Cambridge International as and a level Economics Ebook

Equilibrium and eff iciency: 
The section above refers 
to macroeconomic equilibrium. Economists study what 
the current macroeconomic equilibrium is, why it has 
changed in recent times and what the desired level of 
macroeconomic equilibrium would be.
KEY CONCEPT LINK
SELF-ASSESSMENT TASK 
4.1
Identify the eff ects of the following on aggregate 
demand, aggregate supply, output and the price 
level:
■
 
a reduction in the rate of interest
■
 
an increase in government spending on 
health care
■
 
advances in information technology
■
 
net emigration
■
 
a cut in income tax
■
 
an increase in wealth.
TOP TIP
To analyse macroeconomic issues, it is oft en useful to 
draw an aggregate supply curve in the shape shown in 
Figure 4.5
. This enables you to make comments about the 
eff ect on output and the price level of changes in 
AD
.
SELF-ASSESSMENT TASK 
4.2
Changes in Ireland’s economic performance
In 2010, Ireland got into considerable financial diff iculties 
and had to be helped out by the European Union. Irish 
workers experienced significant pay cuts and increases 
in income tax.
By 2013 its economic performance had started to 
improve. Its unemployment rate had fallen from 14.7% to 
12.5% with 50,000 jobs being created. Its output, instead 
of falling, started to rise with both aggregate demand 
and aggregate supply increasing.
Read the feature below and then answer the questions that follow.
a
Using a Keynesian
 LRAS 
curve, explain at what 
point on the curve the Irish economy was operating 
in 2013.
b
Explain what probably happened to consumer 
expenditure in Ireland in 2010.