4/16/2021 AD/AS - self-test questions

Macroeconomics

Table of Contents AD/AS - self-test questions

A. Topic pack - Macroeconomics
- introduction
B. 2.1 The level of overall
economic activity (notes)
C. 2.1 The level of overall
economic activity
(questions) Shifts in aggregate demand
D. Section 2.2 Aggregate
demand and supply (notes)
1 Which of the following would NOT cause a shift in AD?
E. Section 2.2 Aggregate
demand and supply
(simulations and activities) a) A reduction in income tax
F. 2.2 Aggregate Demand and b) A reduction in interest rates
Aggregate Supply
c) An increase in government spending
(questions)
1. AD/AS - self-test d) A fall in the cost of production
questions
Yes, that's correct. Well done. This would not shift the
2. Short questions aggregate demand curve, but would shift the aggregate
3. Data response (1) supply curve.
4. Data response (2)
5. Long questions
G. 2.3 Macroeconomic
objectives (notes)
H. Low Unemployment
I. 2.3 Macroeconomic
objectives (questions)
J. 2.4 Fiscal policy (notes) Shifts in aggregate demand
K. 2.4 Fiscal policy (questions) 2
Choose appropriate phrases from the drop down boxes below to
L. 2.5 Monetary policy (notes)
complete the explanation of shifts of an aggregate demand
M. 2.5 Monetary Policy curve and movements along aggregate demand curves.
(questions)
N. Section 2.6 Supply-side When the price level in the economy changes there will a
policies (notes) movement along the aggregate demand curve. If the price
O. 2.6 Supply-side policies level increases, there will be a movement upwards and to the
(questions) left on the aggregate demand curve. If there is a decrease in
P. Print View the price level, then there will be a movement downwards to
the right. However, if factors other than the price level change
then the whole aggregate demand curve will shift, either to the
right or to the left. For example, if there is a reduction in
income tax, then the aggregate demand curve will shift to the
right . If, however, the rate of income tax
increases, then the demand curve will shift to the
left .

You got 3 right out of 3.

textbook.stpauls.br/Macroeconomics/page_69.htm 1/8
4/16/2021 AD/AS - self-test questions

Shifts in aggregate supply

3 Which of the following would NOT cause a SHIFT in AS?

a) The level of government spending

b) The costs of the factors of production
c) Incentives
d) The structure of the economy
Yes, that's correct. Well done. This would not cause a shift
in the aggregate supply curve.

Shifts in aggregate supply

4
If the price of imports rose, caused by a change in the value of
the pound then the AS would shift to the:

a) right
b) left
c) vertically
d) not at all
Yes, that's correct. Well done. The aggregate supply curve
would shift to the left. The price of imports has risen and
this would raise firm's costs making them less willing to
supply.

Shifts in aggregate supply

5 Which of the following might have caused the shift in aggregate
supply shown in the diagram below? Tick all the answers that
apply.

textbook.stpauls.br/Macroeconomics/page_69.htm 2/8
4/16/2021 AD/AS - self-test questions

a) An improvement in technology
b) A depreciation of the exchange rate
c) An increase in costs
d) A reduction in government expenditure
e) A cut in income tax
f) An increase in wage levels

a) No, you have not chosen the correct option. An

improvement in technology will shift the aggregate supply
curve to the right.
b) No, you have not chosen the correct option. A
depreciation of the exchange rate will increase import
prices and so raise firm's costs.
c) No, you have not chosen the correct option. An increase
in costs will shift the aggregate supply curve to the right.
d) Yes, you have chosen the correct option. A reduction in
government expenditure will affect aggregate demand.
e) Yes, you have chosen the correct option. A cut in
income tax will affect aggregate demand.
f) No, you have not chosen the correct option. An increase
in wage levels will increase firm's costs and therefore shift
the aggregate supply curve to the left.

