IBDP Economics HL – Macroeconomics – Variations in economic activity—aggregate demand and aggregate supply -Paper 1 Exam Style Practice Questions
Variations in economic activity—aggregate demand and aggregate supply Paper 1?
Exam Style Questions..
Subject Guide IBDP Economic IBO
IBDP Economic HL- All Topics
Exam Style Question for IBDP Economics HL- Variations in economic activity—aggregate demand and aggregate supply -Paper 1
Question
Explain the possible impact of an increase in wealth and consumer confidence on aggregate demand.
▶️Answer/Explanation
Answers may include:
- definitions of wealth, consumer confidence, aggregate demand (AD)
- diagram(s) to show AD shifting to the right
- explanation of the possible impact of an increase in wealth and consumer confidence on AD
- examples of increases in wealth and consumer confidence.
Question
Examine why, in contrast to the monetarist/new classical model, the economy will not automatically return to the full employment level of output in the Keynesian model.
▶️Answer/Explanation
Answers may include:
- definitions of full employment level of output, Keynesian model, monetarist/new classical model
- diagram(s) to show equilibrium in the two models
- explanation of the mechanisms through which an economy may remain stuck in a deflationary gap in the Keynesian system but will always return to full employment equilibrium in the monetarist/new classical model in the long run
- examples of the two models applying in practice
- synthesis or evaluation (examine).
Question
Explain the potential effects on the economic growth rate from a substantial increase in the number of skilled people of working age entering a country.
▶️Answer/Explanation
Answers may include:
- definitions of economic growth, growth rate
- diagram(s) to show how an outward shift of the AD curve and/or an outward shift of the LRAS/production possibility curve would lead to economic growth
- explanation of how an increase in the population leads to an increase in AD in the short term (resulting in short-term economic growth) and/or how an increase in the number and qualification of the workforce leads to an increase in the quality and quantity of labour (resulting in long-term economic growth)
- examples of immigration affecting economic growth rates of countries.
Question
Explain how a deflationary gap might occur.
▶️Answer/Explanation
Answers may include:
- definition of deflationary gap
- Keynesian or monetarist/new classical diagram to show a macroeconomic equilibrium at a level of real output below the full employment level
- explanation of factors (events) that may depress the aggregate demand and lead to a macroeconomic equilibrium at a level of real output below the full employment level
- examples of countries that have experienced a deflationary gap.
Question
Using the monetarist/new classical model and the Keynesian model, discuss the view that increases in aggregate demand will inevitably be inflationary.
▶️Answer/Explanation
Answers may include:
- definitions of inflation, inflationary, aggregate demand (AD), monetarist/new classical model, Keynesian model
- diagrams to show the impact of an increase in AD in the two different models
- explanation why in the monetarist/new classical model an increase in AD will be inflationary
- examples of cases where an increase in AD either has or has not been inflationary
- synthesis and evaluation (discuss).