developments that shift the long run aggregate supply curve to the right.
Key term
Why does an injection raise national income by more than the injection itself?
Take Macroeconomics: Aggregate Demand and Aggregate Supply further
The same content, four other ways.
Commonly confused
Pairs that lose marks when they are blurred together.
Aggregate demand vs Aggregate supply
Aggregate demand: total planned spending on domestic output at each price level. Aggregate supply: total planned output at each price level.
Demand-pull inflation vs Cost-push inflation
Demand-pull inflation: a rise in the price level caused by spending growing faster than output can. Cost-push inflation: a rise in the price level caused by higher costs of production.
The multiplier vs The accelerator
The multiplier: the process by which an injection raises national income by more than itself. The accelerator: the process by which investment responds to the rate of change of output rather than its level.
Questions from this topic
Each one with the model answer underneath.
- 1
What does the circular flow of income model show?
Model answer
It shows how income, output and expenditure move continuously between households and firms, with injections adding to the flow and leakages withdrawing from it.
- 2
In the simple two-sector circular flow, what do households provide and what do they receive?
Model answer
Households provide the factors of production to firms and receive factor incomes in return: wages, rent, interest and profit.
- 3
In the simple two-sector circular flow, what do firms provide and what do they receive?
Model answer
Firms provide goods and services to households and receive consumer expenditure in return.
- 4
Define an injection into the circular flow and name the three injections.
Model answer
An injection is spending entering the flow from outside household consumption of domestic output; the three are investment, government spending and exports.
- 5
Define a leakage from the circular flow and name the three leakages.
Model answer
A leakage is income received but not passed on as spending on domestic output; the three are saving, taxation and imports.
- 6
State the condition for equilibrium in the circular flow of income.
Model answer
Total injections equal total leakages, so saving plus taxation plus imports equals investment plus government spending plus exports and national income is neither expanding nor contracting.
What is inside Levo
Six ways to work the same material.
Macroeconomics: Aggregate Demand and Aggregate Supply revision questions
- What does Macroeconomics: Aggregate Demand and Aggregate Supply cover in OCR A-Level Economics?
- 10 subtopics: the circular flow of income, injections and leakages, methods of measuring national income, components of aggregate demand and their determinants, the slope of the aggregate demand curve and what shifts it, consumption, income and the role of expectations, short run and long run aggregate supply curves, shifts in short run and long run aggregate supply, macroeconomic equilibrium and the effects of demand and supply shifts, the national income multiplier and marginal propensities and the accelerator, the economic cycle and output gaps. Each one has its own page with questions and model answers.
- How is Macroeconomics: Aggregate Demand and Aggregate Supply organised?
- By the OCR H460 specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in Macroeconomics: Aggregate Demand and Aggregate Supply, on a schedule.
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