Determinants of exports
6 A key determinant of exports is:

a) The industrial base of the economy

b) The number of people in work
c) The political beliefs of the government
d) The role of the central bank
Yes, that's correct. Well done. We need to have an
efficient business sector to make the products others want
to buy.

textbook.stpauls.br/Macroeconomics/page_69.htm 3/8
4/16/2021 AD/AS - self-test questions

Shifts in aggregate supply and demand

7 Which of the following would cause the shift shown in the
diagram below? Tick all the answers that apply.

a) The government increase interest rates

b) The Chancellor increases tax-free allowances in his
budget
c) The rate of value-added tax is increased
d) Controls on the level of bank lending are relaxed
e) The government allows tax relief on R&D spending
f) The rate if income tax is reduced

a) Yes, you have chosen the correct option. An increase in

interest rates will reduce aggregate demand and shift the
curve to the left.
b) Yes, you have chosen the correct option. An increase in
tax-free allowances will boost disposable income and shift
aggregate demand to the right.
c) No, you have not chosen the correct option. If the rate
of VAT is increased this will reduce aggregate demand and
shift the curve to the left.
d) Yes, you have chosen the correct option. Relaxing
lending controls will boost aggregate demand and shift the
curve to the right.
e) Yes, you have chosen the correct option. This is a
supply-side policy and so will shift the aggregate supply
curve.
f) Yes, you have chosen the correct option. A reduction in
income tax will boost aggregate demand and shift the
curve to the right.

textbook.stpauls.br/Macroeconomics/page_69.htm 4/8
4/16/2021 AD/AS - self-test questions

AD/AS analysis
8 When using AD/AS analysis to illustrate changes within an
economy, which of the following would NOT need to be
considered when looking at changes to economic growth?

a) Increased labour productivity

b) More efficient use of the capital stock
c) Increased availability of social capital
d) Developing a more efficient capital and finance sector
Yes, that's correct. Well done. This might result from
greater economic growth but it is not one of its main
causes. Other factors affecting economic growth could
include the application of new technology and the creation
of a more efficient infrastructure and utilities sector.

Aggregate supply
9
Which of the following is a major influence on AS?

a) Consumption
b) Government spending
c) The quality of the factors available
d) The advice of government
Yes, that's correct. Well done. The quality of the factors of
production is a key determinant of the level of aggregate
supply.

Shifts in aggregate supply

10 Choose appropriate phrases from the drop down boxes below
to complete the explanation of an aggregate supply curve.

The short run AS curve slopes upwards . In the

short run , firms respond to price increases by
supplying more goods but in the long run supply may
not always respond to an increase in price levels. In the short
run changes like a reduction in profits tax will shift the
aggregate supply curve to the left whereas a

textbook.stpauls.br/Macroeconomics/page_69.htm 5/8
4/16/2021 AD/AS - self-test questions

reduction in wage costs would shift the aggregate supply

curve to the right .

You got 5 right out of 5.

Shifts in aggregate supply and demand

11 An increase in aggregate demand (given no change in
aggregate supply) will cause higher inflation.

a) True
b) False
Yes, that's correct. The statement is true. Higher
aggregate demand will shift the aggregate demand to
the right and cause the equilibrium price level to rise
(inflation).

Shifts in aggregate supply and demand

12 An increase in costs will make the aggregate supply curve
more inelastic.

a) True
b) False
Yes, that's correct. The statement is false. An increase
in costs will shift the supply curve to the left, but will
not change the elasticity.

Shifts in aggregate supply and demand

13 The less responsive is AS to a rise in AD, the more prices will
rise for a given increase in AD.

a) True
b) False
Yes, that's correct. The statement is true. Try rotating
textbook.stpauls.br/Macroeconomics/page_69.htm 6/8
4/16/2021 AD/AS - self-test questions

the AS curve and then drag the AD curve and see the
impact on the equilibrium price level.

Shifts in aggregate supply and demand

14
An increase in expenditure tax will shift both the aggregate
demand and supply curves to the left.

a) True
b) False
Yes, that's correct. The statement is true. An increase in
expenditure tax will reduce consumption (shifting
aggregate demand to the left) and will also represent
an increase in costs (shifting aggregate supply to the
left as well).

Shifts in aggregate supply and demand

15 An improvement in productivity will shift both the aggregate
demand and supply curves to the right.

a) True
b) False
Yes, that's correct. The statement is false. An
improvement in productivity will mean that firms are
more efficient (shifting aggregate supply to the right),
but it will not shift aggregate demand. There will simply
be a 'move along' the aggregate demand curve, not a
shift.

Increase in AD
16 Which of the following is likely to result from a rapid rise in
aggregate demand?

a) Increased unemployment

textbook.stpauls.br/Macroeconomics/page_69.htm 7/8
4/16/2021 AD/AS - self-test questions

b) Static living standards

c) Rising prices
d) Surplus on the balance of payments
Yes, this is likely. A rapid rise in AD is likely to cause
demand-pull inflation.

Redesigned by RCB

textbook.stpauls.br/Macroeconomics/page_69.htm 8/8