Circular Flow and Aggregate Demand Quiz

What is the circular flow of income?

• A model showing tax systems

• A process of income redistribution

• A model of money, goods, and services moving through the economy

• A tool for tracking inflation

Which of the following is a leakage from the circular flow?

• Investment

• Savings

• Government spending

• Exports

Which of these is an injection into the circular flow?

• Taxes

• Imports

• Government spending

• Savings

Which sectors are included in the extended circular flow model?

• Households and firms only

• Households, firms, and trade unions

• Households, firms, government, financial sector, and foreign sector

• Government and monopolies only

What happens when injections equal leakages?

• The economy is in equilibrium

• Inflation begins

• Unemployment rises

• GDP falls rapidly

Which of the following correctly represents the multiplier formula?

• 1 / MPC

• 1 / (1 - MPC)

• MPC × 100

• (1 - MPM) × 100

If the marginal propensity to consume is 0.75, what is the value of the multiplier?

• 2

• 3

• 4

• 5

Which of the following would increase the size of the multiplier?

• Higher MPC

• Higher MPS

• Higher taxes

• Increased imports

Which component is the largest part of Aggregate Demand in most economies?

• Consumption

• Investment

• Government spending

• Exports

Which of the following is not a component of AD?

• Consumption

• Net exports

• Inflation

• Investment