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This is an 8 mark question, so lets split the answer into three parts so that the examiner can clearly see the various components of this 3+3+2 answer.

In the first paragraph try and state at least...

Inflation is the general increase of the price level within an economy. Government spending is a component of AD, therefore an increase to this component would cause AD to increase. The upward shift of AD...

Aggregate demand is based on four components. These are: consumption, investment, government spending and net exports. The equation for this is AD = C + I + G + (X-M). Net exports is the amount of exports...

Difference 1. In a perfectly competitive market marginal revenue is equal to average revenue at all quantity of production and the price for all firms is set at the same value. By contrast, in a monopoly ...

A price ceiling is when a maximum price is set on a good. For a price ceiling to be effective, it must be set below the free-market price. This causes excess demand (a shortage), which might cause people ...