Economics Multiple Choice Question – 21 April 2019

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The diagram below shows three supply curves (labelled S) and three demand curves (labelled D) for the pound sterling (£). The price of sterling is quoted in US$. The original equilibrium is at point X.

There is now a recession in the USA. At the same time, the UK is experiencing a consumer boom.

Which point A, B, C or D will represent the new equilibrium in the market for the pound sterling?

Diagram 17

Select ONE answer:

  1. A
  2. B
  3. C
  4. D

Show your workings to arrive at your answer, and explain and justify your reasons:……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Economics KS5 classes.

The answer is 2

  1. This shows a decrease in supply and a decrease in demand for pounds sterling.
  2. Correct: A recession in the USA will reduce demand for UK exports and so the demand for pounds sterling. A consumer boom will increase demand for US imports and to purchase these the supply of pounds sterling will increase.
  3. This shows a decrease in supply and an increase in demand for pounds sterling.
  4. This shows an increase in supply but also an increase in demand for pounds sterling.

 

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