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AQA AS-Level Economics 7136
Economic Methodology and the Economic Problem
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
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 regulationEvaluating intervention and the mixed economyGovernment failure
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
Fiscal Policy and Supply-Side Policies
Economic Performance
- 11 subtopics
- 31 things to know
- Papers 1 and 3
What Economic Performance covers
Economic performance is examined on Papers 2 and 3. It takes the four policy objectives one at a time, explains what causes movement in each, and closes on the conflicts between them.
Where it is assessed
Papers 1 and 3
Markets and market failure, then the synoptic paper.
Check the AQA specification ↗The 11 subtopics
Each one has its own page. AQA AS Economics students sit this topic in the first year.
- Short-run and long-run economic growthThe difference between the two, and the demand-side and supply-side causes of each.Open →
- The economic cycle and output gapsThe four phases of the cycle, how the main indicators behave, and positive and negative output gaps.Open →
- Demand-side and supply-side shocksWhat each type of shock does to output and the price level, with examples of both.Open →
- Measuring unemployment and the types of unemploymentThe claimant count and the ILO measure, and seasonal, frictional, structural and cyclical unemployment.Open →
- The determinants of employment and policies to reduce unemploymentDemand-side and supply-side influences on employment, and matching the policy to the cause.Open →
- Inflation and deflationDemand-pull and cost-push inflation, deflation and disinflation, and the effects of each.Open →
- The quantity theory of moneyFisher's equation of exchange, MV = PQ, the assumptions that turn it into the Quantity Theory of Money, the monetarist explanation of inflation, worked calculations of the price level and velocity, and the Keynesian criticisms.Open →
- Consequences of inflation and deflationThe costs of inflation, from menu and shoe-leather costs to redistribution, competitiveness and fiscal drag, the difference between anticipated and unanticipated inflation, and the consequences of deflation, including deflationary spirals, debt burdens and Japan's experience.Open →
- The balance of payments on current accountWhat the current account records, what a deficit or surplus means, and the benefits of trade.Open →
- Output gaps and the growth-inflation conflictWhy growth, inflation, unemployment and the current account pull against each other.Open →
- Reconciling policy objectives in the AD/AS modelHow supply-side policy can shift LRAS and ease the short-run conflicts.Open →
What you need to know
Answer each one before you reveal it.
Your recallNot started
Numbers
How do the labour force, human capital and productivity contribute to long-run growth?
Numbers
How do productivity, technology and capital raise the trend rate of growth?
Key term
What characterises the expansion, peak and contraction phases of the economic cycle?
Key term
What are positive and negative output gaps, and what conditions accompany each?
Process
What are the effects of a positive demand-side shock on the economy?
Key term
How can global economic shocks affect domestic economic activity through commodity price changes?
Evaluation
What does the claimant count measure, how does the ILO define unemployment, and why is the claimant count lower?
Numbers
How do immigration and overseas recession affect UK jobs, and which policy fits?
Process
How do labour market flexibility and net exports affect the number of jobs?
Key term
What is the effect on unemployment when demand for UK exports falls?
Key term
How can expansionary fiscal policy be used to reduce cyclical unemployment?
Numbers
How do deflation and disinflation differ, and what causes demand-pull inflation?
Process
What causes cost-push inflation, and how do firms respond?
Evaluation
How do world commodity prices and overseas inflation reach UK prices?
Numbers
Do deflationary policies always result in deflation?
Process
Calculate the price level when M = £500 billion, V = 4, Q = 1,000 billion units of output, and again when M rises to £550 billion with V and Q unchanged.
Process
Calculate the velocity of circulation when nominal GDP = £2,400 billion, money supply = £800 billion.
Process
What does PQ represent in the equation of exchange?
Process
Who may gain from deflation?
Process
Why can high and volatile inflation reduce investment and long-run growth?
Key term
What are the menu costs of inflation?
Evaluation
What does international trade do for UK output, consumers and prices?
Key term
What do the primary and secondary income components of the current account include?
Process
How does inflation relative to trading partners affect the current account?
Key term
Is the current account the only part of the balance of payments?
Process
How does pursuing economic growth conflict with other policy objectives?
Process
What type of policy stimulates the economy, and what does it do to unemployment?
Process
What do contractionary demand-side policies do to inflation, growth and unemployment?
Process
What happens to real GDP when AD shifts rightward along the SRAS curve?
Process
What happens to the price level when LRAS shifts rightward?
Take Economic Performance further
The same content, four other ways.
Commonly confused
Pairs that lose marks when they are blurred together.
Demand-pull inflation vs Cost-push inflation
Demand-pull inflation: price rises caused by excessive total spending. Cost-push inflation: price rises caused by increasing production expenses.
Cyclical unemployment vs Structural unemployment
Cyclical unemployment: joblessness caused by deficient aggregate demand. Structural unemployment: joblessness caused by a mismatch of skills or location.
Current account deficit vs Current account surplus
Current account deficit: outgoing transactions exceeding incoming transactions. Current account surplus: incoming transactions exceeding outgoing transactions.
Questions from this topic
Each one with the model answer underneath.
- 1
What is short-run economic growth?
Model answer
An increase in real GDP that occurs when the economy moves from a point inside towards its existing production possibility frontier, utilising previously unemployed resources.
- 2
What does long-run economic growth represent?
Model answer
An increase in the productive capacity of the economy, representing an outward shift of the production possibility frontier.
- 3
What does the term 'long-run economic growth' refer to in practice?
Model answer
How fast real national output grows on trend over time.
- 4
How is short-run growth represented on a production possibility curve?
Model answer
By a movement from a point inside the frontier towards the frontier.
- 5
On an AD/AS diagram, how is short-run economic growth illustrated?
Model answer
By a rightward shift of the AD curve along a given SRAS curve.
- 6
How can changes in consumption act as a demand-side determinant of short-run growth?
Model answer
An increase in consumption raises aggregate demand, leading to higher real GDP in the short run.
What is inside Levo
Six ways to work the same material.
Economic Performance revision questions
- Is Economic Performance examined at AS in AQA Economics?
- Yes. It sits in Papers 1 and 3, which you take in the first year, so it is on the AS paper as well as counting towards the full A level.
- What does Economic Performance cover in AQA AS-Level Economics?
- 11 subtopics: short-run and long-run economic growth, the economic cycle and output gaps, demand-side and supply-side shocks, measuring unemployment and the types of unemployment, the determinants of employment and policies to reduce unemployment, inflation and deflation, the quantity theory of money, consequences of inflation and deflation, the balance of payments on current account, output gaps and the growth-inflation conflict and reconciling policy objectives in the ad/as model. Each one has its own page with questions and model answers.
- How is Economic Performance organised?
- By the AQA 7136 specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in Economic Performance, 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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