Aggregate Demand Component and Business Cycle

Consider the following data for a hypothetical economy.

Using this data, which one of the following statements about the hypothetical economy is correct?

• A. It is contracting, because savings are greater than taxation receipts.

• B. It is contracting, because leakages are greater than injections.

• C. It is expanding, because injections are greater than leakages.

• D. It is expanding, because imports are greater than private investment.

Which one of the following actions are economists most likely to consider as investment expenditure?

• A. an individual buying shares

• B. a supermarket installing self-serve checkouts

• C. a company paying its workers higher wages

• D. a household purchasing a home entertainment unit

As a component of Aggregate Demand, Private Investment expenditure (I) would:

• not include the purchase of new machinery by firms.

• include the purchase of a microwave by a family.

• include the construction of new houses on the outskirts of Melbourne and in regional towns such as Ballarat.

• include spending on government infrastructure projects around Australia.

The largest component of Aggregate Demand is:

• A. Exports minus imports (Net Exports)

• B. Government spending

• C. Private Consumption spending

• D. Private Investment spending

Which one of the following is a leakage from the circular flow model of income?

• A. an increase in consumption spending

• B. transfer payments made by the government

• C. an increase in imports

• D. an increase in investment spending

Which of the following combination of indicators would be most likely to be considered ‘lagging’ indicators?

• A. i, ii, iii

• B. i, iv, v

• C. ii, v, vi

• D. i, v, vii

Which of the following is most likely to be considered Investment expenditure within the Australian economy?

• A. An individual educating themself

• B. The government paying wages to university lecturers

• C. A trucking business purchasing more vehicles

• D. China buying more iron ore from Australia

Government spending on the East West Link in Melbourne is an example of:

• A. business confidence.

• B. good financial management.

• C. government infrastructure spending.

• D. government consumption spending.

If the value of each of the following components were reduced by 10%, which would have the largest negative impact on aggregate demand and economic growth?

• A. net exports

• B. consumption

• C. private investment

• D. government spending

The diagram below represents the circular flow model of income, with one major imperfection.

Which of the following accurately describes the imperfection?

• A. The arrows relating to flows 1 and 2 are pointing in the wrong direction

• B. Leakages and injections are in the wrong position

• C. Savings and Investment are in the wrong position

• D. Exports and Imports are in the wrong position