Aggregate Demand/Supply (AD/AS)

Question 1

Aggregate Demand Formulae

Answer 1

AD= C+I+G+(X-M)
C=Consumption spending
I=Investment spending
G=Government spending
X=Emports
M=Imports

Question 2

Name the injections in the circular flow of income

Answer 2

Injections= Exports, Investments and Government spending

Question 3

Name the leakages in the circular flow of income

Answer 3

Leakages = Imports, Savings and Taxation

Question 4

What does Aggregate Supply measure?(AS)

Answer 4

Aggregate supply (AS) measures the volume of goods and services produced within the economy at a given price level.

Question 5

What is the multiplier affect?

Answer 5

This is when one injection/withdrawal leading to multiple injections/withdrawals.

Question 6

What is the accelerator?

Answer 6

This is the believe that national income, the state of the economy, would effect how quantity of investment

Question 7

What is the meant by the term automatic stabilisers?

Answer 7

This is an automatic mechanism that works so that growth or recession doesn’t get too out of hand.

Question 8

Explain possible outcomes of what may happen when there is am increase in consumption.

Answer 8

(This can be used in any order depending on what the question asks.)
- increase in consumption.
- increase in production to meet demand.
- increase in investments to meet demand easier.
- increase in jobs to maintain and work the machines.
- multiplier effect kicked in. Cycles
- automatic stabilisers kick in. Government spending reduces as not paying as much benefits.