AQA AS ECONOMICS 7135 2 PAPER 2 FINAL
PAPER 2026 COMPLETE QUESTIONS AND
ANSWERS FULL SOLUTION GRADED A+
◉ What is the multiplier effect? Answer: new demand occurs in the
economy-> injection of more income into circular flow -> economic
growth -> more jobs and higher average incomes -> more spending -
> more income is created
- initial AD increase leads to bigger increase in national income (one
person's spending is another person's income)
◉ What is the multiplier ratio? Answer: - ratio of rise in national
income to initial rise in AD - number of time a rise in national
income is larger then rise in initial injection of AD
◉ What does this mean for shifts in AD? Answer: - if has spare
capacity extra output can be produced quickly at little extra cost
- makes SRAS elastic and size of multiplier larger
- small increase lead to large increase in national income
(dependent of elasticity of SRAS- if inelastic AD increase results in
price increase rather then full increase in national income -> higher
,inflation rate leads to higher interest rates -> discourage spending
and borrowing and encourage saving)
(higher MPC bigger the multiplier- could be done by changing direct
tax rates)
(higher MPS smaller the multiplier)
◉ How do you calculate the multiplier effect? Answer: 1/(1-MPC)
◉ What is a reverse multiplier? Answer: - withdrawal of income
from the circular flow leading to larger decrease in income for
economy - decrease growth
◉ What is aggregate supply? Answer: the quantity of real GDP
supplied at different price levels in the economy
◉ Why is the (SR)AS curve upward sloping? Answer: at a higher
price level producers are willing to supply more because they can
earn more profits - supply assumed to be responsive to a change in
AD
◉ What causes a movement along the supply curve? Answer:
changes in the price level due to AD
,◉ What causes shifts in the (SR)AS curve? Answer: - changes in the
conditions of supply (mainly price level and production costs)
change in cost of employment (wages, taxes, labour productivity)
cost of other factor inputs (raw materials, commodity prices,
exchange rate)
government regulation or intervention (environmental laws, taxes,
business regulation/red tape)
net outward migration of workers causing a 'brain drain' on
domestic economy
is fall in business capital spending
◉ What does the SRAS cover? Answer: - the period immediately
after a change in price level - planned output of economy when price
changes whilst (at least one) cost of production and productivity
factors kept constant (e.g. wage rates or technological capabilities of
capital)
◉ What does the (LR)AS curve show in comparison? Answer: -
potential productive capacity of economy in the long run- prices,
costs and productivity of factor inputs are variable
◉ Why is the (LR)AS curve vertical? Answer: -supply is assumed not
to change as price level changes (output fixed at each level)
- factors of production fully employed in long run
, ◉ What factors influence the LRAS? Answer: - quality and quantity
of factors of production
-technological advances (economy can produce larger volumes or
better quality goods and services)
-relative productivity changes (will produce a larger quantity of
output at same quantity of input)
-changes in education and skills (improves quality of human capital-
more productive and able to produce wider variety of goods and
services)
-changes in gov regulations (could limit productivity of firm)
-demographic changes and migration (if net inward migration and
majority is working age significant increase in size of labour force)
-competition policy (more competitive market encourages more
productivity and efficiency)
◉ Why is the Keynesian LRAS curve L shaped? Answer: - suggests
price level in economy is fixed until resources are fully employed
- at horizontal section output and price level when outputs not fully
employed and there is spare capacity + output can be increases
without impacting the price level (non-inflationary)
◉ What does a shift outwards of LRAS show? Answer: economic
growth
PAPER 2026 COMPLETE QUESTIONS AND
ANSWERS FULL SOLUTION GRADED A+
◉ What is the multiplier effect? Answer: new demand occurs in the
economy-> injection of more income into circular flow -> economic
growth -> more jobs and higher average incomes -> more spending -
> more income is created
- initial AD increase leads to bigger increase in national income (one
person's spending is another person's income)
◉ What is the multiplier ratio? Answer: - ratio of rise in national
income to initial rise in AD - number of time a rise in national
income is larger then rise in initial injection of AD
◉ What does this mean for shifts in AD? Answer: - if has spare
capacity extra output can be produced quickly at little extra cost
- makes SRAS elastic and size of multiplier larger
- small increase lead to large increase in national income
(dependent of elasticity of SRAS- if inelastic AD increase results in
price increase rather then full increase in national income -> higher
,inflation rate leads to higher interest rates -> discourage spending
and borrowing and encourage saving)
(higher MPC bigger the multiplier- could be done by changing direct
tax rates)
(higher MPS smaller the multiplier)
◉ How do you calculate the multiplier effect? Answer: 1/(1-MPC)
◉ What is a reverse multiplier? Answer: - withdrawal of income
from the circular flow leading to larger decrease in income for
economy - decrease growth
◉ What is aggregate supply? Answer: the quantity of real GDP
supplied at different price levels in the economy
◉ Why is the (SR)AS curve upward sloping? Answer: at a higher
price level producers are willing to supply more because they can
earn more profits - supply assumed to be responsive to a change in
AD
◉ What causes a movement along the supply curve? Answer:
changes in the price level due to AD
,◉ What causes shifts in the (SR)AS curve? Answer: - changes in the
conditions of supply (mainly price level and production costs)
change in cost of employment (wages, taxes, labour productivity)
cost of other factor inputs (raw materials, commodity prices,
exchange rate)
government regulation or intervention (environmental laws, taxes,
business regulation/red tape)
net outward migration of workers causing a 'brain drain' on
domestic economy
is fall in business capital spending
◉ What does the SRAS cover? Answer: - the period immediately
after a change in price level - planned output of economy when price
changes whilst (at least one) cost of production and productivity
factors kept constant (e.g. wage rates or technological capabilities of
capital)
◉ What does the (LR)AS curve show in comparison? Answer: -
potential productive capacity of economy in the long run- prices,
costs and productivity of factor inputs are variable
◉ Why is the (LR)AS curve vertical? Answer: -supply is assumed not
to change as price level changes (output fixed at each level)
- factors of production fully employed in long run
, ◉ What factors influence the LRAS? Answer: - quality and quantity
of factors of production
-technological advances (economy can produce larger volumes or
better quality goods and services)
-relative productivity changes (will produce a larger quantity of
output at same quantity of input)
-changes in education and skills (improves quality of human capital-
more productive and able to produce wider variety of goods and
services)
-changes in gov regulations (could limit productivity of firm)
-demographic changes and migration (if net inward migration and
majority is working age significant increase in size of labour force)
-competition policy (more competitive market encourages more
productivity and efficiency)
◉ Why is the Keynesian LRAS curve L shaped? Answer: - suggests
price level in economy is fixed until resources are fully employed
- at horizontal section output and price level when outputs not fully
employed and there is spare capacity + output can be increases
without impacting the price level (non-inflationary)
◉ What does a shift outwards of LRAS show? Answer: economic
growth
