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Multiple Choice Questions for AQA AS Economics

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1 Multiple Choice Questions for AQA AS Economics
Click here to Commence quiz UNIT 2 The National Economy 2.2 How the Macroeconomy Works Test 2 © APT Initiatives Ltd

2 Question 1 AQA AS Economics Unit 2 – The National Economy
In the model of the circular flow of income… saving and exports are leakages. Incorrect In the circular flow model, not all income is spent; some leaks from the flow, specifically, saving, imports, and taxes. Similarly, not all spending comes from households; some comes from government, investment, and exports. Only option D identifies these features correctly. taxes and investment are injections. Incorrect leakages equal exports. Incorrect investment and exports are injections. Correct Next question © APT Initiatives Ltd

3 Question 2 AQA AS Economics Unit 2 – The National Economy
A shift of an aggregate demand curve to the left will result in… lower output and a higher price level. Incorrect A shift to the left in aggregate demand will result in movement down the aggregate supply curve, a lower price level, and lower real GDP (ie output). Hence, option B is the correct response. lower output and a lower price level. Correct a higher price level and high real GDP. Incorrect a lower price level and higher output. Incorrect Next question © APT Initiatives Ltd

4 Question 3 AQA AS Economics Unit 2 – The National Economy
Changes in short-run aggregate supply can be caused by changes in… the population. Incorrect The main factors that affect aggregate supply, in the short-run, are related to changes in the cost of production. Hence, option C, which affects the costs of manufacturers in particular, is the correct response. the quality of UK infrastructure. Incorrect raw material prices. Correct net immigration from the EU. Incorrect Next question © APT Initiatives Ltd

5 Question 4 AQA AS Economics Unit 2 – The National Economy
The UK government has been keen to invest in education because it will reduce aggregate demand, and increase economic output.… reduce aggregate demand, and increase economic output. Incorrect By investing in education, the UK government hopes to improve the productive potential of the UK labour force, which in turn will shift the long-run aggregate supply curve to the right, and increase UK economic growth. Hence, option C is the correct response. increase short-run aggregate supply, and reduce the price level. Incorrect lead to a shift to the right in the aggregate supply curve, thereby increasing economic growth. Correct increase economic growth, by increasing government spending. Incorrect Next question © APT Initiatives Ltd

6 Question 5 AQA AS Economics Unit 2 – The National Economy
A demand shock will NOT result in… a change in the price level. Incorrect A demand shock is an unanticipated event that affects aggregate demand, at all price levels, and therefore causes a shift in aggregate demand, and changes in the equilibrium price level and real output. However, a movement along the aggregate demand curve will be caused by a shift in aggregate supply. Hence, option B is correct. a movement along the aggregate demand curve. Correct a shift in the aggregate demand curve. Incorrect a change in real output. Incorrect Next question © APT Initiatives Ltd

7 Question 6 AQA AS Economics Unit 2 – The National Economy
A fall in the productivity of labour in an economy will lead to… a decrease in the price level. Incorrect A fall in the productivity of labour will be reflected in an increase in business costs, which in turn can be illustrated with a leftwards shift in the short-run aggregate supply curve. Hence, option C is the correct response. movement down the aggregate demand curve. Incorrect a leftward shift in the aggregate supply curve. Correct a fall in the rate of growth of the labour force. Incorrect Next question © APT Initiatives Ltd

8 Question 7 AQA AS Economics Unit 2 – The National Economy
Which of the following is most likely to shift the short-run aggregate supply curve to the left? An increase in investment Incorrect A shift to the left in short-run aggregate supply means that businesses need a higher price level to supply the same amount. This may have arisen because of an increase in money wages. Hence, option B is the correct response. A rise in money wages Correct An increase in capital productivity Incorrect An increase in unemployment Incorrect Next question © APT Initiatives Ltd

9 Question 8 AQA AS Economics Unit 2 – The National Economy
The diagram below illustrates the consequences of changes in the conditions of aggregate demand and aggregate supply. Initially, equilibrium is a point E, where SRAS1 intersects with AD1. This economy experiences a 5% reduction in commodity prices, and investment increases by 5%. As a result, equilibrium will… The 5% reduction in commodity prices will reduce business costs and thereby cause a shift downwards in the SRAS curve down from SRAS1 to SRAS2. This is because business will be prepared to supply the same amount of their products at lower market prices. At the same time, a 5% rise in investment will shift the AD curve upwards from AD1 to AD2, because investment is a component of Aggregate Demand. Taking both changes into account, the new equilibrium will be at point C. Hence, A is the correct response. move to point C. Correct Real National Output AD2 AD1 O SRAS1 SRAS2 B C D E Price Level move to point B. Incorrect stay at point E. Incorrect move to point D. Incorrect Next question © APT Initiatives Ltd

