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Worksheets2.2 Aggregate demand (AD) - based on Notes
Total questions: 24
Worksheet time: 12mins
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
How does inflation impact the purchasing power of money?
It increases the purchasing power of money
It has no impact on the purchasing power of money
It decreases the purchasing power of money
It initially decreases then increases the purchasing power of money
What is the primary goal of monetary policy?
To ensure high employment levels
To maintain price stability
To achieve a high trade surplus
To ensure balanced government budgets
What effect does a decrease in the interest rate have on consumer borrowing and spending?
It decreases consumer borrowing and spending
It has no effect on consumer borrowing and spending
It increases consumer borrowing and spending
It initially increases then decreases consumer borrowing and spending
What is the primary function of fiscal policy?
To regulate the stock market
To control the money supply and interest rates
To manage government spending and taxation
To oversee banking and financial institutions
How does a country's trade deficit impact its currency value?
It increases the currency value
It decreases the currency value
It has no impact on the currency value
It initially decreases then increases the currency value
What is the effect of a high unemployment rate on a country's economy?
It leads to higher consumer spending
It increases the country's GDP
It decreases the overall demand for goods and services
It has no significant effect on the economy
How do changes in the exchange rate affect a country's exports?
A stronger currency makes exports more competitive
A weaker currency makes exports less competitive
A stronger currency reduces the price of exports in foreign markets
A weaker currency makes exports more competitive
What role does consumer confidence play in economic growth?
High consumer confidence discourages spending and investment
Low consumer confidence promotes saving, which funds investment
High consumer confidence leads to increased spending and investment, stimulating economic growth
Consumer confidence has no impact on economic growth
What impact does a decrease in government spending have on the aggregate demand in an economy?
It increases the aggregate demand
It decreases the aggregate demand
It has no impact on the aggregate demand
It initially decreases then increases the aggregate demand
How does an increase in the inflation rate affect the real value of money?
It increases the real value of money
It decreases the real value of money
It has no impact on the real value of money
It initially increases then decreases the real value of money
What is the likely effect of an increase in income tax rates on consumer spending?
It leads to an increase in consumer spending
It leads to a decrease in consumer spending
It has no significant effect on consumer spending
It initially decreases then increases consumer spending
What effect does a government surplus have on national savings?
It decreases national savings
It has no effect on national savings
It increases national savings
It initially decreases then increases national savings
How does an increase in consumer confidence typically affect the stock market?
It leads to a decrease in stock market values
It has no significant effect on the stock market
It leads to an increase in stock market values
It initially increases then decreases stock market values
What is the primary effect of quantitative easing on the economy?
It decreases the money supply and raises interest rates
It increases the money supply and lowers interest rates
It has no significant effect on the money supply or interest rates
It initially decreases then increases the money supply
