Aggregate Demand and Aggregate Supply Exam Questions
Three practice questions are below. Answer on the page: each one is marked the moment you pick, the correct option is shown whether or not you found it, and the full explanation opens either way.
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Aggregate Demand and Aggregate Supply: three questions to try now
Real questions, the answer key from the mark scheme, and the explanation that goes with it. No account needed to answer them.
Cross-board concept practice · originally a CIE 9708 question, used here because the concept is the same. It is not IB Economics past-paper material.
Question 1
The diagram shows aggregate demand and aggregate supply curves for an economy. general price level O national output AS AD AD1 What would cause a change in the aggregate demand from AD to AD1?
Answer: C.
Only one of these four options reduces aggregate demand, and that settles it without needing to measure anything. Campaigns that persuade households to save more are campaigns to persuade them to spend less, and consumption is the largest component of AD, so AD shifts to the left. Each of the other three pushes AD the other way: a smaller budget surplus means the government is taking less out of the economy than it puts in, buying domestic goods instead of imports raises demand for home output, and investment in knowledge-based enterprises is investment, which is a component of AD in its own right. If the shift shown were to the RIGHT, three of the four options would be correct at once, which no multiple-choice question can allow, so the curve must be moving left, and C is the only answer that fits.
Cross-board concept practice · originally a CIE 9708 question, used here because the concept is the same. It is not IB Economics past-paper material.
Question 2
The diagram shows the aggregate demand (AD) and aggregate supply (AS) curves for an economy. general price level real output O AS AD2 AD1 Which situation would not cause a shift from AD1 to AD2?
Answer: A.
The question asks which situation would NOT shift the curve, so look for the one that cannot move AD at all. A change in the general price level never shifts the AD curve, it moves you ALONG it to a different point, because the curve already shows what is demanded at each price level. That makes A the answer, and it is doubly disqualified: the reduction in government spending it mentions would push AD in the opposite direction anyway, since government spending is a component of aggregate demand. The other three all genuinely shift the curve outwards. Easier credit lets households borrow and spend more, raising consumption. Higher earnings from high-tech exports raise the export component. More investment in computer systems raises investment. Each changes spending at every price level, which is what a shift means.
Cross-board concept practice · originally a CIE 9708 question, used here because the concept is the same. It is not IB Economics past-paper material.
Question 3
The government of a country plans to cut income tax rates. The initial equilibrium for the country is represented by point X on the diagram. Which new equilibrium point would an economist predict as the result?
Answer: B.
Work out which curve moves and in which direction, then find the point where the new pair crosses. Cutting income tax rates leaves households with more take-home pay, they spend more, and aggregate demand shifts RIGHT, from AD1 out to AD3. Nothing here shifts aggregate supply: the diagram offers AS2 as the alternative, and AS2 lies to the LEFT of AS1, which would mean supply had FALLEN, and a tax cut does not do that. So supply stays on AS1, and the new equilibrium is where AS1 meets AD3, which is B. A is where AD3 meets AS2, so it would need supply to fall at the same time. C and D both sit on AD2, which lies to the left of AD1 and so represents a FALL in aggregate demand, the opposite of what a tax cut produces.
These questions are drawn from past Cambridge papers, mapped across to this topic because the concept is the same. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
These are the errors that cost marks on aggregate demand and aggregate supply, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
Explaining the downward slope of AD using substitution, as if it were a microeconomic demand curve.
Confusing a movement along AD (caused by the price level) with a shift (caused by a component).
Counting transfer payments in G, or share purchases in I.
Shifting LRAS for something that only affects SRAS, a wage rise changes costs, not productive potential.
Treating the shape of LRAS as settled fact rather than a live disagreement.
Labelling the axes "price" and "quantity" instead of price level and real output.
Asserting that higher AD causes inflation without saying where the economy is on the AS curve.
(HL) Shifting AD by the initial injection rather than the multiplied amount, or forgetting that taxes and imports are leakages too.
