CAIE A-Level Economics 6.4.5 Exchange rates in AD/AS

CAIE A-Level Economics 6.4.5 Exchange rates in AD/AS
Cambridge International AS & A Level Economics 9708 syllabus for exams in 2026, 2027 and 20282026–2028

Practise using AD/AS to analyse how exchange-rate changes affect output, prices, employment, trade flows and macroeconomic aims.

How this is tested

  • use AD/AS to show how depreciation affects real output, prices and employment
  • explain cost-push inflation from dearer imported raw materials after depreciation
  • evaluate exchange-rate changes using trade effects, PED and macroeconomic aims

Question 28

[Maximum number: 1]

Between June and the end of July 2016, the UK pound sterling depreciated by 11%11 \% against a

basket of currencies of the UK's major trading partners.

The diagram shows the original aggregate demand curve AD1\mathrm{AD}_{1} and the original aggregate supply

curve AS1\mathrm{AS}_{1} for the UK economy before June 2016. The equilibrium is at X .

What would have been the new equilibrium for the UK economy as a result of the depreciation of

the pound sterling?

Figure for Question 28 — CAIE A-Level Economics
A
Option A shown in diagram

Option A shown in diagram

B
Option B shown in diagram

Option B shown in diagram

C
Option C shown in diagram

Option C shown in diagram

D
Option D shown in diagram

Option D shown in diagram