Macroeconomics is a core part of A-Level Economics. Revise the key concepts and common mistakes below, then lock them in with the free games.
Key concepts
Frictional UnemploymentShort-term gap between jobs.
Structural UnemploymentMismatch between skills and jobs available.
Cyclical UnemploymentCaused by downturns in aggregate demand.
CPIConsumer Prices Index - basket of consumer goods.
RPIRetail Prices Index - older UK measure, includes housing.
Demand-Pull InflationInflation driven by excess AD.
Bank RateCentral bank's main policy interest rate.
Quantitative EasingCentral bank purchases of bonds to expand money supply.
Transmission MechanismChannels through which policy affects output and prices.
Inflation TargetStated CPI level the central bank aims.
MPCMonetary Policy Committee - UK rate-setting body.
Liquidity TrapWhen low rates fail to stimulate borrowing.
ADC + I + G + (X - M) - total spending in the economy.
ASTotal output firms supply at each price level.
Common mistakes to avoid
Questions where students often pick the tempting wrong answer — make sure you know the right one:
What is structural unemployment?✗ Structural unemployment is unemployment caused by a recession. ✓ Unemployment caused by a mismatch between workers' skills/location and available jobs — often due to long-term economic change like deindustrialisation.
What is the difference between CPI and RPI as inflation measures?✗ CPI and RPI always give the same inflation figure. ✓ Both measure price changes via a basket of goods, but RPI includes housing costs (mortgage interest) and uses an arithmetic mean; CPI excludes housing costs and uses a geometric mean — CPI is the official UK target measure.
What did the original Phillips curve suggest, and how has thinking changed?✗ The Phillips curve still proves you can always reduce unemployment by allowing more inflation. ✓ The original Phillips curve suggested a stable inverse relationship between unemployment and inflation. Friedman and the 1970s stagflation experience added expectations — the long-run Phillips curve is vertical at the natural rate of unemployment.
What is the difference between monetary and fiscal policy?✗ Monetary policy is about money and fiscal policy is about taxes. ✓ Monetary policy uses interest rates and money supply controlled by the central bank; fiscal policy uses government taxation and spending controlled by the Treasury.
How does quantitative easing actually work?✗ QE is the central bank printing money and handing it to citizens. ✓ The central bank creates reserves to buy financial assets (mostly government bonds) from banks and pension funds, raising asset prices and lowering yields — stimulating spending and lending indirectly. It is not literally printing physical cash for the public.
Practise Macroeconomics — free games
Test yourself with these quick revision games for this topic:
See all 17 games in the Subjects Arcade →
More A-Level Economics topics
← All revision guides
Want to revise every topic this smart?
The Velvet Method teaches you to use AI to revise any subject — £25, lifetime access.
Explore the Course →