Lesson 4.2.3.1

4.2.3.1 Economic growth and the economic cycle Quiz: AQA Economics, Unit 2

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

In partnership with Revision Ninja

Lesson 4.2.3.1, Economic growth and the economic cycle: 20 multiple choice questions for the AQA Economics (7136), Unit 2: The national and international economy, written with Revision Ninja.

Host it live on the board and students join with a game code on their own devices, or revise alone with Free Play. The answers are revealed in the game.

Host this setFree Play

The 20 questions

  1. What is the difference between short-run and long-run economic growth?

    • Short-run growth is a rise in real output from demand or supply changes, while long-run growth is a rise in productive capacity
    • Short-run growth is only measured in nominal terms, while long-run growth is only measured in real terms
    • Short-run growth is always caused by rising prices, while long-run growth is caused by falling prices and lower rates
    • Short-run growth lasts a decade, while long-run growth lasts a single quarter

  2. What does a positive output gap indicate?

    • Investment exceeds saving by a fixed amount
    • Real GDP is below the productive potential of the economy
    • Inflation is zero and unemployment is at its natural rate
    • Real GDP is above the productive potential of the economy

  3. Which phase of the economic cycle is typically marked by falling real GDP and rising unemployment?

    • Trough growth
    • Recession
    • Recovery
    • Boom

  4. What does a negative output gap indicate?

    • The economy is at its natural rate of unemployment
    • Potential output is rising faster than actual output
    • Real GDP is above the productive potential of the economy
    • Real GDP is below the productive potential of the economy

  5. Which of the following is a cause of cyclical instability in an economy?

    • Balanced government budgets over the cycle
    • A stable and predictable exchange rate
    • A steady rise in the number of high-skilled workers
    • Excessive growth in credit and levels of debt

  6. Which of the following is a cost of economic growth?

    • Higher real incomes for households, which always raise the quality of the environment and reduce the level of pollution
    • Greater access to healthcare and education
    • Environmental damage and pollution from increased production
    • Lower unemployment as more people find jobs

  7. What is meant by the trend rate of economic growth?

    • The average long-run rate of growth of real national output, reflecting the economy's productive capacity over time
    • The rate of growth of nominal GDP in a single year
    • The rate at which the price level changes each year, measured by the consumer prices index, and used to set the bank rate
    • The rate of change of the exchange rate over the cycle

  8. Real GDP is 1200 billion pounds and productive potential is 1100 billion pounds. What is the output gap as a percentage of potential output?

    • Plus 8.3 per cent
    • Minus 9.1 per cent
    • Plus 12.0 per cent
    • Plus 9.1 per cent

  9. Real GDP rises from 1000 billion pounds to 1030 billion pounds in one year. What is the percentage growth rate?

    • 2.9 per cent
    • 30 per cent
    • 1.5 per cent
    • 3 per cent

  10. Rapid growth in bank lending and rising house prices are followed by a sharp fall in asset prices and a downturn. Which cause of cyclical instability does this best illustrate?

    • An asset price bubble fuelled by excessive credit growth
    • A rise in the price of imported raw materials
    • A decline in the number of firms in the economy, which reduces the level of competition and raises the cost of borrowing for households
    • A fall in the rate of corporation tax

  11. Unemployment is rising, business investment is falling and real GDP has fallen for several quarters. Which phase of the economic cycle does this best describe?

    • Recovery
    • Inflationary peak
    • Recession
    • Boom

  12. A global rise in oil prices raises firms' costs. What is the most likely effect on the output gap and real GDP?

    • LRAS shifts right, so the output gap becomes more positive
    • SRAS shifts left, so real GDP falls and a negative output gap is likely
    • SRAS shifts right, so real GDP falls and a positive output gap is likely
    • AD shifts left, so real GDP rises and a positive output gap is likely

  13. Government spending rises sharply and firms' confidence is high, while inflation rises. Which phase of the cycle is most likely?

    • Boom
    • Recession
    • Trough
    • Negative output gap recession

  14. A country invests heavily in education and new technology, raising its productive capacity. What is most likely to happen to the economy's long-run growth?

    • Real GDP falls in the long run because higher productivity reduces the number of workers needed by firms to produce output
    • The economy moves to a recession automatically
    • The trend rate of growth is likely to rise, as potential output increases over time
    • The output gap becomes permanently negative

  15. Which of the following best describes why economic growth may be argued to be unsustainable?

    • Growth raises unemployment permanently for all workers
    • Growth always leads to falling prices, which harms firms and reduces the level of investment, so the economy shrinks each year
    • Growth always reduces incomes for households in the long run
    • Growth can use up natural resources and raise pollution, damaging the environment for future generations

  16. Does economic growth always improve the well-being of individuals?

    • No, growth always reduces incomes for every household
    • No, growth can bring higher incomes but also inequality, congestion and pollution that reduce well-being for some
    • Yes, growth removes the need for any government intervention, because rising incomes reduce every social and economic problem
    • Yes, growth always raises well-being equally for all individuals

  17. Why do animal spirits, herding and destabilising speculation contribute to cyclical instability?

    • They raise the productive capacity of the economy, so output gaps vanish
    • They reduce the level of investment, so the economy stays on its trend
    • They can drive investors to over-invest or sell together, creating booms and busts in demand
    • They always keep demand stable by balancing the actions of investors, which removes the need for any policy to smooth the cycle

  18. An economy has a negative output gap of 5 per cent of potential output, with inflation below target. What policy direction is most consistent with closing the gap?

    • Contractionary demand-side policy to reduce aggregate demand
    • A fall in the money supply to reduce inflation
    • A rise in the exchange rate to reduce import prices
    • Expansionary demand-side policy to raise aggregate demand

  19. Actual growth of real output is 2 per cent a year while potential output grows by 3 per cent a year. What happens to a zero output gap at the start of the period?

    • The output gap becomes increasingly negative
    • The output gap becomes increasingly positive
    • The output gap stays at zero
    • The economy moves to a long-run equilibrium with full employment

  20. Why might a sustained positive output gap be difficult to maintain?

    • Interest rates always fall when real GDP is above potential
    • Output always falls when prices rise, so the gap closes automatically, which means the economy never needs any policy response
    • Demand exceeds the economy's productive capacity, creating inflationary pressure and shortages of labour and resources
    • Demand falls below capacity, so firms have too many unsold goods

All AQA Economics quizzes