5.
Inflation is best defined as
A.
A sustained increase in the general level of prices
B.
Two successive quarters of growth in real GDP
C.
A sustained rise in household income
D.
An increase in the level of net exports
6.
Which of the following is an example of capital spending by the government?
A.
The salaries of teachers working in state schools
B.
The purchase of medicine for the National Health Service
C.
Improvements on the railways to increase peak-time capacity
D.
The spending on utility bills to heat local government buildings
7.
Which of the scenarios below is most likely to cause the Production Possibility Frontier for a country
to shift to the right?
A.
An increase in spending on capital
B.
A fall in unemployment
C.
An increase in consumer spending
D.
A rise in the value of net exports
8.
The following table gives information about the rate of inflation, according to the Consumer Prices
Index (CPI) from 2004 to 2014.
Year
2004
CPI
1.3
inflation
rate (%)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2.1
2.3
2.3
3.6
2.2
3.3
4.5
2.8
2.6
1.5
Which of the following statements is true?
A.
In 2014 average prices were lower than they were in 2013
B.
There was deflation in 2004
C.
Average prices were highest in 2014
D.
Average prices were highest in 2011
9.
The unemployment rate in the UK rose from 4.8% in 2005 to 8.1% in 2011. Which of the following
types of unemployment was the most likely to have been experienced?
A.Structural
B.Frictional
C.Classical
D.Cyclical
Practice exam paper - OCR AS Economics (Macro) Paper B Page 3
000
000
000
000
000
Budget deficit (£m)
Section B
ANSWER ALL QUESTIONS IN THIS SECTION
000
Global slowdown in 2015
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
According to the International Monetary Fund (IMF), global growth in 2015 is slowing down. Forecast growth for the
world economy is forecast to be 3.1 per cent this year (at purchasing power parity) and 3.6 per cent in 2016.
Figure 1: GDP growth for selected economies
8
7
6
Growth (%)
0
5
■ 2014 (actual)
4
■ 2015 (projected)
3
2
1
0
-1
-2
Global
economy
High
income
Eurozone
UK
Emerging
economies
China
India
Latin
America
Brazil
The IMF reported that the underlying drivers for a gradual acceleration in economic activity in advanced
economies—easy financial conditions, more neutral fiscal policy (replacing austerity measures) in the euro area,
lower fuel prices, and improving confidence and labour market conditions—remained intact. However, factors such
as lower commodity prices, rebalancing in China, and economic distress related to geopolitical factors were the
chief problems for emerging market growth. These factors combine to create increased financial market volatility
and disruptive asset price shifts, alongside lower potential output growth in the higher income economies.
While the advanced economies are gradually recovering from the global financial crash in 2008-2009, their growth
is not sufficient to take up the slack created by the slowdown in recently-booming economies such as Brazil and
China. Economies which produce commodities such as oil, metals and cement have benefitted from the massive
demand for those goods created by that boom, and have invested in raising their capacity to produce and export
the commodities. They are now suffering a demand-side shock as the need for their exports shrinks away. The
richer economies are in no position to make up for that shortfall in demand, as their recovery still leaves their output
some way short of their potential.
Page 6 Practice exam paper - OCR AS Economics (Macro) Paper B
Level 3 (11-15 mark)
Good knowledge and understanding of management
of exchange rates and of demand side policies.
Good analysis of how and why exchange rate
management and demand side policies might impact
upon an economy such as China. A relevant diagram is
provided and is linked to the analysis.
Good evaluation of the relative impact of exchange rate
management and demand side policies on the balance
of the components of Aggregate Demand.
There is a line of reasoning presented with some
structure. The information presented is in the most-part
relevant and supported by some evidence
Examples of possible evaluation might
include:
•Consideration of the Marshall Lerner
condition and the extent to which a
reverse J-curve might take effect
•Whether demand for Chinese exported
goods is price inelastic, and the impact
on the balance of trade
•The extent to which reduced government
revenue income from import tariffs would
be offset by increased revenue from other
domestic sources
•Whether a stronger currency would deter
inward foreign direct investment, and how
this might affect growth and employment
•The extent to which higher inflation might
become a problem for policymakers
•The extent to which higher domestic
spending might stimulate further domestic
and foreign investment
•The extent to which domestic producers
might be forced out of business by
imports
The impact of exchange rate manipulation
and demand side policies will be analysed
through shifts in the aggregate demand
curve.
Analysis may also examine the J curve
effect resulting from intervention to maintain
a weak currency, possibly with a graph as
below, or one which shows the opposite
effect from a strengthening currency:
Practice exam paper - OCR AS Economics (Macro) Paper B Page 15