AQA A-Level Economics (7136) · The National & International Economy
Specification points
- Inflation and deflation; measurement (CPI) and causes.
- Employment and unemployment; measurement and types.
- The balance of payments on the current account.
Inflation
Inflation is a sustained rise in the general price level; deflation a fall; disinflation a fall in the rate. It is measured by the CPI (a weighted basket). Causes are demand-pull (excess AD) and cost-push (rising costs). Effects include falling real incomes, lost savings value, uncertainty and reduced competitiveness.
Employment and unemployment
Measured by the Claimant Count and ILO/Labour Force Survey. Types:
- Cyclical (demand-deficient) — from recession.
- Structural — declining industries and skills mismatch.
- Frictional — between jobs.
- Seasonal and real-wage unemployment.
High unemployment means lost output, lower tax revenue and higher benefit spending.
Key definitions
| Term | Definition |
|---|---|
| CPI | Consumer Price Index — a weighted measure of average prices. |
| Structural unemployment | Unemployment from a mismatch of skills or location. |
| Current account | Trade in goods and services plus income and transfers. |
The balance of payments
The current account records trade in goods and services, income and transfers. A persistent deficit (imports > exports) may signal uncompetitiveness, though it can reflect strong growth or investment.
Worked example
A sharp rise in world energy prices raises firms' costs, causing cost-push inflation. Real incomes fall, exports become less competitive (widening the current-account deficit), and the central bank may raise interest rates to bring inflation back to target.
Common exam mistakes
- Confusing demand-pull and cost-push inflation.
- Mismatching the type of unemployment to its cause.
- Assuming a current-account deficit is always harmful.
Exam technique
Identify the cause of inflation/unemployment from the context, explain the effects on stakeholders, and link to suitable policy (Ch9).
Quick revision
- Inflation measured by CPI; demand-pull vs cost-push.
- Unemployment: cyclical, structural, frictional, seasonal.
- Current account: goods, services, income, transfers.