10 Question 9 AQA AS Economics Unit 2 – The National Economy
Aggregate demand is defined as… demand for a country’s goods and services over a period of time. Incorrect Aggregate demand is the quantity of goods and services which consumers are willing and able to buy over a period of time and at a given price level. Hence, option B is the correct response. demand for a country’s goods and services over a period of time, at a given price level. Correct demand for a country’s goods and services over a range of price levels, over a period of time. Incorrect none of the above. Incorrect Next question © APT Initiatives Ltd

11 Question 10 AQA AS Economics Unit 2 – The National Economy
As a component of aggregate demand, investment is best defined as total expenditure in the economy by… businesses and government on all goods and services. Incorrect Since aggregate demand comprises consumption + investment + government spending + exports – imports, investment must include all spending by businesses. This includes purchases of stocks as well as fixed capital investment. Hence, option D is the correct response. businesses on all goods and services minus exports. Incorrect businesses on capital goods. Incorrect businesses on all goods and services. Correct Next question © APT Initiatives Ltd

12 Question 11 AQA AS Economics Unit 2 – The National Economy
A fall in the level of investment will most likely be caused by… a fall in the exchange rate. Incorrect The level of investment in an economy will depend on the availability and price of capital funds. Hence, a fall in profits, the most attractive source of funds, is most likely to reduce investment overall. Additionally, a fall in profits will make investment less attractive. Thus, option B is the correct response. a fall in company profits. Correct a rise in consumption. Incorrect a fall in the current account deficit. Incorrect Next question © APT Initiatives Ltd

13 Question 12 AQA AS Economics Unit 2 – The National Economy
The level of saving in an economy is NOT directly determined by… the rate of inflation. Incorrect The rate of saving can be affected by several factors, including options A, B, and D above. The level of government spending has no impact on saving. Hence, option C is the correct response. the age profile of the population. Incorrect the level of government spending. Correct changes in real national income. Incorrect Next question © APT Initiatives Ltd

14 Question 13 AQA AS Economics Unit 2 – The National Economy
Which one of the following is a characteristic of consumption? It determines the level of exports Incorrect The level of consumption is determined by wealth, but, most significantly, is determined by its positive relationship with the level of income available for spending. Hence, option D is the correct response. It is a component of aggregate supply Incorrect Its level is unrelated to the amount of wealth Incorrect Its most important determinant is disposable income Correct Next question © APT Initiatives Ltd

15 Question 14 AQA AS Economics Unit 2 – The National Economy
The level of investment is NOT determined by… the rate of inflation. Incorrect The level of investment reflects the factors featured in options A, B, and C. Although saving (a leakage) may be channelled into bank lending to businesses for investment (an injection), these 2 variables are independently determined. Hence, option D is the correct response. the amount of retained profit held by firms. Incorrect the rate of interest. Incorrect the level of household saving. Correct Next question © APT Initiatives Ltd

16 Question 15 AQA AS Economics Unit 2 – The National Economy
If exports were to increase, but, over the same period, imports were to increase even more, an economist would expect the economy to settle at a new equilibrium where… the price level and real output were lower. Correct The level of exports and imports both affect the level of aggregate demand. If exports were to rise but imports were to rise even more, aggregate demand would fall at all price levels – a shift to the left in the aggregate demand curve. As a result, the price level and real output would be lower at the new equilibrium. Hence, option A is the correct answer. real output was higher and the price level was lower. Incorrect real output and the price level were higher. Incorrect the price level was higher and real output was lower. Incorrect Next question © APT Initiatives Ltd

17 Question 16 AQA AS Economics Unit 2 – The National Economy
The aggregate demand curve slopes downwards because at a higher price level… interest rates tend to be higher, and this in turn reduces demand and therefore the output of businesses making expensive goods. Incorrect The reasons given in options A, B, and C are all valid, thus option D is the correct response. purchasing power is reduced and, therefore, less is bought and, therefore, made. Incorrect foreign goods and services will become relatively cheaper, and there is less demand for UK output. Incorrect all of the above. Correct Next question © APT Initiatives Ltd

18 Question 17 AQA AS Economics Unit 2 – The National Economy
The impact of the multiplier will be smaller when… tax rates are higher. Correct The impact of the multiplier depends on the extent to which there are leakages from the circular flow. When taxes are increased, leakage is greater and, therefore, the multiplier impact is reduced. Hence, option A is the correct response. there is a deflationary gap. Incorrect interest rates are low. Incorrect the economy is closed. Incorrect Next question © APT Initiatives Ltd

