hello AQA and OCR students we know how important equations and formula are for multiple choice questions this video will push you to the max with some of the hardest questions that have been really on equations and formula make sure imperatively that you've watched my formula equations and conditions videos for micro and macro so important the assumption is you know all of that for this video but let's Dive Right In looking first at a multiplier question so a Nifty little multiplier question here there are two equations you might need for multiply questions here they are we get these from my key formula equations and conditions video so to work out the multiplier it's one over one minus the marginal propensity to consume don't forget the one minus at the bottom there and then the change in Asal income uh is just whatever the initial injection was multiplied by the multiplier so now this question is saying that there was a 2 billion pound rise in government spending so that is the initial injection always good to underline and to annotate write things down keep your mind simple so that you're not going to make silly errors so that2 billion P increase in government spending has led to A5 billion P increase in national income so that's the final change in national income the question is saying uh all other things being equal what's the value of the MPC that's what we need to work out underline the key parts of the question therefore right so given all this information let's work out the value of the NPC so we know that the change national income uh was £5 billion from an initial injection of2 billion so to work out the value the multiply just rearrange the equation to get X I'm just calling X the value of the multiplier so it's going to be 5 / 2 to get X which is 2.5 so that's the value of the multiplier so go to the equation at the top 2.5 which is the multiplier is equal to 1 / 1us the MPC let's just call that x 1 minus the MPC is X X right not the NPC itself one minus rearrange to get X so 1 over 2.5 you you are allowed to use calculators so use your calculator to work that out and that is 0.4 so 1 minus the MPC is 0.4 so to get 0.4 the MPC must be 0.6 right 1 minus 0.6 is then 0.4 and that takes you to B as the correct answer those equations are crucial easy peasy when you know the equations but do you know how useful index numbers can be have a look at these next two questions to guide this question will show you just how useful index numbers can be let's read the question first so an economy is operating at its long run productive capacity at the start of 2020 so the economy is operating at YF annotate write down things that are going to help you it has a trend rate of growth of 6% per year that is its potential growth Trend growth is potential growth it's its real GDP is increasing by 2% in 2021 and 10% in 2022 that's very important information that is actual growth the question is then asking which one of the following accurately describes the position of the economy at the end of each year so the question is all about output gaps let's go to some background make sure we remember what an output Gap is so a negative output Gap is when actual growth is less than potential growth a positive output Gap when actual growth is greater than potential growth so in 2020 both would equal right actual growth was at potential growth uh the economy was at yfe uh we need to work out what actual growth was in 2021 and in 2022 compared to what potential growth was in 2021 and in 2022 we only have percentage changes so index numbers are very very useful now so just call both actual and potential growth 100 in 2020 that's our kind of Base year we can always choose our base year so always just whatever year you're starting from just call it a 100 and work from there with percentage changes so let's start with potential growth we're calling it 100 in 2020 so in 2021 6% more from 100 is 106 what about in 2022 6% more from 106 is what we need to work out right so it's 106 multiplied by 1.06 that's how we work out percentage increases uh you're allowed to use a calculator so work that out that will give you 112. 36 do the same for actual growth we're calling it 100 in 2020 in 2021 it's 2% more so that's 102 and then in 2022 it's 10% more but 10% more from the 2021 figure so we need to multiply 102 by 1.1 if you do that with your calculator you get 112. two so there we have it potential growth and actual growth figures from here we can then work out output gaps we can see in 2021 out actual growth was much less than potential growth that's a negative output Gap but even in 2022 just actual growth is less than potential growth a negative output Gap so the answer is a god index numbers is so helpful and you'll see even for this question now so now we have a table that contains rates of growth of nominal and real GDP as well as the rate of inflation in a given year the question is saying which one of the following combinations is the correct relationship the correct relationship between the three variables okay so the equation we need for this is the real GDP equation again get that from my formula equations and conditions video we should all know this equation by now real GDP is nominal GDP divided by a price index multiplied by 100 so we need to use that equation and to see you know which combination is correct here but we've got percentage changes so that's where index can come in handy whatever the year was before just call that the Bas here everything was 100 at that point work from there in this year and use the equation to guide you so take um a we have