Chapter 17 Aggregate Demand and Aggregate Supply

Economics Inquiry for HKDSE Macroeconomics 1 Chapter 17 Aggregate Demand and Aggregate Supply
Multiple Choice Questions |!|EM43001|!| Which of the following is NOT included in the calculation of aggregate demand? A. B. C. D. households demand foreign countries demand governments demand market demand
## D According to the definition, aggregate demand = households demand + firms demand + governments demand + foreign countries demand. Market demand is not included in the calculation of aggregate demand. ##
|!|EM43002|!| The aggregate demand curve shows the negative relationship between the _____________ and the _____________. A. B. C. D. interest level real GDP income level total quantity of output demanded price level real GDP price level total quantity of consumer goods demanded
## C According to the definition, the aggregate demand curve shows the relationship between the price level and total quantity of output demanded, i.e. real GDP, ceteris paribus. Other factors being constant, a decrease (an increase) in an economys general price level results in an increase (a decrease) in the real GDP. ##
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|!|EM43003|!| Which of the following statements is CORRECT? A. B. Aggregate demand in macroeconomics is the same as market demand in microeconomics. The aggregate demand curve shows that the price level and the total quantity of output demanded are positively related. C. Aggregate demand refers to the total demand for all goods and services in an economy at given price levels in a given period of time. D. The aggregate demand curve can be downward-sloping, upward-sloping or vertical.
## C Option A is incorrect. Market demand refers to the quantities of a particular good that all consumers in the market are willing and able to buy at all given prices over a period of time, ceteris paribus. Option B is incorrect. The aggregate demand curve shows that the price level and the total quantity of output demanded are negatively related. Option D is incorrect. The aggregate demand curve is always downward-sloping. ##
|!|EM43004|!| Which of the following correctly describe(s) the difference between aggregate demand in macroeconomics and market demand in microeconomics? (1) The calculation of aggregate demand should be within a given period of time, while that of market demand does not have any limit on the period of time. (2) Aggregate demand includes the demand for all goods and services in an economy, while market demand only refers to the demand for a particular good in the market. (3) A change in aggregate demand is caused by a change in the price level, while a change in the market demand for a particular good is not caused by a change in the price of the good.
A. B. C. D.
(1) only (2) only (1) and (2) only (2) and (3) only
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## B According to the definition, aggregate demand refers to the total demand for all goods and services in an economy at given price levels in a given period of time. Market demand refers to the quantities of a good that all consumers in the market are willing and able to buy at all given prices over a period of time, ceteris paribus. (1) is incorrect. Both calculations should be within a given period of time. (3) is incorrect. A change in aggregate demand is not caused by a change in the price level. ##
|!|EM43005|!| Which of the following descriptions about aggregate demand and total quantity of output demanded is INCORRECT? A. Aggregate demand refers to the total demand for all goods and services in an economy at given price levels in a given period of time. B. Total quantity of output demanded refers to the total demand for all goods and services in an economy at a particular price in a given period of time. C. The relationship between the price level and aggregate demand can be shown by the aggregate demand curve. D. A decrease in the price level results in an increase in the total quantity of output demanded.
## C The aggregate demand curve shows the relationship between the price level and the total quantity of output demanded (not aggregate demand), ceteris paribus. ##
|!|EM43006|!| Which of the following can explain why the AD curve is downward-sloping? A. B. C. D. exchange rate effect law of demand sticky-price theory imperfect information model
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## A With the exchange rate effect, when the price level decreases, the interest rate of the economy will decrease. This will lead to capital outflow. Demand for domestic currency will decrease and the price of domestic currency will decrease. Domestic exports will become relatively cheaper and imported goods will become relatively more expensive. Volume of exports will increase and volume of imports will decrease. Net exports will increase and the total quantity demanded for goods and services will increase. Option B is incorrect. The law of demand only explains why the demand curve is downward-sloping. Options C and D are incorrect. They are the models used to explain why the SRAS curve is upwardsloping. ##
|!|EM43007|!| With the wealth effect, when the price level increases, _______________________. The total quantity demanded for goods and services will decrease. A. B. C. D. peoples nominal value of wealth increases peoples real value of wealth increases peoples nominal value of wealth decreases peoples real value of wealth decreases
## D When the price level increases, people are able to buy less with the same amount of money. That is, the real value of wealth held in the form of money decreases. ##
|!|EM43008|!| When the price level increases, people save less. The interest rate will __________ and __________ will decrease. A. B. C. D. increase the aggregate demand decrease the aggregate demand increase the total quantity of output demanded decrease the total quantity of output demanded
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## C When the price level increases, people will hold more money for daily transactions and they will keep less money in banks. The amount of money available for lending will decrease. The interest rate will increase. The higher interest rate will discourage borrowing by firms for investment. Investment expenditure will increase and the total quantity of output demanded will decrease. ##
|!|EM43009|!| Suppose the nominal income of people remains unchanged. When the price level decreases, (1) peoples purchasing power will increase. (2) private consumption expenditure will increase. (3) the purchasing power of people will remain unchanged
A. B. C. D.
(1) only (3) only (1) and (2) only (1), (2) and (3)
## C (1) and (2) are correct. Suppose the nominal income of people remains unchanged. When the price level decreases, people can buy more with the same amount of money, i.e. the purchasing power of people increases. Consumers will feel that they are richer and thus will increase their spending on goods and services. Private consumption expenditure will then increase. ##
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|!|EM43010|!| Suppose the price level of an economy increases. Which of the following descriptions about the economy is/are CORRECT? (1) People will hold more money for daily transactions. (2) People will keep more money in banks. (3) The interest rate will increase.
A. B. C. D.
