Cambridge A Level Economics: Aggregate Demand and Aggregate Supply analysis (9708) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover section 4.3 (Aggregate Demand and Aggregate Supply analysis) of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. It is AS Level content, assumed knowledge for A Level Papers 3 and 4. All countries and figures are invented, and money is in currency units (cu). Read the study guide and revision notes first. Track progress with the hub and the checklist.

Questions

1. Define aggregate demand. [2]

2. Country G has consumption 450, investment 120, government spending 160, exports 140 and imports 170 (all in billion cu).

(a) Calculate aggregate demand. [2] (b) Imports rise to 200 with everything else unchanged. Calculate the percentage change in aggregate demand, to 1 decimal place. [2]

3. State whether each event is a movement along a curve or a shift, and name the curve.

(a) A rise in income tax. [1] (b) A fall in the price level caused by a rightward shift of SRAS. [1] (c) Technology that raises the economy’s productive capacity. [1] (d) A rise in the price level caused by a rise in AD. [1]

4. Explain two reasons why the AD curve slopes downward. [4]

5. In Country H, AD output = 1,490 - 5P and SRAS output = 590 + 4P, where P is the price level index and output is in billion cu.

(a) Calculate equilibrium price level and real output. [2] (b) Calculate the excess demand at P = 80 and explain what happens next. [3] (c) Falling confidence cuts AD output by 45 at every price. Calculate the new equilibrium and the percentage change in price level and output. [3]

6. Distinguish between the causes of a shift in SRAS and a shift in LRAS. [4]

7. Country J has a three-section AS curve: flat at P = 40 up to output 500, rising to P = 100 at output 800 (P = 0.2 x output - 60 in this section), and vertical at 800. AD1 is output = 650 - 5P.

(a) Show that AD1 intersects the flat section and give equilibrium output and price level. [2] (b) A later AD position gives equilibrium (output 650, P = 70). A further rise gives (output 800, P = 120). Calculate the percentage change in output and in price level between these two. [2] (c) Explain why the price level rose by more than output, and what a further rise in AD would do. [4]

8. Business confidence falls in Country K, which has an upward sloping SRAS. Explain the effect on real output, the price level and employment. [4]

9. In Country L, AD output = 1,320 - 4P and SRAS output = 520 + 4P.

(a) Energy prices rise and SRAS output becomes 440 + 4P. Calculate the new equilibrium and the percentage changes in price level and output. [3] (b) Explain the likely effect on employment. [2]

10. “An increase in aggregate demand always raises real output.” Evaluate this statement. [8]

Answers

1. Aggregate demand is the total planned spending on an economy’s output [1] at each price level in a given period [1]. [2] Examiner insight: Both the planned-spending idea and the link to the price level earn credit. Writing only “total demand in the economy” is too loose.

2. (a) AD = 450 + 120 + 160 + (140 - 170) [1] = 700 billion cu [1]. [2] (b) New AD = 450 + 120 + 160 + (140 - 200) = 670 [1]. Change = -30/700 = -4.3% [1]. [2] Examiner insight: Show net exports as a bracket and subtract imports. A common slip is adding M, which gives a wrong total.

3. (a) Shift left of AD [1]. (b) Movement down along AD [1]. (c) Shift right of LRAS [1]. (d) Movement up along SRAS [1]. [4] Examiner insight: Name the curve as well as the type of change. A price level change caused by a shift on the other curve is a movement.

4. Wealth effect: a lower price level raises the real value of savings [1], so households spend more and the quantity of real output demanded rises [1]. International trade effect: lower domestic prices relative to foreign prices raise exports and lower imports [1], so net exports and AD rise [1]. (Interest rate effect is also acceptable.) [4] Examiner insight: Each reason needs its own chain of cause and effect. Answers that argue consumers switch to substitutes describe a single market, not the whole price level.

