Unit 4 Macroeconomy Essay Review Checklist

4.1National income statistics

Chapter 15 notes → · No essay in the bank is set on this section ·

No essay in the bank targets 4.1 directly. You still need it: economic growth is measured in real GDP (4.4), and these definitions are tested in MCQs and data response.

Knowledge and understanding (AO1)

I can define national income and explain why total output, total income and total expenditure are equal for the whole economy.
I can define GDP, GNI and NNI and state exactly what is added or subtracted to move from one to the next.
I can explain the output, income and expenditure methods of measuring GDP, including how each avoids double counting and why transfer payments are left out.
I can explain the difference between market prices and basic prices, and convert one to the other using indirect taxes and subsidies.
I can explain three purposes of national income statistics.

Analysis: the chains (AO2)

I can explain why a country with a lot of inward investment by multinational companies may have a GDP higher than its GNI, and which kind of country has a GNI higher than its GDP.
I can explain why NNI is a better guide than GNI to what an economy can consume without running down its stock of capital.

Evaluation (AO3)

I can judge whether GDP or GNI better measures the income a country's residents actually receive, using a country that hosts many foreign multinationals and one whose own firms and workers earn a lot abroad.

4.2Introduction to the circular flow of income

Chapter 16 notes → · 5 essays set on this section ·

The 5 past-paper questions on this section

9708/21/M/J/25 (a) Explain how the circular flow of income in an economy changes when that economy moves from a closed to an open economy and consider what determines the extent of the change. [8]
9708/22/M/J/24 (a) With the help of a diagram, explain what is meant by the circular flow of income in an open economy and consider the extent to which it can explain economic growth in such an economy. [8]
9708/22/F/M/23 (a) Explain the circular flow of income in a closed economy and consider the extent to which the circular flow of income changes as an economy becomes an open economy. [8]
9708/23/M/J/23 (a) With the help of a circular flow of income diagram, explain how equilibrium is determined in an open economy and consider whether a budget deficit or a trade deficit is more likely to cause lasting disequilibrium. [8]
9708/23/M/J/23 (b) Assess whether an increase in investment in new infrastructure projects will always have a positive impact on the circular flow of income in an economy. [12]

Knowledge and understanding (AO1)

I can define the circular flow of income and draw the two-sector model, showing the real flows and the money flows going in opposite directions.
Asked in 21/M/J/25 (a) 22/M/J/24 (a) 22/F/M/23 (a) 23/M/J/23 (a)
Show the diagram
Circular Flow (2-Sector) · Open the diagram sheet
I can distinguish a closed economy from an open economy and draw the open-economy circular flow with households, firms, the financial sector, the government and the rest of the world.
Asked in 21/M/J/25 (a) 22/M/J/24 (a) 22/F/M/23 (a) 23/M/J/23 (a)
Show the diagram
Circular Flow (5-Sector) · Open the diagram sheet
I can name the three injections and the three leakages, and say which sector each one flows to or from.
Asked in 21/M/J/25 (a) 22/M/J/24 (a) 22/F/M/23 (a) 23/M/J/23 (a)
1 more
23/M/J/23 (b)
I can name the four factor rewards that firms pay to households and match each one to its factor of production.
Asked in 21/M/J/25 (a) 23/M/J/23 (b)
I can state the equilibrium condition for a two-sector economy, a closed economy and an open economy.
Asked in 22/F/M/23 (a) 23/M/J/23 (a)

Analysis: the chains (AO2)

I can explain, step by step, what happens to national income when injections are greater than leakages, and when leakages are greater than injections.
Asked in 22/M/J/24 (a) 23/M/J/23 (a) 23/M/J/23 (b)
I can explain how the circular flow changes when a closed economy starts to trade, including the new injection, the new leakage and the new equilibrium condition.
Asked in 21/M/J/25 (a) 22/F/M/23 (a)
I can trace an increase in investment (for example in new infrastructure) around the circular flow, from the injection to factor incomes to household spending.
Asked in 23/M/J/23 (b)
I can explain three leakages that a new infrastructure project creates, and how they reduce its effect on national income.
Asked in 23/M/J/23 (b)
I can explain why leakages rise after an injection rises, so that national income settles at a new, higher equilibrium.
Asked in 22/M/J/24 (a) 23/M/J/23 (b)
I can explain how a budget deficit and a trade deficit each change the balance between injections and leakages.
Asked in 23/M/J/23 (a)
I can use the circular flow to explain how national income grows and shrinks, and link this to economic growth.
Asked in 22/M/J/24 (a)

