Exam Practice

Questions in the style of the WEC12 paper. Try them under timed conditions, then check the guidance in the next section. Worked answers are deliberately on a separate page so you don't peek!

Section A — multiple choice (6 marks)

Spec: A

1. A recession is best defined as: (a) a fall in the inflation rate; (b) two consecutive quarters of negative economic growth; (c) any fall in share prices; (d) unemployment above 5%. 2. Which is an injection into the circular flow? (a) saving; (b) taxation; (c) imports; (d) government spending. 3. If the MPC is 0.75, the multiplier equals: (a) 0.25; (b) 1.33; (c) 4; (d) 7.5. 4. Cost-push inflation is shown by: (a) a rightward shift of AD; (b) a leftward shift of SRAS; (c) a rightward shift of LRAS; (d) a movement along AD. 5. Which is a supply-side policy? (a) cutting interest rates; (b) raising government spending; (c) investment in education and training; (d) quantitative easing. 6. The short-run Phillips curve shows a trade-off between: (a) inflation and growth; (b) inflation and unemployment; (c) growth and the current account; (d) unemployment and the exchange rate.

Section B — short answer (20 marks)

Spec: B

1. Define the term "disinflation". (2)
2. Distinguish between real and nominal GDP. (4)
3. An economy has MPS = 0.1, MPT = 0.2 and MPM = 0.1. Calculate the multiplier and the change in national income following a £4bn rise in investment. (4)
4. With the aid of a diagram, explain how a fall in the exchange rate could affect aggregate demand. (6)
5. Explain one benefit and one cost of economic growth. (4)

Section C — data response (sample, of 34)

Spec: C

Extract — Country X

Country X grew by 3.1% last year. Inflation rose to 6% as global energy prices surged. The central bank raised its interest rate to 5%, while unemployment remained low at 4%.

1. With reference to the extract, explain the likely cause of the rise in inflation in Country X. (6)
2. Examine the likely impact on Country X of the central bank raising interest rates. (10)

Section D — essay (choose one, 20 marks)

Spec: D

1. Evaluate the use of demand-side policies to reduce unemployment in an economy of your choice. (20)
2. Discuss whether supply-side policies are the most effective way to achieve economic growth. (20)