Components of Aggregate Demand
59 questions· page 1 of 6
What does the accelerator principle explain?
Options
A how changes in consumption lead to changes in income
B how changes in income lead to changes in consumption
C how changes in income lead to changes in investment
D how changes in investment lead to changes in income
An increase in a country’s inflation rate causes real incomes to decline, but consumers decide to maintain their living standards.
What has increased?
Options
A autonomous consumer spending
B autonomous saving
C induced consumer spending
D induced savings
In a closed economy with no government, the level of consumption spending is determined by the equation C = a + bY.
What does b represent in this equation?
Options
A autonomous consumption
B autonomous investment
C the average propensity to consume
D the marginal propensity to consume
According to the accelerator theory, what would cause investment in an economy to be lower than in the previous year?
Options
A a lower marginal propensity to consume than in the previous year
B a lower marginal propensity to save than in the previous year
C a smaller fall in national income than occurred in the previous year
D a smaller rise in national income than occurred in the previous year
A fall in domestic investment leads to an increase in unemployment.
Which other economic problem is likely to occur as a result?
Options
A an increase in interest rates on loans for house purchases
B an increase in the current account balance of payments deficit
C an increase in the government budget deficit
D an increase in the rate of price inflation
What is most likely to influence subsequent increases in national income as a result of a government policy of reduced interest rates?
Options
A marginal cost
B marginal efficiency of capital
C marginal product
D marginal utility
Households in an economy change their consumption behaviour causing the consumption curve to shift from C1 to C2.
What has happened to autonomous consumption and the marginal propensity to consume?
Options
| autonomous consumption | marginal propensity to consume | |
|---|---|---|
| A | decreased | decreased |
| B | decreased | increased |
| C | increased | decreased |
| D | increased | increased |
What does the accelerator principle state?
Options
A Consumption is a function of the rate of change of income.
B Income is a function of the rate of change of investment.
C Investment is a function of the rate of change of income.
D Investment is a function of the rate of interest.
Which statement best describes demand-induced investment?
Options
A It is spending on capital goods by firms because the rate of growth in demand for final goods and services increases.
B It is spending on capital goods by firms because the cost of borrowing has fallen.
C It is spending on capital goods by firms because they want to access new technology to improve the output per worker.
D It is spending on new capital goods by firms replacing old and obsolete capital goods.
What is the basic assumption underlying the accelerator theory?
Options
A Investment depends on the level of business confidence.
B Investment depends on the level of savings.
C Investment depends on the rate of change in national income.
D Investment depends on the rate of change of interest rates.