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2 marksClassical Models of the Macroeconomy

CAPE Economics Unit 2 · 2018 · Paper 2 · Question 1(c)(ii)

Figure 1 shows a graph depicting aggregate demand and aggregate supply curves.

Outline what will happen to equilibrium price and equilibrium quantity from Year 1 to Year 2.

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Other parts of this question

  1. 1(a)(i)Define 'Value added'.[2 marks]
  2. 1(a)(ii)Define 'Gross investment'.[2 marks]
  3. 1(b)Outline THREE factors that influence aggregate demand.[6 marks]
  4. 1(c)(i)Label the three curves in Figure 1 to show the aggregate demand curve AD1 in Year 1, AD2 in Year 2 (after shifting), and falling back to AD1 in Year 3.[2 marks]
  5. 1(c)(iii)In Year 3, assume that prices and wages are completely flexible downward. On Figure 1, identify the equilibrium point and label it 'b'. Also, label the…[3 marks]
  6. 1(d)(i)Evaluate the statement: 'The expanding underground economy creates problems for economic policymakers.'[4 marks]
  7. 1(d)(ii)Evaluate the statement: 'Economists are concerned about 'double counting' and the 'value added' in the production process.'[4 marks]

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