19 Question 18 AQA AS Economics Unit 2 – The National Economy
Short-run aggregate supply is defined as the amount producers are willing to supply,… over a range of price levels, over a given period. Incorrect Short-run aggregate supply is defined as the quantity that producers are willing to supply at a given price, over a given period, assuming constant factor costs. Hence, option B is the correct response. at a given price, over a given period, assuming constant factor costs. Correct at a given price, over a given period. Incorrect assuming variable factor costs, over a given period, at a given price. Incorrect Next question © APT Initiatives Ltd

20 Question 19 AQA AS Economics Unit 2 – The National Economy
A short-run supply curve will NOT shift if… the productive capacity of the economy is reduced. Incorrect The short-run aggregate supply curve will not shift unless factor costs, such as wage costs change, or interest rates change. Hence, option B is the correct response. factor costs remain unchanged. Correct interest rates fall. Incorrect the price level increases. Incorrect Next question © APT Initiatives Ltd

21 Question 20 AQA AS Economics Unit 2 – The National Economy
If a government were to increase factor mobility… the long-run aggregate supply curve would shift to the right. Correct By increasing factor mobility, factors are likely to be employed in more productive activity, attracted by higher income. This will result in higher real output in the long-run, which is represented by a rightward shift in long-run aggregate supply ie option A. more would be produced at a higher price level. Incorrect aggregate demand would shift to the right. Incorrect the horizontal section of the aggregate supply curve would shift downwards. Incorrect Next question © APT Initiatives Ltd

22 Question 21 AQA AS Economics Unit 2 – The National Economy
Long-run aggregate supply will increase when there is… an increase in aggregate demand, and an increase in the labour force. Correct Real output will only increase when both the potential for increased output is available (ie an increase in the labour force), but also when aggregate demand is sufficient. Hence, option A is the correct response. a change in real output, and an increase in the labour force. Incorrect an improvement in technology, and a reduction in the labour force. Incorrect a constant price level. Incorrect Next question © APT Initiatives Ltd

23 Question 22 AQA AS Economics Unit 2 – The National Economy
An increase in long-run aggregate supply depends on… an efficient banking system. Correct An efficient banking system ensures that competitively priced investment funds are available to maintain and increase productive capacity. Hence, option A is the correct response. increases in aggregate demand. Incorrect increasing employment. Incorrect emigration being greater than immigration. Incorrect Next question © APT Initiatives Ltd

24 Question 23 AQA AS Economics Unit 2 – The National Economy
A fall in long-run aggregate supply can be caused by… an increase in the price level. Incorrect A fall in long-run aggregate supply can occur if the quality or quantity of a country’s productive resources falls. Net emigration, where more people are leaving a country than are coming into it, means that the quantity of productive labour resources falls, and this will result in a leftward shift in the long-run aggregate supply curve. Hence, option C is the correct response. a slowdown in the rate of growth. Incorrect an increase in net emigration. Correct all of the above. Incorrect Next question © APT Initiatives Ltd

25 Question 24 AQA AS Economics Unit 2 – The National Economy
An increase in government spending on education will lead in the long-run to… An increase in education spending will have an immediate impact on aggregate demand and lead to a higher price level, but a more educated workforce can be expected to be more productive and efficient, reducing short-run aggregate supply. This will allow long-run equilibrium to settle at a higher level of output. However, the impact on the price level cannot be predicted because it depends on the relative strength of the increase in aggregate demand, and the later reduction in short-run aggregate supply. Hence, option D is the correct response. an increase in aggregate demand , but no change to aggregate supply. Incorrect an unpredictable impact on aggregate demand, and an unpredictable impact on aggregate supply. Incorrect a lower price level and an increase in aggregate demand. Incorrect higher output but an unpredictable impact on the price level. Correct Next question © APT Initiatives Ltd

26 Quiz Completed Question 25
AQA AS Economics Unit 2 – The National Economy Quiz Completed Question 25 Refer to the diagram below. An increase in aggregate demand from AD1 to AD2 will mean that… A shift in aggregate demand to AD2 means that this economy is in equilibrium at the point of full capacity. Output and, therefore, employment will have increased, as will the price level. Hence, option C is the correct response. employment will increase, and aggregate supply will become more elastic. Incorrect Price Level O Real Output Y2 LRAS AD2 AD1 output, unemployment, and the price level will increase. Incorrect there will be an increase in the price level, employment, and real output. Correct neither output nor employment can increase beyond Y2. Incorrect Exit © APT Initiatives Ltd


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