Evaluation (AO3)

I can judge what determines how much the circular flow changes when an economy opens up to trade.
Asked in 21/M/J/25 (a) 22/F/M/23 (a)
I can judge how far the circular flow can explain economic growth, and what kind of growth it cannot explain.
Asked in 22/M/J/24 (a)
I can judge whether a budget deficit or a trade deficit is more likely to cause a lasting disequilibrium.
Asked in 23/M/J/23 (a)
I can give at least three reasons why an increase in investment may not always have a positive impact on the circular flow, and reach a judgement.
Asked in 23/M/J/23 (b)
I can explain the limits of the circular flow as a model and use them as evaluation.
Asked in 23/M/J/23 (b) 22/M/J/24 (a)

4.3Aggregate demand and aggregate supply analysis

Chapter 17 notes → · 6 essays set on this section ·

The 6 past-paper questions on this section

9708/22/O/N/25 (a) With the help of an aggregate demand and aggregate supply (AD/AS) diagram, explain why two components of AD may increase and consider the extent to which an increase in AD will always lead to inflation. [8]
9708/23/M/J/24 a) With the help of a diagram, explain how increases in aggregate demand affect the level of real output and the price level in an economy and consider when such increases may become a problem. [8]
9708/21/M/J/23 (a) With the help of an AD/AS diagram(s), explain cost-push inflation and demand-pull inflation in an economy and consider in what circumstances one may be more damaging than the other. [8]
9708/22/O/N/23 (a) With the help of a diagram(s), explain one reason for an increase in aggregate demand and one reason for an increase in aggregate supply and consider whether an increase in aggregate demand will always lead to inflation. [8]
9708/23/M/J/21 a) Explain what is meant by aggregate supply and explain one reason why the aggregate supply curve of an economy would shift outwards in (i) the short run, and (ii) the long run. [8]
9708/22/O/N/20 a) Explain how the factor of production enterprise contributes to aggregate supply in a modern economy and how it differs from the other factors of production in terms of the reward for its services. [8]

Knowledge and understanding (AO1)

I can define aggregate demand and write out its four components.
Asked in 23/M/J/24 (a) 22/O/N/25 (a) 22/O/N/23 (a)
I can draw a correctly labelled AD/AS diagram: both axes, AD, SRAS and LRAS, and the equilibrium price level and real output.
Asked in 23/M/J/24 (a) 21/M/J/23 (a) 22/O/N/25 (a) 22/O/N/23 (a)
3 more
22/F/M/24 (a) 22/M/J/25 (a) 22/M/J/21
Show the diagram
AD/AS Equilibrium · Open the diagram sheet
I can define aggregate supply and explain the difference between short-run and long-run aggregate supply.
Asked in 23/M/J/21 (a) 22/O/N/23 (a)
I can draw the Keynesian LRAS curve and the new classical LRAS curve, and explain what each section of the Keynesian curve means.
Asked in 23/M/J/24 (a) 22/O/N/25 (a) 22/O/N/23 (a) 22/F/M/24 (a)
Show the diagram
Keynesian LRAS (Three Zones) · Open the diagram sheet
I can tell a movement along an AD or AS curve apart from a shift of the curve, and say what causes each.
Asked in 23/M/J/21 (a) 22/O/N/23 (a)
I can explain the two roles of enterprise in production and name the reward that each of the four factors of production earns.
Asked in 22/O/N/20 (a)

Evaluation (AO3)

I can judge whether an increase in AD will always cause inflation, using at least three factors it depends on.
Asked in 22/O/N/25 (a) 22/O/N/23 (a) 23/M/J/24 (a) 22/F/M/24 (a)
I can judge when an increase in AD stops being helpful and becomes a problem.
Asked in 23/M/J/24 (a)
I can use the disagreement between Keynesian and new classical economists about the LRAS curve to evaluate what a change in AD does in the long run.
Asked in 22/O/N/25 (a) 22/O/N/23 (a) 22/F/M/24 (a) 22/O/N/20 (b)
I can judge how large the effect of a rise in one component of AD is likely to be.
Asked in 23/M/J/24 (a) 22/O/N/25 (a)
I can judge, for a named supply-side change, whether it shifts SRAS only or LRAS as well, and why that matters for how long its effects last.
Asked in 23/M/J/21 (a)

