AS Economics: Aggregate Demand and Supply (AD-AS) Test 1

Which one of the following would cause AD to fall?
1. A decrease in unemployment
2. A fall in the demand for imported goods and services
3. A fall in government expenditure on defence and transport
4. A rise in productivity
If the aggregate supply curve is perfectly inelastic, an increase in AD will lead to an increase in
1. The price level
2. Real national output
3. Economic growth
4. Employment
Which one of the following is likely to decrease aggregate supply in the economy?
1. Improvements in technology
2. Increased occupational and geographical labour mobility
3. A rise in the price of raw materials and components
4. A reduction in the rate of corporation tax and income tax
Which one of the following would cause a rightward shift in the long run aggregate supply curve? An increase in
1. The amount of cash in circulation
2. The productivity of labour and capital
3. Inflation
4. The volume of goods exported
The leftward shift in the curve from AD to AD2 might have been caused by
1. A fall in interest rates
2. A fall in capital investment spending by UK businesses
3. A fall in the cost of raw materials and components
4. A fall in the exchange rate
The change in equilibrium national output shown in the diagram above would be likely to lead to
1. A rising level of employment
2. A rise level of government tax revenue
3. A fall in the rate of unemployment
4. A fall in the level of real national income per head of population
The diagram above shows the AD and supply curves for an economy
The movement of the economy from equilibrium at Y1 to equilibrium at Y2 could be caused by an increase in
1. Inflation
2. Interest rates
3. The rate of inflation
4. The level of government spending
A rise in the general level of interest rates is most likely to cause a fall in
1. The household savings ratio
2. The level of capital investment spending
3. The level of unemployment
4. The exchange rate
Macro-economic disequilibrium exists when
1. Aggregate output is not equal to aggregate real income
2. Aggregate supply is not equal to aggregate demand
3. Aggregate exports are not equal to aggregate imports
4. Government expenditure is not equal to tax revenue
The position of the long run aggregate supply curve depends upon
1. The size of the budget deficit
2. The rate of inflation
3. The current rate of unemployment
4. The level of labour and capital productivity
Investment may be defined as
1. Spending on goods and services by consumers
2. That part of household spending which is not spent on consumption
3. Any addition to the capital stock of an economy
4. All types of spending by the government
The diagram below shows the long run aggregate supply curve and AD curves for a country over a period of time

The main cause of the shift in the long run aggregate supply curve from LRAS1 to LRAS2 might have been
1. A fall in the exchange rate leading to a higher level of exports of goods and services
2. An improvement in the rate of growth of productivity and technological progress in the economy
3. A decision by the government to increase spending on welfare benefits and run a larger budget deficit
4. A fall in interest rates leading to a boom in house prices and consumer confidence
The diagram below shows short run AD and AS curves for an economy

The shift in the SRAS curve shown in the diagram might have been caused by
1. A fall in the cost of imported components and raw materials
2. A sharp rise in the world price of oil and other commodities
3. An increase in interest rates
4. An increase in business confidence leading to higher levels of planned capital investment
A rise in the general level of interest rates is most likely to cause a fall in
1. the savings ratio
2. the level of planned capital investment
3. the rate of unemployment
4. the exchange rate
Which one of the following is a component of aggregate demand?
1. Tax revenues
2. Savings
3. The money supply
4. Household (consumer) spending
Supply-side economic policies are generally understood to be policies which
1. enable the government to supply as many goods and services as possible
2. reduce the labour supply in order to reduce the problem of unemployment
3. reduce inflation by reducing the supply of credit
4. help to create economic incentives and reduce market imperfections
Which one of the following is likely to result in a rightward shift of the short run aggregate supply curve?
1. A decrease in wage rates
2. A decrease in government spending
3. An increase in indirect taxation on producers
4. An increase in planned capital investment spending by businesses
The increase in aggregate demand from AD2 to AD3 shown in the diagram is likely to lead to
1. A fall in the rate of inflation and rising unemployment
2. A rise in real national output and an acceleration in the rate of inflation
3. An increase in the government budget deficit
4. A fall in prices and a fall in unemployment
Which one of the following is most likely to cause a fall in aggregate consumer spending?
1. An increase in house prices
2. A reduction in the real rate of interest
3. A rise in real national income
4. A large reduction in income tax allowances
Which one of the following is most likely to decrease the level of aggregate demand?
1. Expectations that the government will cut income tax
2. Expectations that the Bank of England will cut interest rates
3. A fall in consumer and business confidence
4. A fall in the exchange rate
Most economists believe that the long-run aggregate supply curve is vertical because
1. in the long run, the level of output produced in the economy is determined by resources and technology
  rather than changes in the price level
2. actual output can never exceed, even temporarily, the natural rate of output
3. a vertical long-run supply curve indicates the maximum level of output that an economy can ever achieve
4. a vertical long-run supply curve indicates that an increase in aggregate demand will lead to a larger real output but not a larger nominal output.
An economy-wide decrease in house prices is likely to be associated with increased
1. unemployment
2. aggregate supply
3. inflation
4. imports
The position of an economy's long-run aggregate supply curve might be determined by all of the following EXCEPT
1. new technology in manufacturing
2. the productivity of labour
3. the rate of investment
4. imports of consumer goods
Other things being equal, the aggregate demand curve is most likely to shift RIGHTWARD following
1. a rightward shift of aggregate supply
2. an increase in the price level
3. a fall in the proportion of income saved
4. a fall in government spending
Macro-economic disequilibrium exists when
1. aggregate saving is not equal to aggregate investment
2. aggregate supply is not equal to aggregate demand
3. aggregate exports are not equal to aggregate imports
4. aggregate expenditure is not equal to tax revenue

AS Economics: Aggregate Demand and Supply (AD-AS) Test 1

Economics Multiple-choice Quiz