## C (1) is correct. When the price level increases, people are able to buy less with the same amount of money. They will hold more money for daily transactions. (2) is incorrect. When the price level increases, as people hold more money for daily transactions, they will keep less money in banks. (3) is correct. As people keep less money in banks, the amount of money available for lending will decrease. The interest rate will increase. ##
|!|EM43011|!| Which of the following is the impact brought by a decrease in the price level? A. B. C. D. The total quantity demanded for goods and services decreases. Aggregate demand increases. Domestic exports become relatively expensive. Net exports increases if the demand for both exports and imports are elastic.
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## D When the price level decreases, the interest rate of the economy will decrease. This will lead to capital outflow. Demand for domestic currency will decrease and the price of domestic currency will decrease. Domestic exports will become relatively cheaper and imported goods will become relatively more expensive. When both the demand for exports and imports are elastic, the volume of exports will increase and the volume of imports will decrease. Net exports will hence increase. ##
|!|EM43012|!| Suppose that other things are constant; an upward movement along a aggregate demand curve implies that A. B. C. D. the disposable income of consumers decreases. the price level increases. the salaries tax rate increases. the aggregate demand decreases.
## B ##
|!|EM43013|!| Which of the following statements is CORRECT? A. B. C. D. The aggregate demand increases when the salaries tax rate increases. The aggregate demand decreases when the price level increases. The aggregate demand increases when the profits tax rate decreases. The aggregate demand decreases when the interest rate decreases.
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## C If the profits tax rate decreases, the incentive for firms to invest will increase and their investment expenditure will increase. Hence, the aggregate demand will increase. Option A is incorrect. An increase in the salaries tax rate will reduce peoples disposable income. Private consumption expenditure will decrease and the aggregate demand will decrease. Option B is incorrect. An increase in the price level will reduce the total quantity of output demanded. Aggregate demand is not affected. Option D is incorrect. A decrease in the interest rate will encourage private consumption and investment. Aggregate demand will increase. ##
|!|EM43014|!| The AD curve will shift if A. B. C. D. people have higher education levels. there is an improvement in production technology. the price level increases. the interest rate of borrowing increases.
## D An increase in the interest rate of borrowing leads to a decrease in private consumption expenditure and investment expenditure. Hence, the aggregate demand will decrease and the AD curve will shift to the left. Options A and B are incorrect. They will not affect aggregate demand. Option C is incorrect. An increase in the price level results in a decrease in the total quantity of output demanded instead of a shift the AD curve. ##
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|!|EM43015|!| Which of the following descriptions about disposable income is CORRECT? A. B. Disposable income is affected by the private consumption expenditure. Disposable income is the wage left after deducting the Mandatory Provident Fund contribution. C. Disposable income is the income available for spending after paying income tax and receiving government transfers. D. An increase in disposable income leads to a decrease in investment expenditure.
## C Option A is incorrect. The private consumption expenditure is affected by the amount of disposable income, not the opposite. Option D is incorrect. An increase in disposable income leads to an increase in the private consumption expenditure, but not a decrease in the investment expenditure. ##
|!|EM43016|!| Which of the following factors would NOT affect the private consumption expenditure? A. B. C. D. peoples expectation for future income governments unemployment benefits the salaries tax rate the profits tax rate
## D ##
|!|EM43017|!| Which of the following will increase the private consumption expenditure? A. B. C. D. People expect that there will be an economic downturn next year. People expect that the profits tax will decrease. People expect that they will receive a wage increase. People expect that the government will increase the salaries tax rate.
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## C If people expect that they will receive a wage increase, they tend to spend more at present. The private consumption expenditure will increase. Options A, B and D are incorrect. Options A and D will lead to a decrease in the private consumption expenditure and option B will not affect the private consumption expenditure. ##
|!|EM43018|!| Suppose the interest rate of an economy decreases. This would encourage (1) people to buy more goods and services. (2) borrowing by firms for investment. (3) people to keep more money in banks.
A. B. C. D.
## C (1) is correct. When the interest rate decreases, the cost of borrowing will decrease. People will buy more goods and services. (2) is correct. A decrease in the interest rate would reduce firms cost of borrowing, which would encourage borrowing by firms for investment. (3) is incorrect. When the interest rate decreases, people will keep less money in banks. ##
|!|EM43019|!| All of the following will reduce the investment expenditure EXCEPT A. B. C. D. firms expect that there will be an economic downturn in the future. firms expect that the risk of business operation will increase. the government lowers the profits tax rate. the interest rate increases.
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## C When the government lowers the profits tax rate, the incentive for firms to invest will increase and firms will increase their investment expenditure. ##
|!|EM43020|!| Which of the following government policies will increase aggregate demand? (1) increasing the tax incentive for firms research and development (2) raising the profits tax rate (3) increasing the personal allowance of the salaries tax
A. B. C. D.
(3) only (1) and (2) only (1) and (3) only (2) and (3) only
## C (1) is correct. Increasing the tax incentive for firms research and development will increase the incentive for firms to invest. The firms will increase their investment expenditure and the aggregate demand will increase. (3) is correct. Increasing the personal allowance of the salaries tax will increase the amount of disposable income of consumers. Therefore, the private consumption expenditure will increase and the aggregate demand will increase. (2) is incorrect. Raising the profits tax rate will reduce the incentive for firms to invest. Therefore, the investment expenditure will decrease and the aggregate demand will then decrease. ##
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|!|EM43021|!| Which of the following would most likely lead to an increase in government expenditure? A. B. C. D. The government revenue from land sales decreases. The government revenue from the salaries tax decreases. The revenue of private enterprises increases. The government intends to boost the economy to recover from the economic crisis.
## D When the government intends to boost the economy to recover from the economic crisis, extra money will be used to support the new government policies. Government expenditure will then increase. ##
|!|EM43022|!| When domestic currency appreciates, the imported goods and services will become relatively ____________. Net exports will ____________. A. B. C. D. more expensive decrease cheaper increase more expensive increase cheaper decrease