4.4Economic growth

Chapter 18 notes → · 4 essays set on this section ·

The 4 past-paper questions on this section

9708/23/M/J/25 (b) Assess the extent to which economic growth is always beneficial for the people and government in an economy. [12]
9708/21/O/N/24 (a) Explain two possible causes of economic growth and consider whether the consequences of economic growth for an economy will always be positive. [8]
9708/22/F/M/24 a) With the help of an aggregate demand and aggregate supply diagram, explain how a decrease in interest rates could cause economic growth and consider whether economic growth will always result in inflation. [8]
9708/22/F/M/23 b) Assess whether the consequences of economic growth for an economy are always positive. [12]

Knowledge and understanding (AO1)

I can define economic growth and explain how the growth rate is measured.
Asked in 23/M/J/25 (b) 21/O/N/24 (a) 22/F/M/24 (a) 22/F/M/23 (b)
I can distinguish nominal GDP from real GDP and calculate real GDP using a price index.
Asked in 23/M/J/25 (b) 22/F/M/24 (a)
I can distinguish actual growth from potential growth and show each on a PPC diagram and on an AD/AS diagram.
Asked in 21/O/N/24 (a) 22/F/M/24 (a) 22/F/M/23 (b)
Show the diagrams
PPF: Productive Inefficiency · Open the diagram sheet
PPF: Potential (Outward) Growth · Open the diagram sheet
Actual vs Potential Growth · Open the diagram sheet
I can define a recession and economic development, and explain why growth and development are not the same thing.
Asked in 23/M/J/25 (b) 22/F/M/23 (b) 22/M/J/25 (a)

Evaluation (AO3)

I can judge whether economic growth will always result in inflation.
Asked in 22/F/M/24 (a)
I can judge whether the consequences of economic growth are always positive, weighing at least two benefits against at least two costs.
Asked in 23/M/J/25 (b) 21/O/N/24 (a) 22/F/M/23 (b)
I can judge how the benefits of growth differ between groups: people and government, rich and poor, today's and future generations.
Asked in 23/M/J/25 (b) 22/F/M/23 (b)
I can judge whether growth is sustainable, and why the answer may differ for a high-income and a low-income country.
Asked in 22/F/M/23 (b) 23/M/J/25 (b)
I can judge how far growth figures measure what people actually gain, including the problem of the hidden (informal) economy.
Asked in 23/M/J/25 (b)
I can judge whether the source of growth, led by demand or led by supply, changes how good its consequences are.
Asked in 22/F/M/24 (a) 22/F/M/23 (b) 23/M/J/25 (b)

4.5Unemployment

Chapter 19 notes → · 7 essays set on this section ·

The 7 past-paper questions on this section

9708/21/O/N/25 (a) Explain the possible causes of frictional unemployment and technological unemployment and consider whether some element of frictional unemployment is inevitable in an economy. [8]
9708/21/O/N/25 (b) Assess whether the consequences of technological unemployment are likely to be more serious than those of cyclical unemployment. [12]
9708/24/O/N/25 (a) Explain the difference between structural unemployment and cyclical unemployment and consider the extent to which structural unemployment is likely to be more damaging to an economy than cyclical unemployment. [8]
9708/22/O/N/24 (a) Explain two methods of measuring unemployment and consider the extent of the possible difficulties in obtaining an accurate measurement of unemployment. [8]
9708/23/M/J/24 (b) Assess whether increases in aggregate demand are the best way of reducing unemployment in a high-income country. [12]
9708/21/M/J/24 (a) Explain three causes of unemployment and consider which cause is likely to be most damaging to a high-income economy. [8]
9708/23/O/N/23 (a) With reference to a country that is known to you, explain the main causes of unemployment and consider which of these causes is most significant. [8]

Knowledge and understanding (AO1)

