Multiple choice questions corrections pt2

Question 1

Injections

Answer 1

Resources entering a system (Investments, Government spending, Exports)

Question 2

Leakages

Answer 2

Also known as withdrawals, it is monetary resources leaving a country (Taxes, Savings, Imports)

Question 3

Increase in aggregate demand diagram

Answer 3

Shifts down and right or just right

Question 4

Decrease in aggregate demand

Answer 4

Shifts up and left or just left

Question 4

Budget deficit

Answer 4

Implies a reduction in taxes and increase in G. This leads to an increased AD.

Question 5

Budget surplus

Answer 5

Happens when economy is under inflationary pressure. It means an increase in taxes and decrease in G. This decreases AD.

Question 6

Output gaps

Answer 6

The difference between actual and potential GDP
Negative=Low AD
Positive=High AD-Demand pull inflation

Question 7

Supply shocks

Answer 7

Positive-Increases SRAS
Negative-Decreases SRAS

Question 8

AS capacity

Answer 8

SRAS-Total output that firms are willing to produce in the SR, spare capacity
LRAS-Shows the productive capacity of an economy, full capacity

Question 9

Monetary policy

Answer 9

Contractionary-Higher interest>Lower AD
Expansionary-Lower interest>Higher AD-Demand pull inflation and inflationary pressures
SHORT RUN ONLY

Question 10

Fiscal policy

Answer 10

Expansionary-Increased G/decreased income tax>Increased AD-Used during recession to decrease inflation and unemployment
Contractionary-Decreased G/Increased income tax> Decreased AD-Used in boom to lower demand pull inflation and increases cyclical unemployment

Question 11

Inflationary pressures

Answer 11

Demand and supply side factors that may raise the price level.