## D When domestic currency appreciates, the relative prices of imports to domestic goods and services will decrease and the relative prices of domestic goods and services will increase. Exports will decrease and imports will increase. As a result, net exports will decrease. ##
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|!|EM43023|!| China and the United States are trading partners. If the Renminbi appreciates while the US dollar depreciates, A. B. C. D. the volume of exports of China will increase. the net exports of China may increase or decrease. the United States will decrease the volume of imports from China. the volume of exports of the United States will decrease.
## C If the Renminbi appreciates and the US dollar depreciates, the products of China will become relatively more expensive and the products of the United States will become relatively cheaper. Hence, the United States will decrease the volume of imports from China. ##
|!|EM43024|!| Which of the following would lead to a decrease in aggregate demand? A. B. C. D. Peoples incentive for saving decreases. The government reduces the salaries of civil servants. The economic condition of trading partners improves. There is a property market boom.
## B The reduction in the salaries of civil servants will reduce government expenditure. Besides, the private consumption expenditure will also decrease as the disposable income of the civil servants decreases. Aggregate demand will decrease. Option A is incorrect. The decrease in peoples incentive to save will increase the private consumption expenditure, and aggregate demand will increase. Option C is incorrect. The improvement of the economic condition of trading partners will increase the demand for domestic exports. Net exports will increase and thus aggregate demand will increase. Option D is incorrect. A property market boom will increase peoples wealth. Private consumption expenditure will increase and thus aggregate demand will increase. ##
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|!|EM43025|!| Which of the following diagrams best describes the effect of an increase in government transfers? A.
Price level
B.
Price level
AD1 AD0 0 0 Quantity of output (real GDP) AD1
AD0
Quantity of output (real GDP)
C.
Price level
D.
Price level
P0 P1 AD 0 Y0 Y1 Quantity of output (real GDP)
P1 P0 AD 0 Y1 Y0 Quantity of output (real GDP)
## A An increase in government transfers would increase peoples disposable income. With a higher disposable income, consumers can spend more. As a result, private consumption expenditure will increase and aggregate demand will increase. Hence, the aggregate demand curve would shift to the right. ##
|!|EM43026|!| Which of the following will lead to a leftward shift of Hong Kongs aggregate demand curve? A. B. C. D. Consumers plan to reduce the amount of monthly saving. The government raises the profits tax rate. The price level increases. The economies of the major trading partners of Hong Kong grow continuously.
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## B When the government raises the profits tax rate, the incentive for firms to invest will decrease and firms will cut their investment expenditure. Therefore, Hong Kongs aggregate demand will decrease and the aggregate demand curve will shift to the left. Option A is incorrect. When consumers plan to reduce the amount of monthly saving, this implies that they will increase their consumption expenditure. The private consumption expenditure will increase and the aggregate demand curve will shift to the right. Option C is incorrect. An increase in the price level results in a decrease in the total quantity of output demanded, but not the aggregate demand. The aggregate demand curve will not shift. Option D is incorrect. When the economies of the major trading partners of Hong Kong grow continuously, demand for Hong Kongs exports will increase and the net exports will increase. This will result in an increase in aggregate demand and the aggregate demand curve will shift to the right. ##
|!|EM43027|!| Other things being constant, when there is a depreciation of the Hong Kong dollar against other currencies, (1) the net exports of Hong Kong will decrease. (2) the aggregate demand curve of Hong Kong will shift to the left. (3) the relative prices of imported goods will decrease.
A. B. C. D.
(1) only (3) only (2) and (3) only None of the above.
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## D Other things being constant, when there is a depreciation of the Hong Kong dollar against other currencies, the relative prices of Hong Kongs goods and services to imports will decrease and the relative prices of imports will increase. This will increase exports and reduce imports. As a result, Hong Kongs net exports will increase and aggregate demand will increase. The aggregate demand curve will shift to the right. ##
|!|EM43028|!| If the government lowers the salaries tax rate by 5% and at the same time raises the profits tax rate by 5%, the aggregate demand curve A. B. C. D. will shift to the left. will shift to the right. will remain unchanged. may remain unchanged, shift to the left or to the right.
## D Aggregate demand = Households demand + Firms demand + Governments demand + Foreign countries demand Lowering the salaries tax rate will increase households demand, while raising the profits tax rate will decrease firms demand. The final change in the aggregate demand depends on the extent of changes brought by the changes to the tax rates of the two taxes. The change in the aggregate demand curve is uncertain. ##
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|!|EM43029|!| Aggregate supply refers to A. the total amount of consumer goods and services produced by firms in an economy at given price levels in a given period of time. B. the total amount of producer goods and services produced by firms in an economy at given price levels in a given period of time. C. the total amount of goods and services produced by firms in an economy at given price levels in a given period of time. D. the total amount of goods and services produced by firms in an economy at a particular price level in a given period of time. ## C ##
|!|EM43030|!| Which of the following about the short-run aggregate supply curve is CORRECT? A. The short-run aggregate supply curve shows the negative relationship between the price level and the total amount of output produced. B. The short-run aggregate supply curve shows the positive relationship between the price level and the total amount of output produced. C. The short-run aggregate supply curve shows the positive relationship between the interest rate and the total amount of output produced. D. The short-run aggregate supply curve shows the positive relationship between the price level and the total amount of output consumed.
## B ##
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|!|EM43031|!| Which of the following CANNOT explain why the short-run aggregate supply curve is upwardsloping? A. B. C. D. sticky-wage theory worker-misperception theory interest rate effect imperfect information model
## C ##
|!|EM43032|!| Sticky-wage theory states that _____________ are slow to adjust to economic changes in the _____________. A. B. C. D. nominal wages short run nominal wages long run real wages short run real wages long run
## A According to the sticky-wage theory, when firms and workers enter into long-term contracts, they will use their expectations of future prices to determine nominal wages. Within the contractual period, nominal wages cannot be adjusted according to economic conditions flexibly. Hence, nominal wages are slow to adjust to economic changes in the short run. ##
|!|EM43033|!| According to the sticky-price theory, which of the following is CORRECT in the short run? A. B. C. D. When the price level decreases, all firms will cut the prices of their output immediately. When the price level increases, consumers will not reduce their consumption immediately. When the price level decreases, sales will drop and stocks will accumulate. When the price level increases, the short-run aggregate supply will decrease.
