Cambridge A Level Economics: Components of AD, the accelerator and output gaps (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 outcomes 9.1.2 and 9.1.3 of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. Topic 9 is A Level content only. The countries and numbers are made up for practice, and money is in currency units (cu). Read the study guide and revision notes first. Track progress with the hub, the checklist and a free 10-minute diagnostic.

Questions

1. Define autonomous consumption. [2]

2. Country J has the consumption function C = 80 + 0.6Y.

(a) Calculate consumption when income is 500 and when it is 800. [2] (b) Calculate saving when income is 500. [2] (c) State whether the rise in income from 500 to 800 is a movement along or a shift of the function, and give the change in consumption. [2]

3. Distinguish between a movement along the consumption function and a shift of the function, giving two causes of a shift. [4]

4. In Country K the accelerator coefficient is 4. Output over five years is 500, 520, 550, 560 and 560.

(a) Calculate net investment in each of years 2 to 5. [3] (b) Explain why net investment falls in year 4 although output rises. [2]

5. A firm has a capital stock of 900 and needs 3 units of capital per unit of output. Output is 300. Depreciation is 27 a year.

(a) Output rises to 320. Calculate gross investment. [3] (b) Output then falls to 310. Calculate gross investment and the capital stock after the year. [3]

6. A government spends 55 cu on teachers’ pay, 25 cu on a new bridge, 40 cu on pensions and 15 cu on unemployment benefit.

(a) Calculate government spending as it appears in aggregate demand. [2] (b) Explain why transfer payments are excluded from G but still affect AD. [2]

7. Country L has exports of 150 and imports M = 40 + 0.2Y.

(a) Calculate net exports when Y = 500 and when Y = 800. [2] (b) Foreign incomes rise and exports increase by 25. Calculate net exports at Y = 500. [1] (c) Explain why net exports fall as domestic income rises. [2]

8. In Country M, AD = 160 + 0.8Y.

(a) Calculate AD when Y is 700, 800 and 900. [2] (b) State the equilibrium level of national income. [1] (c) Full employment income is 900. State the type and size of the gap. [2] (d) State how far equilibrium income is below full employment income. [1]

9. In Country N, AD = 230 + 0.75Y and full employment income is 800.

(a) Calculate AD at full employment, and state the type and size of the gap. [3] (b) Calculate equilibrium income. [2] (c) Explain what is likely to happen to prices, and why the equilibrium found in (b) is unlikely to last. [3]

10. Explain why a small slowdown in the growth of output can cause a large fall in investment. [6]

11. Evaluate the view that a deflationary gap will close without government action. [8]

Answers

1. Consumption that does not depend on current income [1], for example spending financed by savings or borrowing, or changed by wealth or confidence [1]. [2] Examiner insight: A definition that only says “spending on goods” is too vague. State the link to income, and add a correct example.

2. (a) C at 500 = 80 + 0.6 × 500 = 380 [1]. C at 800 = 80 + 480 = 560 [1]. [2] (b) S = Y - C [1] = 500 - 380 = 120 [1]. [2] (c) It is a movement along the function, caused by a change in income [1]. Consumption rises by 560 - 380 = 180 [1]. [2] Examiner insight: Show S = Y - C. A correct saving figure with the working visible is easier to credit than a bare number.

3. A movement along is caused by a change in income and keeps the same function [1]. A shift changes autonomous consumption, so consumption changes at every income [1]. Causes of a shift: a fall in household wealth [1] and a rise in interest rates or a fall in confidence [1]. [4] Examiner insight: Name the cause for each. Income appears on the axis, so it can never be given as a cause of a shift.

4. (a) Changes in output are 20, 30, 10, 0 [1]. Net investment = 4 × change: year 2 = 80, year 3 = 120 [1], year 4 = 40, year 5 = 0 [1]. [3] (b) Net investment depends on the change in output, which falls from 30 to 10 [1]. Firms need less extra capital even though output is still rising [1]. [2] Examiner insight: Refer to the change in output, not its level, and use the figures from the table.

