Question 1

Equilibrium in the economy occurs when:&#10;A) Aggregate demand equals withdrawals.&#10;B) Aggregate supply equals injections.&#10;C) Planned injections equal planned withdrawals.&#10;D) Aggregate demand equals investment.

Accepted Answer

Equilibrium in the economy occurs when planned injections (such as investments, government spending, and exports) equal planned withdrawals (such as savings, taxes, and imports). This balance ensures that all output produced in the economy is exactly equal to the total demand, leading to an equilibrium state.

Question 2

Injections into the economy do not include:&#10;A) Investment&#10;B) Savings&#10;C) Government spending&#10;D) Exports

Accepted Answer

Savings are not considered injections into the economy; instead, they are a leakage. Injections refer to the ways money enters the economy, such as through investment, government spending, and exports, whereas savings represent money that is not being spent in the economy.

Question 3

Withdrawals from the economy do not include:&#10;A) Savings&#10;B) Imports&#10;C) Taxation revenue&#10;D) Export spending

Accepted Answer

Withdrawals from the economy include savings, imports, and taxation revenue, as these are all ways money can leave the economy. Export spending, however, is considered an injection into the economy, as it brings money into the country from abroad.

Question 4

In the circular flow of income model injections into the economy:&#10;A) Reduce aggregate demand.&#10;B) Are assumed not to be linked to the level of income.&#10;C) Represent money leaving the circular flow.&#10;D) Are a function of income.

Accepted Answer

Injections into the economy, such as investments, government spending, and exports, are assumed not to be directly linked to the current level of household income. Instead, they are external factors that add to the circular flow of income, stimulating economic activity.

Question 5

If planned injections are greater than planned withdrawals:&#10;A) Aggregate demand is higher than the existing output.&#10;B) Aggregate demand is too low.&#10;C) The economy is in equilibrium.&#10;D) There is too little spending in the economy.

Accepted Answer

When planned injections (such as investments, government spending, and exports) are greater than planned withdrawals (such as savings, taxes, and imports), it typically indicates that aggregate demand is higher than the existing output, suggesting an expansionary gap in the economy.

Question 6

Which of the following is a reflationary (expansionist) policy?&#10;A) A cut in income tax&#10;B) An increase in interest rates&#10;C) A cut in government spending&#10;D) An increase in tax on company profits

Accepted Answer

A cut in income tax is a reflationary policy because it increases disposable income for consumers, encouraging spending and investment, which can stimulate economic growth.

Question 7

For an economy to be in equilibrium:&#10;A) Savings must equal investment.&#10;B) Actual injections must equal actual withdrawals.&#10;C) Planned injections equal planned withdrawals.&#10;D) The government's budget must balance.

Accepted Answer

The answer of For an economy to be in equilibrium:&#10;A)...

Question 8

If demand in the economy is too high there is an inflationary gap.

Accepted Answer

An inflationary gap occurs when aggregate demand in an economy outpaces aggregate supply, leading to higher prices or inflation due to the excess demand.

Question 9

Aggregate demand = C+ I + G + M - X

Accepted Answer

The correct formula for aggregate demand is C + I + G + (X - M), where C is consumption, I is investment, G is government spending, X is exports, and M is imports.

Question 10

If aggregate demand is lower than the level required for full employment, this means there is a ____________ gap.

Accepted Answer

The answer of If aggregate demand is lower than the...

Question 11

In the circular flow of income, factor services are:&#10;A) Wages&#10;B) Rental income from land and capital goods&#10;C) Profit&#10;D) Wages, rental income from land and capital goods or profit

Accepted Answer

The answer of In the circular flow of income, factor...

Question 12

The circular flow of income model shows that output, income and expenditure are equal to one another.

Accepted Answer

The answer of The circular flow of income model shows...

Question 13

Injections into the economy represent:&#10;A) Spending on services in addition to consumption expenditure.&#10;B) Spending on goods in addition to consumption expenditure.&#10;C) Spending on goods and services in addition to consumption expenditure.&#10;D) None of the above.

Accepted Answer

The answer of Injections into the economy represent:&#10;A) Spending on...

Question 14

Investment spending does not include expenditure on:&#10;A) New equipment and machinery&#10;B) Education&#10;C) Stocks&#10;D) None of the above

Accepted Answer

The answer of Investment spending does not include expenditure on:&#10;A)...

Question 15

Injections are assumed to be ____________ to the level of income&#10;A) Endogenous&#10;B) Inversely related&#10;C) Proportional&#10;D) Exogenous

Accepted Answer

The answer of Injections are assumed to be ____________ to...

Deck 18: Equilibrium in the Economy