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## C According to the sticky-price theory, the prices of some goods and services are sticky and slow to adjust to economic conditions in the short run. When there is a fall in the price level, some firms will refuse to cut the prices of their output as costs will be incurred in reducing their prices. Consumers will find the prices of these goods too high and reduce their consumption. As a result, their sales will drop and stocks will accumulate. ##
|!|EM43034|!| Which of the following statements about the sticky-price theory is CORRECT? A. B. The prices of all goods and services are sticky in the short run. The prices of some goods and services are not free to adjust to economic conditions in the short run. C. D. Extra cost will not be incurred in changing prices. The prices of some goods and services are slow to adjust to economic conditions in the long run.
## B The sticky-price theory emphasises that the prices of some goods and services are sticky and slow to adjust to economic conditions in the short run. ##
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|!|EM43035|!| According to the sticky-price theory, which of the following reasons can explain why prices are sticky in the short run? (1) Prices of some goods are fixed in long-term contracts. (2) The nominal wages paid to workers can be adjusted freely. (3) Suppliers do not want to change the prices of their goods frequently.
A. B. C. D.
(1) only (1) and (3) only (2) and (3) only (1), (2) and (3)
## B (1) is correct. Prices of some goods are fixed in long-term contracts between suppliers and customers, and the prices cannot be changed during the contractual period. (3) is correct. As changing prices of their goods frequently may irritate customers, suppliers do not want to change the prices of goods frequently. ##
|!|EM43036|!| According to the _____________________ theory, if there is an increase in the price level, firms will adjust the nominal wages ___________ to keep real wages unchanged. A. B. C. D. sticky-wage upwards worker-misperception downwards worker-misperception upwards sticky-wage downwards
## C According to the worker-misperception theory, nominal wages are perfectly free to adjust to economic conditions, and firms have more information about the price level than workers. If there is an increase in the price level, firms will adjust nominal wages upwards to keep real wages unchanged. ##
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|!|EM43037|!| Paul is the owner of a textile manufacturing factory. When the price level increases, he thinks that the price of his goods relative to other goods has gone up. According to the imperfect information model, if many suppliers think in the same way, the __________________ will __________________. A. B. C. D. quantity supplied of textiles increase quantity supplied of textiles decrease total amount of output in the economy increase total amount of output in the economy decrease
## C According to the imperfect information model, when the price level increases, suppliers mistakenly believe that this applies to their goods only. They think that the price of their goods relative to other goods has gone up. Their goods become more popular and hence more profitable. Therefore, they will produce more. When many suppliers think in the same way, the total amount of output will increase when the price level increases. ##
|!|EM43038|!| In the long run, an economys total output is affected by (1) the price level of the economy. (2) the education level of workers. (3) the technology level of the economy.
A. B. C. D.
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## C In the long run, an economys total output is determined by its productive capacity, which depends on the quantity and/or quality of its factors of production. It is independent of the price level. The education level of workers and the technology level of the economy affect the productive capacity of the economy, and therefore affect the total output of the economy. ##
|!|EM43039|!| In the long run, when the price level increases, which of the following statements is/are CORRECT? (1) The full-employment output level will increase. (2) The unemployment rate is at its natural rate. (3) Nominal output prices and factor prices remain unchanged.
A. B. C. D.
## B (2) is correct. In the long run, the output level will remain at the full-employment output level, no matter how the price level changes. At this level, the economys resources are fully employed and the unemployment rate is at its natural rate. (1) is incorrect. The full-employment output level is independent of the price level. (3) is incorrect. Nominal output prices and factor prices will increase. ##
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|!|EM43040|!| Which of the following statements is/are CORRECT? (1) The LRAS curve is vertical. (2) In the long run, all output prices are flexible. (3) In the long run, wages are fully flexible.
A. B. C. D.
## D (1) is correct. In the long run, the output level of the economy will remain at the full-employment output level, no matter how the price level changes. Therefore, the LRAS curve is vertical at the fullemployment level of output. (2) and (3) are correct. In the long run, all prices, including output prices and factor prices, are fully flexible. ##
|!|EM43041|!| In the long run, all information is available to the market. Therefore, A. B. C. D. the unemployment rate is zero in the market. all firms will not change the prices of their products. all prices can fully adjust. real output is different at every price level.
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## C When there is perfect information, there are no misperceptions about price or wage changes, and all prices will adjust fully to the changes in the price level. Option A is incorrect. In the long run, there is still natural rate of unemployment in the market. Option B is incorrect. Firms will adjust the prices of their products when there are changes in the price level. Option D is incorrect. In the long run, the output level will remain at the full-employment output level, no matter how the price level changes. Hence, the real output is the same at every price level. ##
|!|EM43042|!| Which of the following descriptions about aggregate supply is INCORRECT? A. B. The SRAS curve is upward-sloping, while the LRAS curve is vertical. The SRAS curve shows the positive relationship between the price level and the total amount of output produced in the short run, while the LRAS curve shows the negative relationship between the price level and the total amount of output produced in the long run. C. In the short run, the quantity of goods and services supplied changes with the price level, while changes in the price level have no effect on the quantity of goods and services supplied in the long run. D. Both the SRAS curve and the LRAS curve reflect the relationship between the price level and the quantity of goods and services produced.
## B The SRAS shows the positive relationship between the price level and the total amount of output produced. However, in the long run, the output level will remain at the full-employment output level, no matter how the price level changes. ##
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|!|EM43043|!| Refer to the following diagram.

