Pearson Edexcel A Level · Economics A (9EC0)
4 multiple-choice questions marked as you go, and 2 written questions with worked solutions. All on 2.4.3 Equilibrium levels of real national output.
In an AD/AS model, if the economy is currently operating at a point where the AD curve intersects the Short-run AS curve to the left of the Long-run AS (vertical) curve, which of the following describes the Equilibrium levels of real national output?
If an economy's Long-run AS is vertical and there is a permanent increase in productivity, what must happen to Aggregate Demand to keep the price level stable at the new Equilibrium level of real national output?
Consider an economy where the government increases corporation tax. What is the most likely impact on the Equilibrium levels of real national output in both the short run and the long run?
A sudden increase in the marginal propensity to tax (MPT) occurs simultaneously with a decrease in business confidence. What is the likely effect on the equilibrium price level and real national output?
An economy has a Marginal Propensity to Consume (MPC) of 0.8. If the government increases Government expenditure (G) by \(\pounds 20\) billion, calculate the final change in the Equilibrium levels of real national output, assuming no other changes in injections or withdrawals.
Write your answer out first, then check it against the worked solution.
Consider an economy initially in long-run equilibrium where the price level is 100 and real national output is \(Y_{fe}\) (full employment output). The economy is then subjected to a significant increase in the price of imported energy sources.
(a) Explain, using an Aggregate Demand/Aggregate Supply (AD/AS) diagram, the short-run effect of this energy price shock on the equilibrium level of real national output and the price level. (4 points)
(b) Following the shock, the government decides to implement a large-scale infrastructure investment program. Using the same diagram, evaluate the likely impact of this policy on the new equilibrium, specifically considering the difference between a Keynesian and a Classical view of the long-run aggregate supply (LRAS) curve. (4 points)
Write your answer out first, then check it against the worked solution.
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