Edexcel Economics Theme 2 Questions And Answers
2025\2026
Macroeconomics - CORRECT ANSWER-The study of the economy as a whole,
including inflation, growth and unemployment.
Aggregate demand - CORRECT ANSWER-The total of all demands or expenditures
in the economy at any given price.
Aggregate demand curve - CORRECT ANSWER-Shows the relationship between
the price level and equilibrium national income. As the price level rises the
equilibrium level of national income falls.
Animal spirits - CORRECT ANSWER-Business confidence: the mood of managers
and owners of firms about the future of their industry and the wider economy.
Gross investment - CORRECT ANSWER-The addition to capital stock, both to
replace the existing capital stock which has been used up (depreciation) and the
creation of additional capital.
Investment - CORRECT ANSWER-The addition to the capital stock of the economy.
,Retained profit - CORRECT ANSWER-Profit kept back by a firm for its own use
which is not distributed to shareholders or used to pay taxation.
Net exports or the net trade balance - CORRECT ANSWER-Exports minus imports.
Aggregate supply curve - CORRECT ANSWER-The relationship between the
average level of prices in the economy and the level of total output.
Full capacity - CORRECT ANSWER-The level of output where no extra production
can take place in the long run with existing resources. The full capacity level of
output for an economy is shown by the classical long run aggregate supply curve
or the vertical part of a Keynesian aggregate supply curve.
Short-run aggregate supply curve - CORRECT ANSWER-The upward sloping
aggregate supply curve which assumes that money wage rates are fixed.
Supply-side shocks - CORRECT ANSWER-Factors such as changes in wage rates or
commodity prices which cause the short run aggregate supply curve to shift.
Circular flow of income - CORRECT ANSWER-A model of the economy which shows
the flow of goods, services and factors and their payments around the economy.
Closed economy - CORRECT ANSWER-An economy where there is no foreign
trade.
, Income - CORRECT ANSWER-Rent, interest, wages and profits earned from wealth
owned by economic actors.
Injections - CORRECT ANSWER-In the circular flow of income, spending which is
not generated by households including investment, government spending and
exports.
National income - CORRECT ANSWER-The value of the output, expenditure or
income of an economy over a period of time.
Open economy - CORRECT ANSWER-An economy where there is trade with other
countries.
Wealth - CORRECT ANSWER-A stock of assets which can be used to generate a
flow of production or income. For example, physical wealth such as factories and
machines is used to make goods and services.
Withdrawals or leakages - CORRECT ANSWER-In the circular flow of income,
spending by households which does not flow back to domestic firms. It includes
savings, taxes and imports.
Marginal propensity to import (MPM) - CORRECT ANSWER-The increase in
imports divided by the increase in income that caused them (i.e. change in M /
change in Y)
Marginal propensity to save (MPS) - CORRECT ANSWER-The increase in saving
divided by the increase in income that caused it (i.e. change in S / change in Y)
2025\2026
Macroeconomics - CORRECT ANSWER-The study of the economy as a whole,
including inflation, growth and unemployment.
Aggregate demand - CORRECT ANSWER-The total of all demands or expenditures
in the economy at any given price.
Aggregate demand curve - CORRECT ANSWER-Shows the relationship between
the price level and equilibrium national income. As the price level rises the
equilibrium level of national income falls.
Animal spirits - CORRECT ANSWER-Business confidence: the mood of managers
and owners of firms about the future of their industry and the wider economy.
Gross investment - CORRECT ANSWER-The addition to capital stock, both to
replace the existing capital stock which has been used up (depreciation) and the
creation of additional capital.
Investment - CORRECT ANSWER-The addition to the capital stock of the economy.
,Retained profit - CORRECT ANSWER-Profit kept back by a firm for its own use
which is not distributed to shareholders or used to pay taxation.
Net exports or the net trade balance - CORRECT ANSWER-Exports minus imports.
Aggregate supply curve - CORRECT ANSWER-The relationship between the
average level of prices in the economy and the level of total output.
Full capacity - CORRECT ANSWER-The level of output where no extra production
can take place in the long run with existing resources. The full capacity level of
output for an economy is shown by the classical long run aggregate supply curve
or the vertical part of a Keynesian aggregate supply curve.
Short-run aggregate supply curve - CORRECT ANSWER-The upward sloping
aggregate supply curve which assumes that money wage rates are fixed.
Supply-side shocks - CORRECT ANSWER-Factors such as changes in wage rates or
commodity prices which cause the short run aggregate supply curve to shift.
Circular flow of income - CORRECT ANSWER-A model of the economy which shows
the flow of goods, services and factors and their payments around the economy.
Closed economy - CORRECT ANSWER-An economy where there is no foreign
trade.
, Income - CORRECT ANSWER-Rent, interest, wages and profits earned from wealth
owned by economic actors.
Injections - CORRECT ANSWER-In the circular flow of income, spending which is
not generated by households including investment, government spending and
exports.
National income - CORRECT ANSWER-The value of the output, expenditure or
income of an economy over a period of time.
Open economy - CORRECT ANSWER-An economy where there is trade with other
countries.
Wealth - CORRECT ANSWER-A stock of assets which can be used to generate a
flow of production or income. For example, physical wealth such as factories and
machines is used to make goods and services.
Withdrawals or leakages - CORRECT ANSWER-In the circular flow of income,
spending by households which does not flow back to domestic firms. It includes
savings, taxes and imports.
Marginal propensity to import (MPM) - CORRECT ANSWER-The increase in
imports divided by the increase in income that caused them (i.e. change in M /
change in Y)
Marginal propensity to save (MPS) - CORRECT ANSWER-The increase in saving
divided by the increase in income that caused it (i.e. change in S / change in Y)
