With the help of a diagram(s), explain one reason for an increase in aggregate demand and one reason for an increase in aggregate supply and consider whether an increase in aggregate demand will always lead to inflation.

Economics

IGCSE&ALevel

CAIE

Exam No：9708_w23_qp_22 Year：2023 Question No：5(a)

Answer:

Knowledge points:

4.3.1 definition of Aggregate Demand (AD)

4.3.10 distinction between a movement along and a shift in AD and AS

4.3.11 establishment of equilibrium in the AD/AS model and the determination of the level of real output, the price level and employment

4.3.12 effects of shifts in the AD curve and the AS curve on the level of real output, the price level and employment

4.3.2 components of AD and their meanings: AD = C + I + G + (X – M)

4.3.3 determinants of AD (detailed knowledge of the components of AD is not required)

4.3.4 shape of the AD curve (downward sloping)

4.3.5 causes of a shift in the AD curve

4.3.6 definition of Aggregate Supply (AS)

4.3.7 determinants of AS

4.3.8 shape of the AS curve in the short run (SRAS, upward sloping line or sweeping curve) and the long run (LRAS, either a vertical line or in three sections – highly elastic, upward sloping, vertical)

4.3.9 causes of a shift in the AS curve in the short run (SRAS) and in the long run (LRAS)

With the help of a diagram(s), explain one reason for an increase in aggregate demand and one reason for an increase in aggregate supply and consider whether an increase in aggregate demand will always lead to inflation.

Answer:

Knowledge points:

Solution:

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