I can define unemployment and distinguish the economically active from the economically inactive.
Asked in 23/O/N/23 (a) 21/O/N/25 (a) 24/O/N/25 (a) 21/M/J/24 (a)
1 more
23/M/J/24 (b)
I can calculate the unemployment rate and explain why the level and the rate of unemployment can move in different directions.
Asked in 22/O/N/24 (a)
I can explain the claimant count and labour force survey methods of measuring unemployment.
Asked in 22/O/N/24 (a)
I can define frictional, structural and cyclical unemployment and give an example of each.
Asked in 21/M/J/24 (a) 23/O/N/23 (a) 21/O/N/25 (a) 21/O/N/25 (b)
2 more
24/O/N/25 (a) 23/M/J/24 (b)
I can define the sub-types of frictional and structural unemployment, including seasonal and technological unemployment.
Asked in 21/M/J/24 (a) 21/O/N/25 (a) 21/O/N/25 (b)

Evaluation (AO3)

I can judge how accurately unemployment can be measured, comparing the two methods and naming groups that both may miss.
Asked in 22/O/N/24 (a)
I can judge whether some frictional unemployment is inevitable, and whether it is always a bad thing.
Asked in 21/O/N/25 (a)
I can judge which type of unemployment is most damaging, using clear criteria: how many people it affects, how long it lasts, where it is concentrated and how hard it is to cure.
Asked in 21/M/J/24 (a) 23/O/N/23 (a) 21/O/N/25 (b) 24/O/N/25 (a)
I can judge which type of unemployment is likely to be most damaging in a high-income economy specifically.
Asked in 21/M/J/24 (a) 23/M/J/24 (b)
I can judge whether increasing AD is the best way to reduce unemployment in a high-income country, comparing it with supply-side policy.
Asked in 23/M/J/24 (b)
I can judge whether a fall in unemployment is good news, considering discouraged workers, underemployment and low-paid insecure jobs.
Asked in 22/O/N/24 (a)

4.6Price stability

Chapter 20 notes → · 15 essays set on this section ·

The 15 past-paper questions on this section

9708/24/M/J/25 (b) Assess whether the consequences of inflation in an economy are always negative. [12]
9708/22/M/J/25 (a) With the help of an AD/AS diagram(s), explain one demand-side and one supply-side cause of deflation and consider which is likely to be more damaging to an economy. [8]
9708/22/O/N/25 (b) Assess the view that the effects of a high rate of inflation are always more damaging for consumers than for firms. [12]
9708/23/O/N/25 (a) For your economy or for one that is known to you, explain three causes of inflation and consider which of these causes is likely to be most important in 2025. [8]
9708/23/O/N/24 a) In 2021, year-on-year inflation in many economies increased to a level not experienced for fifty years. With the help of a diagram, explain what is meant by cost-push inflation and consider whether this type of inflation has affected your own economy since 2021. [8]
9708/22/O/N/23 b) Assess whether the internal effects of inflation are more serious than the external effects of inflation for an economy. [12]
9708/22/M/J/23 (a) Explain the difference between cost-push and demand-pull inflation and consider which is more likely to occur if there is a depreciation in the exchange rate of a country with few natural resources. [8]
9708/21/M/J/23 (b) Assess whether monetary policy or supply-side policy is likely to be more successful in reducing the rate of inflation in an economy. [12]
9708/22/M/J/23 (b) Assess whether monetary policy is the only way to control a high rate of inflation. [12]
9708/23/M/J/22 a) Explain the difference between cost-push inflation and demand-pull inflation. [8]
9708/23/O/N/21 a) Explain how inflation is measured and why a rising rate of inflation may be of concern to consumers and producers. [8]
9708/22/O/N/21 b) Discuss whether the domestic effects of inflation are more serious than the external effects for an economy. [12]
9708/22/M/J/21 Explain what is meant by deflation and use aggregate demand and aggregate supply diagrams to explain how it might arise in an economy. [8]
9708/22/O/N/20 b) Explain how aggregate demand is likely to be affected by an increase in the money supply and consider whether the impact of such an increase will be on employment or on the general price level. [12]
9708/23/M/J/20 The annual rate of inflation in an economy increased sharply and unexpectedly. a) Explain the likely consequences of such an increase for consumers and firms. [8]

Knowledge and understanding (AO1)

