AD, AS and circular flow

Which one of the following is most likely to result in an increase in the long-run trend rate of

economic growth?

• An increase in aggregate demand leading to inflationary pressures

• A sustained increase in the value of the pound on the foreign exchange market

• A reduction in taxes which increases risk-taking and incentives to work

• A sustained reduction in both inflation and labour productivity.

Which one of the following is most likely to result in a rightward shift of the short-run aggregate

supply curve?

• A decrease in wage rates

• A decrease in government spending

• An increase in taxation

• An increase in investment expenditure

Which one of the following is most likely to lead to a fall in aggregate investment?

• A reduction in the level of unemployment

• An increase in spare capacity in the economy

• A reduction in the average level of interest rates

• An increase in aggregate demand

All other things being equal, a large increase in an economy’s rate of interest will cause

• both its aggregate demand curve and its short-run aggregate supply curve to shift to the

  right.

• its aggregate demand curve to shift to the right and its short-run aggregate supply curve

  to shift to the left.

• both its aggregate demand curve and its short-run aggregate supply curve to shift to the

  left.

• its aggregate demand curve to shift to the left and its short-run aggregate supply curve to

  shift to the right.

The diagram above shows the aggregate demand (AD), the short-run aggregate supply

(SRAS) and the long-run aggregate supply (LRAS) curves for an economy.

The economy is currently operating at point X. At this point, the economy must be

experiencing

• inflation caused by excess demand.

• inflation caused by increasing costs.

• unemployment of labour.

• a low rate of economic growth.

The diagrams below show aggregate demand (AD) and short-run aggregate supply (SRAS)

curves for an economy. AD1 and SRAS1 represent the initial position of the curves. AD2 and

SRAS2 represent shifts in the position of the curves.

Which one of the following diagrams, A, B, C or D, indicates the effect on the economy of a

general rise in wage costs and a rise in investment?

• A

• B

• C

• D

A negative output gap necessarily means that the economy

• is in recession.

• is suffering from demand-pull inflation.

• is operating inside its production possibility frontier.

• has a productive potential below its current level of Gross Domestic Product (GDP).

Which one of the following is a fundamental determinant of long-run aggregate supply?

• The multiplier

• The output gap

• Real national output

• The institutional structure of the economy

The diagram above shows the aggregate demand (AD) and short-run aggregate supply

(SRAS) curves for an economy. The economy is in equilibrium at point E.

Which one of the following would be likely to lead to a new equilibrium position, with a

fall in the price level?

• A fall in exports

• An increase in government spending

• A fall in productivity

• An increase in wage rates

Foreign companies build new factories in a country to take advantage of cheap labour and cheap land. All other things being equal, the result of this investment for that

country’s economy would be

• a movement along both its aggregate demand curve and long-run aggregate supply

• a movement along its aggregate demand curve and a shift in its long-run aggregate

  supply curve.

• a shift in its aggregate demand curve and a movement along its long-run aggregate

  supply curve.

• a shift in both its aggregate demand curve and long-run aggregate supply curve.