2.2 Aggregate demand (AD) - based on Notes

What is disposable income?

• The total amount of money a household earns before taxes

• The amount of money that households have available for spending and saving after income taxes have been accounted for

• The total amount of money a household saves after expenses

• The amount of money a household needs to spend on necessities

What is the relationship between savings and consumption according to the marginal propensity to consume (MPC) and save (MPS)?

• They are directly related; an increase in savings leads to an increase in consumption

• They are unrelated; savings do not affect consumption

• They are inversely related; an increase in savings typically means a decrease in consumption

• They are proportionally related; the rate of savings equals the rate of consumption

Which of the following factors can lower interest rates and encourage spending?

• Consumer skepticism

• Central banks raising interest rates

• Central banks lowering interest rates

• Decreased consumer confidence

What is the difference between gross investment and net investment?

• Gross investment is the total spending on new capital goods, while net investment deducts depreciation

• Gross investment includes only the spending on maintenance, while net investment includes total spending on new capital goods

• Net investment is the total spending on new capital goods, while gross investment deducts depreciation

• Gross investment and net investment are the same and include total spending on new capital goods

Which factor is known to stimulate business investment due to positive outlooks and is often referred to as "animal spirits"?

• Economic growth

• Consumer confidence

• Business confidence

• Government and regulations

What is the purpose of counter-cyclical fiscal policy during economic downturns according to the text?

• To decrease government spending and stimulate demand

• To increase taxes and reduce economic activity

• To increase government spending and stimulate the economy

• To reduce infrastructure investments and create jobs

Which of the following is NOT listed as a main influence on the net trade balance?

• Real income

• Exchange rates

• Protectionism

• Interest rates

How do tariffs and quotas affect the trade balance?

• They have no significant impact on trade balance

• They increase the trade balance by promoting exports

• They restrict imports and promote domestic goods, affecting the trade balance

• They make exports cheaper and imports more expensive

According to the text, what non-price factor can influence trade balances beyond just prices?

• The age of a country's population

• The level of technological advancement

• The quality, design, and brand strength of products

• The geographical size of a country

What role does the central bank play in controlling inflation?

• It has no role in controlling inflation

• It controls inflation by adjusting government spending

• It controls inflation by regulating interest rates and money supply

• It controls inflation by setting tax rates