Aggregate Demand Quiz

What is the definition of Aggregate Demand?

• The total sum of all demands and expenditures in the economy at any given price.

• The total sum of all goods and services produced in the economy.

• The total sum of all savings in the economy.

• The total sum of all investments in the economy.

Answer explanation

Aggregate Demand is the total sum of all demands and expenditures in the economy at any given price.

Aggregate Demand is a measure of which of the following?

• Consumer Confidence

• National Income

• Unemployment Rate

• Inflation Rate

Answer explanation

Aggregate Demand is a measure of National Income, which represents the total value of goods and services produced in an economy. It reflects the overall level of economic activity and spending by households, businesses, and the government.

How is National Income usually measured?

• CPI (Consumer Price Index)

• GDP (Gross Domestic Product)

• GNP (Gross National Product)

• HDI (Human Development Index)

Answer explanation

National Income is usually measured using GDP (Gross Domestic Product), which represents the total value of goods and services produced within a country's borders.

Which formula represents the calculation of National Income or Aggregate Demand (AD)?

• AD = C + I + G + (X - M)

• AD = C + S + T + (X - M)

• AD = C + I + G + (M - X)

• AD = C + I + S + (X - M)

Answer explanation

The formula for National Income or Aggregate Demand (AD) is AD = C + I + G + (X - M). This formula includes consumption (C), investment (I), government spending (G), and net exports (X - M).

What does the component 'C' stand for in the Aggregate Demand formula AD = C + I + G + (X - M)?

• Capital

• Consumption

• Credit

• Corporations

Answer explanation

The component 'C' in the Aggregate Demand formula stands for Consumption. It represents the total spending by individuals and households on goods and services.

What is saving defined as in the context of income?

• The amount of income spent on consumer durables

• The amount of income spent on consumables

• The amount of income that is not spent

• The amount of income spent on services

Answer explanation

Saving is defined as the amount of income that is not spent.

What is the relationship between consumption and the factors that determine it called?

• Consumption Ratio

• Consumption Function

• Consumption Dynamics

• Consumption Determinants

Answer explanation

The relationship between consumption and the factors that determine it is called the Consumption Function. It explains how changes in income, interest rates, and other factors affect consumer spending.

What is the most important factor in determining the amount of consumption according to the text?

• Gross Income

• Net Income

• Disposable Income

• Marginal Income

Answer explanation

According to the text, the most important factor in determining the amount of consumption is Disposable Income.

How is the Marginal Propensity to Consume (MPC) calculated?

• Change in Consumption (C) divided by Change in Income (Y)

• Change in Income (Y) divided by Change in Consumption (C)

• Total Consumption divided by Total Income

• Total Income divided by Total Consumption

Answer explanation

The Marginal Propensity to Consume (MPC) is calculated by dividing the change in consumption (C) by the change in income (Y).

Calculate the MPC if a household's income rises by £5000 per year and they spend £4500 of their extra income.

• 0.9

• 0.8

• 1.0

• 0.7

Answer explanation

The marginal propensity to consume (MPC) is calculated by dividing the change in consumption by the change in income. In this case, the household's extra income is £5000 and they spend £4500 of it. Therefore, the MPC is 0.9, indicating that they spend 90% of their extra income.