Edexcel A-level Economics Paper 2
ACTUAL EXAM LATEST UPDATE 2026
TEST COMPREHENSIVE QUESTIONS AND
VERIFIED ANSWERS (DETAILED &
ELABORATED)
Macroeconomics -CORRECTANSWER The study of the economy as a whole, including
inflation, growth and unemployment.
Aggregate demand -CORRECTANSWER The total of all demands or expenditures in
the economy at any given price.
Aggregate demand curve -CORRECTANSWER 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 -CORRECTANSWER Business confidence: the mood of managers and
owners of firms about the future of their industry and the wider economy.
Gross investment -CORRECTANSWER 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 -CORRECTANSWER The addition to the capital stock of the economy.
Retained profit -CORRECTANSWER 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 -CORRECTANSWER Exports minus imports.
Aggregate supply curve -CORRECTANSWER The relationship between the average
level of prices in the economy and the level of total output.
Full capacity -CORRECTANSWER 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 -CORRECTANSWER The upward sloping aggregate
supply curve which assumes that money wage rates are fixed.
Supply-side shocks -CORRECTANSWER Factors such as changes in wage rates or
commodity prices which cause the short run aggregate supply curve to shift.
Circular flow of income -CORRECTANSWER A model of the economy which shows the
flow of goods, services and factors and their payments around the economy.
,Closed economy -CORRECTANSWER An economy where there is no foreign trade.
Income -CORRECTANSWER Rent, interest, wages and profits earned from wealth
owned by economic actors.
Injections -CORRECTANSWER In the circular flow of income, spending which is not
generated by households including investment, government spending and exports.
National income -CORRECTANSWER The value of the output, expenditure or income
of an economy over a period of time.
Open economy -CORRECTANSWER An economy where there is trade with other
countries.
Wealth -CORRECTANSWER 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 -CORRECTANSWER 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) -CORRECTANSWER 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) -CORRECTANSWER The increase in saving
divided by the increase in income that caused it (i.e. change in S / change in Y)
Marginal propensity to tax (MPT) -CORRECTANSWER The increase in tax revenues
divided by the increase in income that caused them (i.e. change in T / change in Y)
Marginal propensity to withdraw (MPW) -CORRECTANSWER The increase in
withdrawals from the circular flow (S + T + M) divided by the increase in income that
caused them (i.e. change in W / change in Y); this is the same as the sum of the
marginal propensity to save, tax and import (MPS + MPT + MPM).
Multiplier or national income multiplier or Keynesian multiplier or real multiplier -
CORRECTANSWER The figure used to multiply a change in an injection into the
circular flow, such as investment, to find the final change in income (assuming the
injection is not determined by income). It is the ratio of the final change in income to the
initial change in an injection. It can be calculated as
1
________
1 - MPC
ACTUAL EXAM LATEST UPDATE 2026
TEST COMPREHENSIVE QUESTIONS AND
VERIFIED ANSWERS (DETAILED &
ELABORATED)
Macroeconomics -CORRECTANSWER The study of the economy as a whole, including
inflation, growth and unemployment.
Aggregate demand -CORRECTANSWER The total of all demands or expenditures in
the economy at any given price.
Aggregate demand curve -CORRECTANSWER 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 -CORRECTANSWER Business confidence: the mood of managers and
owners of firms about the future of their industry and the wider economy.
Gross investment -CORRECTANSWER 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 -CORRECTANSWER The addition to the capital stock of the economy.
Retained profit -CORRECTANSWER 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 -CORRECTANSWER Exports minus imports.
Aggregate supply curve -CORRECTANSWER The relationship between the average
level of prices in the economy and the level of total output.
Full capacity -CORRECTANSWER 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 -CORRECTANSWER The upward sloping aggregate
supply curve which assumes that money wage rates are fixed.
Supply-side shocks -CORRECTANSWER Factors such as changes in wage rates or
commodity prices which cause the short run aggregate supply curve to shift.
Circular flow of income -CORRECTANSWER A model of the economy which shows the
flow of goods, services and factors and their payments around the economy.
,Closed economy -CORRECTANSWER An economy where there is no foreign trade.
Income -CORRECTANSWER Rent, interest, wages and profits earned from wealth
owned by economic actors.
Injections -CORRECTANSWER In the circular flow of income, spending which is not
generated by households including investment, government spending and exports.
National income -CORRECTANSWER The value of the output, expenditure or income
of an economy over a period of time.
Open economy -CORRECTANSWER An economy where there is trade with other
countries.
Wealth -CORRECTANSWER 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 -CORRECTANSWER 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) -CORRECTANSWER 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) -CORRECTANSWER The increase in saving
divided by the increase in income that caused it (i.e. change in S / change in Y)
Marginal propensity to tax (MPT) -CORRECTANSWER The increase in tax revenues
divided by the increase in income that caused them (i.e. change in T / change in Y)
Marginal propensity to withdraw (MPW) -CORRECTANSWER The increase in
withdrawals from the circular flow (S + T + M) divided by the increase in income that
caused them (i.e. change in W / change in Y); this is the same as the sum of the
marginal propensity to save, tax and import (MPS + MPT + MPM).
Multiplier or national income multiplier or Keynesian multiplier or real multiplier -
CORRECTANSWER The figure used to multiply a change in an injection into the
circular flow, such as investment, to find the final change in income (assuming the
injection is not determined by income). It is the ratio of the final change in income to the
initial change in an injection. It can be calculated as
1
________
1 - MPC