Price level LRAS
P1 P0
Yf
Suppose the price level increases from P0 to P1. Which of the following will change in the long run? (1) the nominal gross domestic product (2) the real gross domestic product (3) the unemployment rate
A. B. C. D.
(1) only (2) only (1) and (2) only (1), (2) and (3)
## A The output level will remain at the full-employment output level (Yf), no matter how the price level changes. As the price level increases while the real GDP remains at Yf, the nominal gross domestic product will increase. (2) is incorrect. In the long run, the real GDP remains at Yf. (3) is incorrect. In the long run, the unemployment rate remains at its natural rate. ##
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|!|EM43044|!| Refer to the following diagram about economy A.

Price level LRAS1 LRAS0
Y1
Y0
Which of the following is the LEAST likely explanation for the above change in economy A? A. Due to the exploitation of natural resources over several years, the amount of natural resources of economy A has dropped sharply. B. Many students of economy A who studied abroad have chosen to migrate to foreign countries. C. D. The birth rate of economy A has dropped continuously. The government of economy A has reduced its expenditure on subsidising light industries.
## D In the long run, an economys total output is determined by its productive capacity, which depends on the quantity and quality of its factors of production. As the reduction in the expenditure on subsidies to light industries would not have any effect on the quantity and/or quality of resources, the long-run aggregate supply would not be affected. The reduction in the expenditure on subsidising light industries would only affect the short-run aggregate supply. For option A, the amount of natural resources will decrease. For options B and C, the quantity of labour will decrease. All of them will cause the long-run aggregate supply to decrease. ##
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|!|EM43045|!| Which of the following will cause short-run and long-run aggregate supply to decrease at the same time? A. B. C. D. People postpone their retirement plans as the economic situation becomes worse. The government imposes a sales tax. There is exhaustion of the oil supply. There is a drop in crop yields due to persistent heavy rain.
## C An exhaustion in the supply of oil means that the quantity of natural resources decreases and thus the productive capacity decreases. Both short-run and long-run aggregate supply will decrease. Option A is incorrect. People postpone their retirement plans will lead to an increase in the quantity of labour, so both short-run and long-run aggregate supply will increase instead. Options B and D are incorrect. They will only cause short-run aggregate supply to decrease, but will not affect long-run aggregate supply. ##
|!|EM43046|!| In 2008, a magnitude 8 earthquake took place in Sichuan, which damaged a lot of infrastructure in the area. We can conclude that Sichuans A. B. C. D. aggregate demand and short-run aggregate supply will increase. aggregate demand will increase and short-run aggregate supply will decrease. short-run and long-run aggregate supply will decrease. short-run and long-run aggregate supply will increase.
## C The productive capacity of Sichuan will decrease, as the earthquake damaged a lot of infrastructure in the area. As a result, both the short-run and long-run aggregate supply of Sichuan will decrease. ##
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|!|EM43047|!| Suppose the government increases the expenditure on services for the elderly. As a result, ____________ will increase and ____________ will remain unchanged. A. B. C. D. aggregate demand and short-run aggregate supply long-run aggregate supply long-run aggregate supply aggregate demand and short-run aggregate supply short-run and long-run aggregate supply aggregate demand aggregate demand short-run and long-run aggregate supply
## D If the government increases its expenditure on services for the elderly, the government expenditure will increase and therefore aggregate demand will increase. As the government expenditure will not affect the cost of production or the productive capacity of the economy, both short-run and long-run aggregate supply will remain unchanged. ##
|!|EM43048|!| Suppose the government subsidises the firms that are registered to employ university graduates of that year. Which of the following is the impact of such a policy? A. B. C. D. Aggregate demand will decrease. Short-run aggregate supply will increase. Long-run aggregate supply will increase. Both short-run and long-run aggregate supply will increase.
## B Firms may find it more profitable to produce goods after receiving the subsidies as the cost of production decreases. Therefore, short-run aggregate supply will increase. ##
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|!|EM43049|!| Suppose the government increases her spending on medical services for workers. Which of the following are CORRECT? (1) Aggregate demand will increase. (2) Short-run aggregate supply will increase. (3) Long-run aggregate supply will increase.
A. B. C. D.
(1) and (2) only (1) and (3) only (2) and (3) only (1), (2) and (3)
## D If the government increases her spending on medical services for workers, government expenditure will increase. Hence, aggregate demand will increase. Increasing spending on medical services makes the workers healthier and improves the quality of labour. The productive capacity of the economy will increase and, thus, both short-run and long-run aggregate supply will increase. ##
|!|EM43050|!| Which of the following will decrease the long-run aggregate supply of Hong Kong? A. B. C. D. There is a technological improvement in the animation industry. More and more university graduates migrate to the United States. The Hong Kong Government imports more resources from China. The Hong Kong Government is going to construct the Hong Kong - Zhuhai - Macao Bridge.
## B If more and more university graduates migrate to the United States, the quantity of labour in Hong Kong will decrease. The long-run aggregate supply of Hong Kong will decrease. ##
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|!|EM43051|!| Country A is facing the problem of severe desertification. If an innovative method is invented to cultivate crops in desert regions, Country As A. short-run aggregate supply will increase and long-run aggregate supply will remain unchanged. B. short-run aggregate supply will decrease and long-run aggregate supply will remain unchanged. C. D. short-run and long-run aggregate supply will increase. short-run and long-run aggregate supply will decrease.
## C If a new method is innovated to cultivate crops in desert regions, Country A can increase the output in desert regions and the productive capacity of the country will increase. Country As short-run and longrun aggregate supply will increase. ##
|!|EM43052|!| Suppose the government of Country X aims to increase aggregate demand and long-run aggregate supply. Which of the following policies should the government adopt? A. B. C. D. distribute cash to residents put extra resources into education reduce the sales tax rate control the price level
145
## B Putting extra resources into education will lead to an increase in government expenditure and thus the aggregate demand will increase. Besides this, putting extra resources into education will increase the productive capacity of the economy. Long-run aggregate supply will then increase. Option A is incorrect. Distributing cash to residents will increase the private consumption expenditure. Aggregate demand will increase. However, since this does not affect the productive capacity of the economy, long-run aggregate supply will remain unchanged. Option C is incorrect. Producers will find it more profitable to produce goods after the sales tax rate is reduced. Short-run aggregate supply will increase. Aggregate demand and long-run aggregate supply will remain unchanged. Option D is incorrect. Changes in the price level would not affect aggregate demand or long-run aggregate supply. Therefore, controlling the price level cannot help the government to achieve its aim. ##
|!|EM43053|!| Which of the following would result in a decrease in both the short-run and long-run aggregate supply of an economy? A. B. C. D. There is an increase in the tariffs on imports. There is an appreciation of the currency of a trading partner. Firms expect the future price level will increase. More entrepreneurs migrate to foreign countries.
