Wk 2 AD/AS/Multiplier

What does the aggregate demand curve represent in an economy?

• The total supply of goods and services produced within an economy

• The total demand for goods and services within an economy at a given overall price level and in a given time period

• The difference between potential GDP and actual GDP

• The effect of a change in investment on total output

Which of the following factors can cause a shift in the aggregate supply curve?

• Changes in consumer preferences

• Changes in government spending

• Changes in the cost of production

• Changes in the money supply

What is an output gap?

• The difference between the actual level of output and the potential level of output in an economy

• The difference between imports and exports

• The difference between government spending and tax revenue

• The difference between savings and investment

Which of the following best describes the multiplier effect?

• The process by which an increase in consumer spending leads to a larger increase in national income

• The process by which a decrease in taxes leads to a decrease in government revenue

• The process by which an increase in interest rates leads to a decrease in investment

• The process by which an increase in imports leads to a decrease in domestic production

If the government increases its spending by £1 billion and the marginal propensity to consume is 0.8, what is the total increase in national income according to the multiplier effect?

• £1.25 billion

• £4 billion

• £5 billion

• £8 billion

What happens to the aggregate demand curve when there is a decrease in consumer confidence?

• It shifts to the right

• It shifts to the left

• It becomes steeper

• It becomes flatter

Which of the following is a consequence of a positive output gap?

• Unemployment is higher than the natural rate

• Inflationary pressures increase

• The economy is operating below its potential output

• There is a surplus in the balance of payments

What is the formula for calculating the multiplier?

Which of the following would likely cause a leftward shift in the aggregate supply curve?

• A decrease in oil prices

• An increase in productivity

• An increase in wages

• A decrease in taxes

What is the marginal propensity to consume (MPC)?

• The proportion of additional income that is saved

• The proportion of additional income that is spent on consumption

• The proportion of total income that is spent on consumption

• The proportion of total income that is saved