I can define inflation, deflation and disinflation precisely, using the words 'sustained' and 'general price level'.
Asked in 23/M/J/22 (a) 23/O/N/21 (a) 22/O/N/21 (b) 22/M/J/21
4 more
24/M/J/25 (b) 22/M/J/25 (a) 23/M/J/20 23/O/N/25 (a)
I can explain, step by step, how a consumer price index is constructed.
Asked in 23/O/N/21 (a)
I can calculate an inflation rate from index numbers, and explain why a fall in the inflation rate does not mean prices are falling.
Asked in 23/O/N/21 (a)
I can explain the difficulties of measuring changes in the price level with a CPI.
Asked in 23/O/N/21 (a)
I can distinguish money (nominal) values from real values, including the real interest rate and the real wage.
Asked in 24/M/J/25 (b) 22/O/N/25 (b) 23/M/J/20
I can define cost-push and demand-pull inflation and draw each on its own AD/AS diagram.
Asked in 21/M/J/23 (a) 23/O/N/24 (a) 22/M/J/23 (a) 23/M/J/22 (a)
2 more
22/O/N/21 (b) 23/O/N/25 (a)
Show the diagrams
Cost-Push Inflation · Open the diagram sheet
Demand-Pull Inflation (near Yfe) · Open the diagram sheet
I can draw deflation caused by a fall in AD and deflation caused by a rise in AS.
Asked in 22/M/J/25 (a) 22/M/J/21
Show the diagram
Deflation (Good vs Bad) · Open the diagram sheet
I can define fiscal drag, menu costs, shoe leather costs and inflationary noise in one sentence each.
Asked in 24/M/J/25 (b) 22/O/N/23 (b) 22/O/N/25 (b) 23/O/N/21 (a)
1 more
22/O/N/21 (b)
I can define fiscal policy, monetary policy (including the money supply and the rate of interest) and supply-side policy, and name the main tools of each.
Asked in 21/M/J/23 (b) 22/M/J/23 (b) 23/M/J/24 (b) 22/O/N/20 (b)

Evaluation toolkit and exam technique

These work in every section. Most evaluation marks in Unit 4 come from one of these moves applied to the question in front of you.

Evaluation (AO3)

Spare capacity: I can judge the effect of any change in AD by asking how close the economy is to full employment.
Asked in 23/M/J/24 (a) 22/O/N/25 (a) 22/O/N/23 (a) 22/F/M/24 (a)
2 more
23/M/J/24 (b) 22/O/N/20 (b)
Time: I can separate short-run from long-run effects, and allow for time lags before a change or a policy works.
Asked in 22/F/M/23 (b) 23/M/J/24 (b) 21/M/J/23 (b) 22/M/J/23 (b)
1 more
22/O/N/25 (a)
Size: I can judge whether a change is big enough to matter relative to the size of the economy, and how much of it leaks out.
Asked in 23/M/J/23 (b) 23/M/J/24 (a)
Responsiveness: I can use elasticity and confidence to judge how strongly households and firms react, for example to interest rates or to a change in the exchange rate.
Asked in 22/M/J/23 (a) 22/M/J/23 (b) 23/M/J/25 (b) 23/O/N/25 (a)
Who gains, who loses: I can split 'the economy' into groups (consumers, firms, government, borrowers and savers, rich and poor, regions) and judge each one.
Asked in 23/M/J/25 (b) 22/O/N/25 (b) 24/M/J/25 (b) 22/O/N/23 (b)
1 more
24/O/N/25 (a)
Cause matters: I can judge an outcome differently depending on whether it was caused on the demand side or the supply side.
Asked in 21/M/J/23 (a) 22/M/J/25 (a) 22/F/M/24 (a) 21/M/J/23 (b)
Type of economy: I can adapt a judgement to a high-income or low-income, open or closed, resource-rich or resource-poor economy.
Asked in 23/M/J/24 (b) 21/M/J/24 (a) 22/M/J/23 (a) 21/M/J/25 (a)
2 more
22/F/M/23 (a) 22/F/M/23 (b)
Data: I can question whether the figures can be trusted, using the measurement problems of GDP, unemployment and the CPI.
Asked in 23/M/J/25 (b) 22/O/N/24 (a) 23/O/N/21 (a)
Always, only, best: I can challenge an absolute word in the question with a counter-example, then decide how far the claim holds.
Asked in 23/M/J/23 (b) 23/M/J/25 (b) 22/F/M/23 (b) 24/M/J/25 (b)
6 more
22/M/J/23 (b) 22/O/N/25 (a) 22/O/N/23 (a) 22/F/M/24 (a) 22/O/N/25 (b) 23/M/J/24 (b)