## D The labour force will decrease if more entrepreneurs migrate to foreign countries. The productive capacity of the economy will decrease. Short-run and long-run aggregate supply will decrease. Options A and B are incorrect. An increase in the tariffs on imports and an appreciation of the currency of the trading partner affect only aggregate demand, but not aggregate supply. Option C is incorrect. Short-run aggregate supply will decrease when firms expect the future price level will increase. This does not affect long-run aggregate supply. ##
146
|!|EM43054|!| Nowadays, electronic products are developing rapidly due to technological advancement. The products are much more advanced than before in terms of production technology, product type and quality. Technological innovation leads to an increase in ______________. (1) aggregate demand (2) short-run aggregate supply (3) long-run aggregate supply
A. B. C. D.
## C (2) and (3) are correct. Technological advancement improves the quality of the factors of production, which increases the productive capacity of the economy. Therefore, short-run and long-run aggregate supply will increase. ##
147
Short Questions |!|ES43001|!| According to the interest rate effect, explain how investment expenditure will decrease when the price level rises. (4 marks)
## When the price level rises, people will hold more money for daily transactions. People will keep less money in banks and the amount of money available for lending will decrease. The interest rate will increase.The higher interest rate will discourage borrowing by firms for investment. Investment expenditure will decrease. ## (4 marks)
|!|ES43002|!| Compare the market demand curve of a good and the aggregate demand curve of an economy in terms of the following: (a) the variable of the x-axis of the curves (2 marks) (2 marks) (2 marks)
(b) the variable of the y-axis of the curves (c) relationship between the variables of the x-axis and y-axis of the curves
## (a) market demand curve: quantity of the good aggregate demand curve: quantity of output of the economy (real GDP) (b) market demand curve: unit price of the good aggregate demand curve: price level of the economy (c) market demand curve: negatively related aggregate demand curve: negatively related ## (1 mark) (1 mark) (1 mark) (1 mark) (1 mark) (1 mark)
|!|ES43003|!| Explain how the following would affect the aggregate demand curve of an economy: (a) Firms are pessimistic about economic prospects. (3 marks) (3 marks)
(b) The government increases the tariffs on imports.
148
## (a) If firms are pessimistic about economic prospects and expect lower future sales and profits, they will spend less on new plants and equipment. The investment expenditure will decrease. Aggregate demand will decrease and the aggregate demand curve will shift to the left. (3 marks) (b) An increase in the tariffs on imports will lead to a decrease in the imports of the economy. The net exports of the economy will increase. Aggregate demand will increase and the aggregate demand curve will shift to the right. ## (3 marks)
|!|ES43004|!| Given that Germany and England are trading partners, with the aid of a diagram, explain how the aggregate demand of England will be affected when the price level of Germany increases. (6 marks)
## When the price level of Germany increases, Englands goods become cheaper relative to Germanys goods. The Germans would buy more of Englands exports, while the British would import fewer of Germanys goods. Therefore, the net exports of England will increase and the aggregate demand will increase. The aggregate demand curve of England will shift to the right.
Price level
(3 marks)
AD1 AD0 0 Quantity of output (real GDP)
(3 marks)
##
|!|ES43005|!| Jimmy says, Only changes in the price level would affect the aggregate demand of a country. Kelvin says, Only changes in non-price factors would affect the aggregate demanded of a country. Are the above statements correct? Explain. (4 marks)
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## Jimmys statement is incorrect and Kelvins statement is correct. (2 marks)
Aggregate demand changes only when there are changes in factors affecting the expenditure of an economy other than the price level. (1 mark)
Changes in the price level lead to changes in the total quantity of output demanded at every given price level. ## (1 mark)
|!|ES43006|!| Suppose that people expect the future price level will decrease while their future income will increase. How will the aggregate demand at present change? Explain your answer. (6 marks)
## People will postpone and decrease their current consumption expenditure if they expect the future price level will decrease. The private consumption expenditure will decrease and the aggregate demand at present will decrease. (2 marks)
People will tend to increase their consumption expenditure if they expect their future income will increase. The private consumption expenditure will increase and the aggregate demand at present will increase. (2 marks)
Therefore, the change in aggregate demand is uncertain, depending on the extent of the increase and decrease in aggregate demand brought by the above factors. ## (2 marks)
|!|ES43007|!| Suppose the nominal wages of people do not change when the price level increases. Based on your understanding of aggregate demand, explain how the following would change. (a) private consumption expenditure (3 marks) (3 marks)
(b) aggregate demand
150
## (a) If there is no change in nominal wages when the price level increases, the real wages of people will decrease. People are able to buy fewer goods with the same amount of money. The purchasing power of their income will decrease. They will feel that they are poorer and will decrease their spending on goods and services. The private consumption expenditure will decrease. (3 marks)
(b) Changes in the price level lead to changes in the total quantity of output demanded at every given price level. The total quantity of output demanded decreases when the price level increases. This can be represented by a movement up and to the left along the AD curve. Aggregate demand does not change. ## (3 marks)
|!|ES43008|!| (a) What is disposable income? (2 marks)
(b) If the government increases the sales tax rate, the disposable income of people will decrease and people will spend less. Do you agree? Explain. (3 marks)
## (a) Disposable income is the income available for spending after paying income tax and receiving government transfers. (b) No. (2 marks) (1 mark)
The disposable income of people would not be affected by the sales tax rate. A higher sales tax rate would increase the price of goods. People can buy fewer goods with the same amount of money. However, the amount of income that people can spend (i.e. disposable income) does not change. ## (2 marks)
|!|ES43009|!| (a) Explain why the total quantity of output produced by an economy in the long run is not affected by the change in the price level. (3 marks)
(b) List TWO government policies that can increase the long-run aggregate supply of an economy. (2 marks)
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## (a) In the long run, an economys total output is determined by its productive capacity. It depends on the quantity and/or quality of its factors of production, which is independent of the price level. The output level will remain at the full-employment level, no matter how the price level changes. (3 marks) (b) - construct more infrastructures - increase resources put into education - Any reasonable answer(s) (Mark the FIRST TWO points only, 1 mark each) ##
|!|ES43010|!| Explain whether the following statements are correct. (a) In the long run, the total quantity of output supplied is the same at all price levels. (3 marks) (3 marks)
(b) In the long run, the full-employment output level will never change.
## (a) Correct. (1 mark)
In the long run, all prices are fully flexible. All information is available to the market and thus there are no misperceptions about price or wage changes. When prices can fully adjust, the same level of real output is generated at every price level. (b) Incorrect. (2 marks) (1 mark)
The determinants of the full-employment output level, and hence the long-run aggregate supply, are the quantity and quality of resources. When there is a change in the quantity and/or quality of resources, the productive capacity of the economy will change and therefore the full-employment output level will change. ## (2 marks)
|!|ES43011|!| The Admission Scheme for Mainland Talents and Professionals (ASMTP) is a scheme that the Hong Kong Government has adopted to attract Mainland talents and professionals to work in Hong Kong. The scheme is aimed at enhancing Hong Kong's competitiveness. Explain how the ASMTP scheme affects the short-run and long-run aggregate supply of Hong Kong. (4 marks)
