Exam-style question
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Net exports case on determinants of aggregate demand: which option best explains how sterling depreciation can alter X minus M and total spending?.
- A.Use economic terminology such as demand, supply, elasticity, market failure, welfare, efficiency or policy trade-off instead of general business language.
- B.A higher price level is the same as inflation.
- C.Short-run and long-run macroeconomic effects are identical.
- D.Give a definition of aggregate demand and aggregate supply only, without application, chain of analysis, evaluation or judgement.
Model answer
What a good answer should say
- Correct answer: the option that links a weaker pound to export competitiveness, import prices, net trade and therefore aggregate demand, allowing for elasticity.
Explanation
Why this works
This item is about a determinant of AD: net exports. Strong reasoning distinguishes the component change from the later macro outcome and evaluates whether Marshall-Lerner conditions, supply constraints or imported inflation weaken the effect.
Common mistake
No common mistake is linked to this question yet.