5. (a) Capital needed = 3 × 320 = 960 [1]. Net investment = 960 - 900 = 60 [1]. Gross = 60 + 27 = 87 [1]. [3] (b) Capital needed = 3 × 310 = 930, so desired net investment from 960 is -30 [1]. Depreciation removes only 27, so gross investment cannot go below zero and is 0 [1]. Capital stock = 960 - 27 = 933, 3 units above the 930 needed [1]. [3] Examiner insight: Stating that gross investment is zero and not negative is the point this question tests. State the leftover capital to show you know why.

6. (a) Pay of teachers and the bridge count as spending on goods and services [1]. G = 55 + 25 = 80 cu [1]. [2] (b) Transfers are not payment for output produced [1]. They raise household income, and any part spent appears in consumption [1]. [2] Examiner insight: Adding all four items to give 135 is the common slip. Say why the two transfer items are excluded.

7. (a) At Y = 500, M = 40 + 100 = 140, so X - M = 150 - 140 = 10 [1]. At Y = 800, M = 40 + 160 = 200, so X - M = -50 [1]. [2] (b) X = 175, so net exports = 175 - 140 = 35 [1]. [1] (c) Higher income raises spending on imports [1], and imports are subtracted from AD, so net exports fall [1]. [2] Examiner insight: Write the result as a negative number where imports exceed exports. Explain that imports are induced by income.

8. (a) At 700, AD = 160 + 560 = 720; at 800, AD = 800 [1]; at 900, AD = 160 + 720 = 880 [1]. [2] (b) Equilibrium is where AD = Y, so 800 [1]. [1] (c) At 900, AD is 880, which is 20 below 900 [1], so it is a deflationary gap of 20 [1]. [2] (d) 900 - 800 = 100 [1]. [1] Examiner insight: The gap in AD (20) and the gap in income (100) are different numbers. Label each one and say which the question asked for.

9. (a) AD at 800 = 230 + 600 = 830 [1]. AD exceeds output by 30, so it is an inflationary gap [1] of 30 [1]. [3] (b) Y = 230 + 0.75Y [1], so 0.25Y = 230 and Y = 920 [1]. [2] (c) Output cannot rise beyond full capacity, so extra spending raises prices [1]. Firms and workers raise prices and wages when resources are fully used [1]. The 920 would be in money terms. In real terms output stays near 800 and the rise in price level reduces real spending [1]. [3] Examiner insight: Separate real output from the price level. Do not claim real output reaches 920.

10. Net investment equals v × change in output [1]. If growth slows, the change in output falls [1]. For example with v = 4, a rise of 30 gives investment of 120 but a rise of 10 gives 40 [1]. Investment falls by two thirds although output is still rising [1]. Firms then order fewer capital goods, so AD falls, which can slow output growth further [1]. A cause of volatility is that investment depends on the change in output, which moves more than the level [1]. [6] Examiner insight: Use figures to show the size of the fall. Say that output still rises, since this is the feature the accelerator explains.

11. For: if there is unemployment, wages may fall, which lowers costs and shifts SRAS right [1], and lower prices may raise real wealth and exports [1]. Interest rates may fall as saving exceeds borrowing [1]. Against: wages are often slow to fall [1], falling prices can cause households to delay spending [1], and weak demand lowers investment through the accelerator, which deepens the gap [1]. The time taken matters, since a long wait means lost output and long-term unemployment [1]. Judgement: self-correction is more likely when wages and prices are flexible and the gap is small; a large gap or low confidence favours action by government [1]. [8] Examiner insight: A one-sided list of causes is weaker than a conclusion that depends on a condition, such as wage flexibility or the size of the gap.

Where marks are usually lost

• Including transfer payments in G.
• Describing a change in income as a shift.
• Basing the accelerator on the level of output.
• Giving negative gross investment.
• Mixing up the gap in AD and the gap in income.
• Subtracting in the wrong order, so a deflationary gap comes out as an inflationary one.
• Forgetting that imports are subtracted in AD.
• Evaluation with no judgement or no condition.

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 outcomes 9.1.2 and 9.1.3.