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Component 2: Macroeconomics - Aggregate demand and supply

5 dot points across 5 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

What are the components of aggregate demand, and what determines each one?

2.2 Aggregate demand: the components of AD (consumption, investment, government spending and net exports), the determinants of each, and why the AD curve slopes downward and shifts.
An OCR H460 answer to aggregate demand, covering the four components (consumption, investment, government spending and net exports), the determinants of each, why the AD curve slopes downward, and the causes of shifts in aggregate demand.
10 min answer →

How do short-run and long-run aggregate supply differ, and how is macroeconomic equilibrium determined?

2.2 Aggregate supply and equilibrium: short-run and long-run aggregate supply, the Keynesian and classical LRAS views, macroeconomic equilibrium, and the effect of AD and AS shifts on output and the price level.
An OCR H460 answer to aggregate supply and equilibrium, covering short-run and long-run aggregate supply, the Keynesian and classical views of LRAS, how macroeconomic equilibrium is determined, and the effect of shifts in AD and AS on output, employment and the price level.
11 min answer →

What causes economic growth and the economic cycle, and what are the costs and benefits of growth?

2.2 Economic growth and the cycle: the causes of short-run and long-run growth, the phases of the economic cycle, output gaps, and the costs and benefits of growth.
An OCR H460 answer to economic growth and the economic cycle, covering the demand-side and supply-side causes of growth, the phases of the cycle (boom, slowdown, recession, recovery), positive and negative output gaps, and the costs and benefits of economic growth.
11 min answer →

How does income circulate through an economy, and what role do injections and withdrawals play?

2.2 The circular flow of income: the flow between households and firms, injections and withdrawals, the equilibrium level of national income, and the difference between income, expenditure and output.
An OCR H460 answer to the circular flow of income, covering the flow between households and firms, injections (investment, government spending and exports) and withdrawals (saving, taxation and imports), the equilibrium level of national income, and why income, expenditure and output are equal.
9 min answer →

How does an initial change in spending multiply through the economy, and how does the accelerator amplify investment?

2.2 The multiplier and the accelerator: the multiplier process, the marginal propensities and the multiplier formula, the accelerator effect, and their role in the economic cycle.
An OCR H460 answer to the multiplier and accelerator, covering the multiplier process, the marginal propensities to consume, save, tax and import, the multiplier formula, the accelerator effect, and how both amplify fluctuations in the economic cycle.
11 min answer →