5. (a) 1,490 - 5P = 590 + 4P [1], so 9P = 900, giving P = 100 and output = 990 [1]. [2] (b) At P = 80: AD = 1,490 - 400 = 1,090 and SRAS = 590 + 320 = 910 [1]. Excess demand = 180 [1]. Stocks fall, so firms raise prices and output, moving the economy up to P = 100 [1]. [3] (c) New AD: 1,445 - 5P = 590 + 4P, so 9P = 855 and P = 95 [1], output = 590 + 380 = 970 [1]. Price level -5% and output -2.0% [1]. [3] Examiner insight: Set the two schedules equal, then substitute back into both to check they agree. State the direction of each percentage change.

6. SRAS shifts when costs of production change [1], for example wages, energy prices or business taxes [1]. LRAS shifts when productive capacity changes [1], for example the quantity or quality of labour and capital, technology or institutions [1]. [4] Examiner insight: Distinguish rather than list. Set the cost-versus-capacity contrast side by side and give an example for each curve.

7. (a) AD1 at P = 40: output = 650 - 200 = 450, which is below 500 so on the flat section [1]. Equilibrium output 450, P = 40 [1]. [2] (b) Output: (800 - 650)/650 = +23.1% [1]. Price level: (120 - 70)/70 = +71.4% [1]. [2] (c) At 650 the economy is on the upward sloping section, where bottlenecks appear [1], so extra demand raises costs and prices [1]. At 800 the economy reaches the vertical section, where output cannot increase [1]. A further rise in AD would raise only the price level, leaving output at 800 [1]. [4] Examiner insight: Tie each result to a named section of the curve. Answers that describe the numbers without mentioning capacity do not explain.

8. Lower confidence reduces investment, so AD shifts left [1]. The economy moves down along SRAS to a lower price level [1] and lower real output [1]. Firms need less labour, so employment falls [1]. [4] Examiner insight: Say which curve moves and in which direction before describing the results. Cover all three variables the question names.

9. (a) 1,320 - 4P = 440 + 4P [1], so 8P = 880 and P = 110, output = 1,320 - 440 = 880 [1]. Price level +10% and output -4.3% [1]. [3] (b) Output falls, so firms need less labour [1] and employment is likely to fall, so unemployment rises [1]. [2] Examiner insight: Check the new equilibrium in both equations. Make clear that a left shift of SRAS raises prices and lowers output together.

10. One-sided analysis: AD right raises output if the economy has spare capacity [1], since firms respond to extra demand with more output and employment [1]. Counter: if the economy is near capacity on SRAS or LRAS, extra AD mainly raises the price level [1], and on the vertical section of LRAS output cannot rise [1]. The effect depends on the slope of SRAS and on the shape of LRAS [1]. Other changes may offset it, for example a cost rise shifting SRAS left [1]. Time lags matter: firms may need time to hire or invest [1]. Judgement: “always” is too strong, because the output effect is large with spare capacity and zero at full capacity [1]. [8] Examiner insight: Evaluation gains credit when the judgement is supported by a condition, such as spare capacity or the shape of LRAS. A list of points with no conclusion is weaker.

Where marks are usually lost

• Labelling the axes “price” and “quantity” in place of “price level” and “real output”.
• Treating a change in the price level as a shift of AD.
• Adding imports into AD.
• Explaining the slope of AD with substitution between goods.
• Shifting LRAS when only costs have changed.
• Giving output and prices but not employment when all three are asked for.
• Reading percentage changes from the wrong base.
• Concluding without a condition in an evaluation answer.

Next steps

• Revise with the revision notes.
• Re-read the study guide.
• Open the Cambridge A Level Economics hub and the printable checklist.
• Take a free 10-minute diagnostic.
• Book a free trial class.

Official syllabus

Cambridge International AS & A Level Economics 9708, syllabus for examination in 2026, 2027 and 2028, version 2, published by Cambridge University Press & Assessment. These questions cover section 4.3.