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## Both the short-run aggregate supply and long-run aggregate supply of Hong Kong increase. As the ASMTP scheme brings highly-educated people and professionals to Hong Kong, the quantity and quality of labour resources and the productive capacity of Hong Kong increase. ## (4 marks)
|!|ES43012|!| In Country X, the price level and the nominal wages of workers decrease by the same percentage. Workers think that they earn less and hence reduce their labour supply. (a) Which theory or model can explain the behaviour of the workers? Explain your answer. (4 marks)
(b) With the aid of a diagram, explain whether the SRAS curve is upward-sloping or downwardsloping as indicated by the theory or model in (a). (4 marks)
## (a) Worker-misperception theory. (1 mark)
This theory assumes that nominal wages are perfectly free to adjust to economic conditions, and firms have more information about the price level than workers. If workers are not aware that the price level has decreased, they will mistakenly believe that the decrease in the nominal wages lead to a decrease in their real wages. Hence, they will supply less labour. (3 marks)
(b) As the decrease in the price level causes the labour supply to decrease in (a), the total quantity of output will decrease. In this case, the SRAS curve is upward-sloping.
Price level SRAS
(2 marks)
P0 P1
Y1
Y0
(2 marks) ##
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|!|ES43013|!| Comment on the following statements. Statement 1: Factors affecting short-run aggregate supply must also affect long-run aggregate supply. (3 marks) Statement 2: Factors affecting long-run aggregate supply must also affect short-run aggregate supply. (3 marks)
## Statement 1 is incorrect. Factors affecting short-run aggregate supply may not affect long-run aggregate supply. The determinants of long-run aggregate supply are the quantity and quality of resources. Since some factors that affect short-run aggregate supply (e.g. weather condition) may not affect the quantity and/or quality of resources, long-run aggregate supply will not be affected. Statement 2 is correct. (2 marks) (1 mark) (1 mark)
Any factors that affect the quantity and quality of resources will change the output produced at every price level in both short run and long run. ## (2 marks)
|!|ES43014|!| Suppose the Hong Kong Government increases the amount of subsidy of the Continuing Education Fund provided for each eligible student. At the same time, the government provides extra subsidies to institutions for offering more innovative courses. Explain how this measure affects the aggregate demand, short-run aggregate supply and long-run aggregate supply of Hong Kong. (6 marks)
## Increasing the amount of subsidy of the Continuing Education Fund to eligible students encourages more people to study. Private consumption expenditure will increase and thus the aggregate demand will increase. (2 marks)
The governments offering of extra subsidy encourages institutions to provide more innovative courses, and thus the short-run aggregate supply of Hong Kong will increase. (2 marks)
Better education and training will raise the quality of labour. The productive capacity of Hong Kong will increase. The long-run aggregate supply of Hong Kong will increase. ## (2 marks)
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|!|ES43015|!| (a) According to the sticky-wage theory, nominal wages are assumed to be slow to adjust to economic changes in the short run. Explain this assumption. (3 marks)
(b) Suppose all the firms in an economy can freely adjust nominal wages according to economic changes. When the price level increases, how would the real wages paid to workers and the total output change? (4 marks)
## (a) When firms and workers enter into long-term contracts, they will use their expectations of future prices to determine nominal wages. With the contractual period, nominal wages cannot be adjusted according to economic conditions flexibly. Therefore, the nominal wages are slow to adjust to economic changes in the short run. (3 marks)
(b) If all the firms can freely adjust nominal wages according to economic changes, when the price level increases, the real wages paid to workers will remain unchanged. (2 marks)
Firms will keep their original quantity of output supplied as there is no change in the real wages. The total output will remain unchanged. ## (2 marks)
|!|ES43016|!| With the aid of separate diagrams, explain the effects of the following events on short-run aggregate supply. (a) There is an increase in the price level. (5 marks) (5 marks)
(b) Firms expect the future price level to increase.
155
## (a) In the short run, an increase in the price level tends to increase the quantity of goods and services produced. An increase in the price level can be shown by an upward movement along the SRAS curve. Short-run aggregate supply is not affected.
Price level SRAS
(2 marks)
P1 P0
Y0
Y1
(3 marks) (b) If firms expect the future price level to increase, firms will decrease their present supply in order to supply more in the future. Short-run aggregate supply will decrease. The SRAS curve will shift to the left.
Price level SRAS1 SRAS0
(2 marks)
(3 marks) ##
|!|ES43017|!| Explain how the following would affect the aggregate demand and the short-run aggregate supply of an economy. (a) The government refunds part of the salaries tax to taxpayers. (3 marks) (3 marks)
(b) More advanced machinery is imported from foreign countries by producers.
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## (a) The disposable income of taxpayers will increase if the government refunds part of the salaries tax to them. Therefore, the private consumption expenditure will increase and the aggregate demand will increase. The short-run aggregate supply will not be affected. (2 marks) (1 mark)
(b) Importing more advanced machinery from foreign countries by producers leads to a decrease in the cost of production. This will lead to an increase in the short-run aggregate supply. (2 marks)
The aggregate demand will not be affected, as the increase in import will be offset by the increase in investment. ## (1 mark)
|!|ES43018|!| (a) Can the change in the price level affect the full-employment output level? (3 marks)
(b) Suppose the government of an economy wants to increase the full-employment output level. Suggest TWO policies that she may adopt. (4 marks)
## (a) No. (1 mark)
An economys full-employment output level is determined by its productive capacity, which depends on the quantity and/or quality of its factors of production. It is independent of the price level. (b) Any policies that can increase long-run aggregate supply: - provide better education - construct more infrastructures - develop new technologies - Any reasonable answer(s) (Mark the FIRST TWO points only, 2 marks each) ## (2 marks)
|!|ES43019|!| State and explain TWO theories/models that can be used to explain why the SRAS curve is upwardsloping. (6 marks)
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## The theories/models include: - Sticky-wage theory: When the price level decreases (to a level lower than expected) but nominal wages paid to workers remain unchanged, real wages will increase. Higher real wages will cause firms to employ fewer workers and produce less. Since the price level falls and the quantity of output decreases, the SRAS curve is upward-sloping. - Sticky-price theory: When the price level decreases, some firms will refuse to cut the prices of their output as costs will be incurred in reducing their prices. Consumers will find the prices of these goods too high and reduce their consumption. As a result, their sales will drop and stocks will accumulate. These producers will have to reduce output. Therefore, total output will decrease when the price level decreases and the SRAS curve slopes upwards. - Worker-misperception theory: If there is a decrease in the price level, firms will adjust nominal wages downwards to keep real wages unchanged. However, workers are not aware that the price level has decreased. The workers mistakenly believe that their real wages have decreased and they will supply less labour. As a result, the total quantity of output will decrease when the price level decreases. The SRAS curve is thus upward-sloping. - Imperfect information model: When the price level decreases, suppliers mistakenly believe that this applies to their goods only. They think that the price of their goods relative to other goods has gone down. Their goods become less popular and hence less profitable. Therefore, they will produce less. When many suppliers think in the same way, the total amount of output will decrease when the price level decreases, and the SRAS curve slopes upwards. (Mark the FIRST TWO points only, 3 marks each) ##
