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

Which one of the following would cause aggregate demand (AD) to fall?
1. A decrease in the rate of unemployment
2. A fall in consumer demand for imported goods and services
3. A fall in government expenditure on defence and transport infrastructure
4. A rise in labour productivity with wage costs remaining the same
If the aggregate supply curve is drawn as 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 short run 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 income tax paid by UK households
Which one of the following would cause a rightward shift in the LONG RUN aggregate supply curve (LRAS)? An increase in
1. The amount of cash in circulation
2. The productivity of labour and capital inputs
3. Inflation
4. The volume of goods and services 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. Retailers have a large amount of unsold stock in their warehouses
2. Aggregate supply is not equal to aggregate demand
3. The value of exports is less than the value of imports leading to a trade deficit
4. Government expenditure is not equal to tax revenue
The position of the long run aggregate supply curve (LRAS) depends upon
1. The size of the government budget deficit (i.e. when government spending is greater than tax revenue)
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 who wish to improve their living standards
2. That part of household spending which is not spent on consumption but which is saved in bank and building society accounts
3. Any addition to the capital stock of an economy that will allow the production of consumer goods in the future
4. All types of spending by the government including welfare benefits to the long term unemployed
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
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 large rise in the world price of oil and other commodities such as copper and zinc
3. A decision by the Bank of England to raise 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 (SRAS)?
1. A decrease in wage rates leading to lower unit labour costs
2. A decrease in government spending
3. An increase in indirect taxation on producers
4. An increase in 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 consumer spending?
1. An increase in house prices
2. A reduction in the rate of interest
3. A rise in real national income
4. A fall in consumer confidence due to rising levels of household debt
Which one of the following is most likely to DECREASE the level of aggregate demand?
1. Expectations that the government will cut income tax over the next few years
2. Expectations that the Bank of England will cut interest rates
3. A fall in business confidence due to a slowdown in the global economy
4. A fall in the exchange rate of sterling against the Euro
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 the stock of factor resources and the state of 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.
A large 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 and service sector industries
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

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

Economics Multiple-choice Quiz