3.2 Variations in Economic Activity (AD & AS) (DP IB Economics: HL)

Exam Questions

14 mins7 questions
12 marks

Text A, Paragraph 1
In 2022, the government of Canada launched an initiative to stimulate the economy by increasing public spending and introducing tax incentives for businesses. This was aimed at boosting overall spending in the economy, or what economists refer to as aggregate demand.

Define the term aggregate demand as indicated in bold (Text A, paragraph 1).

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22 marks

Text C, Paragraph 1
In response to ongoing investment in new technology and education, economists are forecasting a shift in the country’s long-run aggregate supply over the next decade. This shift is expected to have significant implications for future economic growth.

Define the term long-run aggregate supply as indicated in bold (Text C, paragraph 1).

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32 marks

Text A, Paragraph 2
Australia has been experiencing rapid price increases, sparking concern about an inflationary gap. As businesses struggle to meet rising demand, there has been a noticeable impact on price levels throughout the economy.

Define the term inflationary gap as indicated in bold (Text A, paragraph 2).

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42 marks

Text B, Paragraph 1
The government of Sweden introduced policies in 2024 aimed at achieving full employment. These measures were designed to maximise the use of labour resources, ensuring that the economy operates at its potential.

Define the term full employment as indicated in bold (Text B, paragraph 1).

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52 marks

Text E, Paragraph 1
Higher interest rates in the Eurozone have led to many problems for businesses. As borrowing becomes more expensive, many firms have to adjust their strategies, raising concerns about long-term economic growth.

Outline one impact of higher interest rates on investment as indicated in bold (Text E, paragraph 1).

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62 marks

Text A, Paragraph 3
China has experienced shifts in both short-run aggregate supply and long-run aggregate supply in response to various changes in technology and resource availability. Analysts are now focusing on how these shifts will affect the nation’s growth prospects.

Outline the difference between short-run aggregate supply and long-run aggregate supply as found in bold (Text A, paragraph 3).

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72 marks

Text D, Paragraph 3
The government of India is counting on the multiplier effect to boost overall economic activity. By investing in large-scale infrastructure projects, it hopes to create jobs and stimulate further investment across multiple sectors.

Define the term multiplier effect as indicated in bold (Text D, paragraph 3).

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