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Long Questions |!|EL43001|!| Read the following news report from a newspaper carefully. In Germany, employees of several airline companies were dissatisfied with their wage payment systems and launched a 4-day labour strike to fight for a wage increase and improvements to their benefits. More than half of the employees of the airline companies participated in the strike. The air service in Germany was paralyzed and serious economic losses resulted
(a)
How would the short-run and long-run aggregate supply of Germany be affected during the period of the labour strike? Explain with the aid of separate diagrams. (8 marks)
(b) How would the short-run and long-run aggregate supply of Germany be affected when the labour strike was over? (4 marks)
## (a) A labour strike is an unfavourable supply shock that would decrease the short-run aggregate supply. Therefore, the short-run aggregate supply curve would shift to the left.
Price level SRAS1 SRAS0
(2 marks)
(2 marks) As the labour strike has no effect on the quantity and quality of resources of Germany, the longrun aggregate supply would remain unchanged at the full-employment output level.
Price level LRAS
(2 marks)
(2 marks)
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(b) When the labour strike was over, the temporary unfavourable supply shocks would disappear and the short-run aggregate supply would return to its original level. (2 marks)
The long-run aggregate supply would remain unchanged at the full-employment level. (2 marks) ##
|!|EL43002|!| Hong Kong lacks natural resources. Many important industrial resources are imported from China. Steel is one example. (a) In recent years, the Renminbi has appreciated against the Hong Kong Dollar continuously. How will this affect the short-run and the long-run aggregate supply of Hong Kong? (6 marks)
(b) Suppose Hong Kong found a more efficient material that can substitute for steel. Explain how the short-run and the long-run aggregate supply of Hong Kong would be affected. (6 marks)
## (a) The appreciation of the Renminbi will lead to a rise in the import price of steel. When the price of factors of production increases, the cost of production will increase. As a result, firms will reduce their output and the short-run aggregate supply will decrease. (3 marks)
The determinants of the full-employment output level and the long-run aggregate supply are the quantity and quality of resources. As the appreciation of the Renminbi has no effect on the quantity and quality of resources of Hong Kong, the long-run aggregate supply will remain unchanged. (3 marks)
(b) The discovery of a more efficient material that can substitute for steel implies that more output can be produced with the same amount of resources. The cost of production would decrease and thus the short-run aggregate supply would increase. (3 marks)
As the new material is more efficient, the productive capacity of Hong Kong would increase. The long-run aggregate supply would increase. ## (3 marks)
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|!|EL43003|!| The coverage of the Individual Visit Scheme has expanded since its implementation. More and more residents of Mainland cities visit Hong Kong through the scheme. The total amount spent by the Mainland tourists keeps on rising. (a) With the aid of a diagram, explain how the aggregate demand of Hong Kong would be affected after expanding the coverage of the Individual Visit Scheme. (5 marks)
(b) With the aid of the diagram in (a), explain how the aggregate demand of Hong Kong would be affected when the Renminbi appreciates against the Hong Kong dollar after the expansion of the Individual Visit Scheme. (c) (5 marks)
Should the amount of spending of Mainland tourists be included in the calculation of the gross domestic product (GDP) of Hong Kong? Explain your answer. (3 marks)
## (a) The expansion of the coverage of the Individual Visit Scheme increases the number of tourists from the Mainland to Hong Kong. As the tourists consume in Hong Kong and they demand Hong Kongs goods and services, net exports of Hong Kong will increase. The aggregate demand of Hong Kong will increase. The aggregate demand curve will shift to the right.
Price level
(3 marks)
AD1 AD0 0 Quantity of output (real GDP)
(2 marks)
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(b) Other things being constant, when the Renminbi appreciates against the Hong Kong dollar, the relative prices of domestic goods and services in Hong Kong will decrease and the spending of the visitors from the Mainland in Hong Kong will increase. As a result, net exports will increase and the aggregate demand of Hong Kong will further increase.
Price level
(3 marks)
AD2 AD1 AD0 0 Quantity of output (real GDP)
(2 marks) (c) It is included in Hong Kongs GDP. As tourists spending is regarded as exports of services, it is included in exports. ## (1 mark) (2 marks)
|!|EL43004|!| Suppose Country A aims to increase aggregate demand and long-run aggregate supply of the economy at the same time. Explain whether an imposition of the following policies could help Country A achieve its aims. (a) families will receive extra tax allowances for giving birth to more than one child (4 marks) (4 marks) (4 marks)
(b) lowering the sales tax rate (c) restricting the volume on imported goods
## (a) This policy can help Country A achieve its aims. (1 mark)
This policy can encourage people to give birth and thus results in a rise in population. The total demand for goods and services will increase when the population increases. The private consumption expenditure will increase. Aggregate demand will increase. Besides, the babies can provide a larger labour force for Country A in the future. The productive capacity of Country A will increase. Therefore, long-run aggregate supply will increase. (3 marks)
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(b) This policy cannot help Country A achieve its aim.
(1 mark)
Lowering the sales tax rate would not affect the quantity or quality of resources. Long-run aggregate supply will remain unchanged. Besides, a decrease in the sales tax rate will lead to an increase in short-run aggregate supply, but aggregate demand will not be affected. (c) This policy cannot help Country A achieve its aim. (3 marks) (1 mark)
Restricting the volume on imported goods will lead to a drop in the volume of imports. The net exports of Country A will increase and therefore aggregate demand will increase. However, this policy will not affect the quantity or quality of resources and thus will not cause any effect on long-run aggregate supply. ## (3 marks)
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Chapter 17 Aggregate Demand and Aggregate Supply

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Chapter 17 Aggregate Demand and Aggregate Supply

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Economics Inquiry for HKDSE Macroeconomics 1 Chapter 17 Aggregate Demand and Aggregate Supply

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AD1 AD0 0 0 Quantity of output (real GDP) AD1

Quantity of output (real GDP)

P0 P1 AD 0 Y0 Y1 Quantity of output (real GDP)

P1 P0 AD 0 Y1 Y0 Quantity of output (real GDP)

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|!|EM43043|!| Refer to the following diagram.

Quantity of output (real GDP)

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|!|EM43044|!| Refer to the following diagram about economy A.

Quantity of output (real GDP)

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(b) The government increases the tariffs on imports.

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AD1 AD0 0 Quantity of output (real GDP)

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## Jimmys statement is incorrect and Kelvins statement is correct. (2 marks)

(b) aggregate demand

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|!|ES43008|!| (a) What is disposable income? (2 marks)

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## (a) Correct. (1 mark)

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## (a) Worker-misperception theory. (1 mark)

Quantity of output (real GDP)

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(b) Firms expect the future price level to increase.

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Quantity of output (real GDP)

Quantity of output (real GDP)

(b) More advanced machinery is imported from foreign countries by producers.

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## (a) No. (1 mark)