Context 2: Inflation and monetary policy in the UK
Extract D: The UK's Consumer Prices Index (2015 = 100) rose from 131.5 in March 2023 to 134.9 in March 2024. CPI inflation had peaked at over 11% in October 2022, driven by energy and food prices after Russia's invasion of Ukraine.
Extract E: The Bank of England raised Bank Rate fourteen times from 0.1% in December 2021 to 5.25% in August 2023. Mortgage rates rose sharply and house prices fell slightly. Some economists argued that rates were raised too late; others that much of the inflation came from global supply shocks that interest rates could not affect.
Extract F: Wage growth reached around 8% in 2023, partly due to labour shortages. The government kept income-tax thresholds frozen, which increased tax revenue as wages rose ('fiscal drag'). Unemployment rose slightly from 3.8% to 4.3%. Productivity growth remained weak.
From Paper 2: National and international economy
39 marks
With the help of an AD/AS diagram, explain how higher interest rates are likely to reduce inflation.
From Paper 3: Economic principles and issues
221 mark
In an economy with no taxes or imports, MPC = 0.8. The multiplier is:
From Paper 3: Economic principles and issues
231 mark
When an economy is close to full capacity, an increase in AD mainly causes:
Score 0 / 11 · 0 of 3 marked
This paper is written by Plasmo in the style of the AQA A-Level Economics exam. It is not a past paper and is not produced or endorsed by the exam board.
How the macroeconomy works Exam Questions: AQA A-Level Economics | Plasmo