nominal GDP growth of minus 2% so nominal GDP from 100 the year prior minus 2% is going to make that 98 divide by the price index the rate of inflation plus 2% so call that 102 from 100 the year before Times by 100 uh you are allowed to use a calculator work that out plunk it in and you'll get a figure of around 96 so that's real GDP growth therefore of minus 4% uh here it saying 0% clearly wrong do the same for B so nominal GDP growth of 4% that's going to be 104 from 100 the year before deflation of minus one so that's 99 at the bottom Times by 100 um again use your calculator you'll get uh approximately 1005 so that's real GDP growth of 5% it's saying 3% so that's wrong the next one 5% growth of the nominal GDP is5 uh inflation 1% is 101 times that by you'll see in your calculator it's around 104 so that's 4% real GDP growth here it says five so that's wrong so must be but just confirm that so nominal GDP has shrunk by 5% so that's 95 divided by deflation of minus 3 so divide by 97 Times by 100 you get an answer which is pretty much 98 and that is a 2% shrinking of real GDP which is exactly what D says so D is correct see how important index numbers are when you're working with percentage changes that tip of how to use index numbers is unbelievably helpful for what are very tough multiple choice questions I hope you enjoyed that and took lots in let's finish strong with how to do comparative advantage questions well so we're told at the top what we can already see we've got two countries that can make coffee or tea uh and with the same resources this is the output they can make we need to work out which one of the statements below is supported which one is supported which one is true okay important that we highlight key parts of the question we're looking for a true statement this question is all about absolute and comparative advantage let's make sure our background is solid so absolute Advantage is just who can produce more with a given amount of resources so here both countries have the same resources country X can produce more coffee and tea so they have the absolute advantage in both coffee and tea production but to work out comparative advantage we need to work out which country has got the lowest opportunity cost so my device whenever you're working out comparator Advantage from a table of data like this write your own table on the side so again you have the same two countries country X and Country y but instead of coffee and tea write down one coffee specifically here one ton of coffee and one tea again one ton of tea and then in the in the celles you're going to be working out the opportunity cost of each country producing one ton of coffee and one ton of tea once you've worked that out whoever whoever's got the lowest opportunity cost will have the comparative advantage so let's do that for each country let's take Cofe first so for Country X to make one ton of coffee how much tea are they giving up what's their opportunity cost well to get one ton of coffee for Country X you divided by 80,000 right so you're working at a ratio you do the same for the other side so divide 100,000 by 80 and you get 1.25 tons of tea is what kind country X is giving up when they make one ton of coffee do the same for Country y right so for Country y to make one ton of coffee well you divided by 50,000 to get one ton of coffee for Country y do the same to the other side so 75,000 divided 50 that's 1.5 so 1.5 tons of tea is the opportunity cost for country whyde to make one ton of coffee so what we can see here is that clearly country X has got the comparative advantage they're giving up less te to produce one ton of coffee do the same for tea production for Country X to make one ton of tea we divide it by 100,000 to get one ton of tea do the same to the other side 80 ided 100,000 is 0.8 tons of coffee that's being given up and for Country y to get one ton of tea divided by 75,000 do the same to the other side 50 divided by 75,000 is 2/3 0.67 tons of coffee given up by Countrywide to produce one ton of tea who's got the comparative advantage who's giving up the least coffee it's country why here from this you can then work out what the correct answer is so what does a say a says that country X has the comparative advantage in the production of both coffee and tea no they have it with coffee not with tea so a is wrong what's B saying B is saying that country X has the comparative advantage in the production of coffee that's correct and the absolute advantage in the production of tea that's also correct they can produce more tea with the same resources so B is clearly correct but confirm with c and d c is saying the opportunity cost of producing both coffee and tea is higher in country X than in country y well it's higher for tea that is correct but it's not higher for coffee so C is wrong for that reason and D is saying the opportunity cost of producing te in country X is lower than it is for Country why know it's higher so D is wrong as well so that table of data crucial so there you have it guys some tough equation based questions there hopefully now you're okay with those you can smash similar questions if you see them in your paper 3 but again make sure you've watched my formula conditions and equations videos for micro macro as well as all the other multiple choice questions videos on the channel we want to be super sharp to smash these gifts from the economics Gods when they come up in your paper 3 they're lovely questions let's do great together use the channel to guide thank you so much for watching this video can't wait to see you in future ones