Exam technique

Part (a), 8 marks: I can plan 3 AO1 marks (definitions and an accurate diagram), 3 AO2 marks (explained chains) and 2 AO3 marks, one of them kept for a justified conclusion.
Asked in 21/M/J/25 (a) 22/M/J/24 (a) 22/F/M/23 (a) 23/M/J/23 (a)
15 more
23/M/J/24 (a) 21/M/J/23 (a) 22/O/N/25 (a) 22/O/N/23 (a) 21/O/N/24 (a) 22/F/M/24 (a) 22/O/N/24 (a) 21/M/J/24 (a) 23/O/N/23 (a) 21/O/N/25 (a) 24/O/N/25 (a) 22/M/J/25 (a) 23/O/N/24 (a) 22/M/J/23 (a) 23/O/N/25 (a)
Part (b), 12 marks: I can argue both sides, because a one-sided answer earns no evaluation marks, and end with a conclusion that answers the exact question.
Asked in 23/M/J/23 (b) 23/M/J/25 (b) 22/F/M/23 (b) 23/M/J/24 (b)
8 more
21/O/N/25 (b) 24/M/J/25 (b) 22/O/N/23 (b) 21/M/J/23 (b) 22/M/J/23 (b) 22/O/N/21 (b) 22/O/N/20 (b) 22/O/N/25 (b)
Diagrams: I can draw every diagram large and fully labelled (axes, curves, both equilibria and an arrow for the shift) and refer to it in my writing.
Asked in 22/M/J/24 (a) 23/M/J/23 (a) 23/M/J/24 (a) 21/M/J/23 (a)
7 more
22/O/N/25 (a) 22/O/N/23 (a) 22/F/M/24 (a) 22/M/J/25 (a) 23/O/N/24 (a) 22/O/N/21 (b) 22/M/J/21
Context: I can keep the whole answer inside the setting the question gives, such as 'a high-income country', 'a high rate of inflation' or 'a country with few natural resources'.
Asked in 23/M/J/24 (b) 21/M/J/24 (a) 22/M/J/23 (a) 22/O/N/25 (b)
Know your economy: for one named economy I can quote its recent inflation, unemployment and growth rates and say what mainly caused each.
Asked in 23/O/N/23 (a) 23/O/N/24 (a) 23/O/N/25 (a)
Read the command: I can tell methods from types, causes from consequences, and internal from external effects, and answer only what is asked.
Asked in 22/O/N/24 (a) 22/O/N/23 (b) 22/O/N/21 (b) 23/O/N/21 (a)
1 more
23/M/J/20
Both halves: when a question names two things (two causes, two types, two methods), I can give both equal weight, because analysing only one caps the mark.
Asked in 21/M/J/25 (a) 22/O/N/24 (a) 21/O/N/25 (a) 24/O/N/25 (a)
5 more
22/M/J/25 (a) 22/M/J/23 (a) 21/O/N/25 (b) 23/M/J/21 (a) 22/O/N/23 (a)

Unit 4 essay review checklist

4.1National income statistics

Knowledge and understanding (AO1)

Analysis: the chains (AO2)

Evaluation (AO3)

4.2Introduction to the circular flow of income

Knowledge and understanding (AO1)

Analysis: the chains (AO2)

Evaluation (AO3)

4.3Aggregate demand and aggregate supply analysis

Knowledge and understanding (AO1)

Analysis: the chains (AO2)

Evaluation (AO3)

4.4Economic growth

Knowledge and understanding (AO1)

Analysis: the chains (AO2)

Evaluation (AO3)

4.5Unemployment

Knowledge and understanding (AO1)

Analysis: the chains (AO2)

Evaluation (AO3)

4.6Price stability

Knowledge and understanding (AO1)

Analysis: the chains (AO2)

Evaluation (AO3)

Evaluation toolkit and exam technique

Evaluation (AO3)

Exam technique