CAIE A-Level Economics 5.2.7 Fiscal Policy in AD and AS

Cambridge International AS & A Level Economics 9708 syllabus for exams in 2026, 2027 and 20282026–2028

Practise shifting AD after tax or spending changes, reading effects on output, prices and employment and evaluating multipliers, crowding out, capacity and supply-side…

How this is tested

shift AD right after expansionary fiscal policy and left after contractionary measures
read the new equilibrium to explain real output, price-level and employment changes
evaluate the final effect using multiplier size, crowding out, spare capacity and time lags

[Maximum number: 1]

The diagram shows the AD and AS curves for a country. The equilibrium level of national income is $Y_{1}$ and the general price level is $P_{1}$ .

Figure for Question 16 — CAIE A-Level Economics

What is the most likely effect on employment and the general price level of a small decrease in government expenditure?

employment

general price level

falls

unchanged

falls

unchanged

How this is tested

Question 16