A-Level H2 Economics 4

Question 1

What is the AD-AS model used for?

Accepted Answer

Analysing macroeconomic equilibrium and the effects of policies on national income, price level, and employment

Answer

The AD-AS (Aggregate Demand-Aggregate Supply) model analyses macroeconomic equilibrium, showing how changes in AD or AS affect national income (real GDP), price level, and employment.

Question 2

What is the 'crowding out' effect?

Accepted Answer

When increased government borrowing raises interest rates, reducing private sector investment

Answer

Crowding out occurs when government borrowing increases demand for funds in financial markets, raising interest rates, which then reduces private sector investment and consumption.

Question 3

What distinguishes monopolistic competition from perfect competition?

Accepted Answer

Monopolistic competition involves product differentiation and some price-setting power; perfect competition has homogeneous products

Answer

Monopolistic competition involves many firms with differentiated products, giving each firm some market power and a downward-sloping demand curve. Perfect competition has homogeneous products and firms are price-takers.

Question 4

What does 'economic growth' measure?

Accepted Answer

An increase in the real GDP of an economy over time

Answer

Economic growth refers to an increase in real GDP (GDP adjusted for inflation) over time, representing greater productive capacity and potential for improved living standards.

Question 5

What is the 'infant industry argument' for protectionism?

Accepted Answer

Protecting new domestic industries from foreign competition until they mature and can compete internationally

Answer

The infant industry argument justifies temporary protection (tariffs, quotas) for new domestic industries that have potential for comparative advantage but need time to develop economies of scale and compete globally.

GCE A-Level Practice Test

GCE A-Level Practice Test

A-Level H2 Economics 4