5 Questions
Using the given data, what is the total Aggregate Demand (AD) in the economy?
AD = C + I + G + (X - M) = €950 billion + €238 billion + €356 billion - €59 billion = €1,485 billion
If the marginal propensity to consume (MPC) is 0.8, and disposable income increases by €119 billion, what is the change in consumption?
Change in consumption = MPC × Change in disposable income = 0.8 × €119 billion = €95.2 billion
Given the marginal propensity to save (MPS) of 0.2 (1 - MPC) and the marginal tax rate of 0.42, determine the multiplier effect in this economy.
Multiplier = 1 / (MPS + Marginal Tax Rate) = 1 / (0.2 + 0.42) = 1.63
If government spending increases by €59 billion, what is the expected impact on the overall aggregate demand, given the multiplier effect calculated in the previous question?
Change in aggregate demand = Multiplier × Change in government spending = 1.63 × €59 billion = €96.17 billion
Explain the significance of the negative value for net exports (€-59 billion) in the context of the Irish economy.
A negative value for net exports indicates that the value of imports exceeds the value of exports, resulting in a trade deficit. This suggests that the Irish economy is importing more goods and services than it is exporting, which can have implications for the country's balance of payments and international competitiveness.
This quiz involves calculating the Total Aggregate Demand in the Irish economy using the Aggregate Demand equation. It also requires computing the Aggregate Demand when given the marginal propensity to consume (MPC). Test your understanding of economic concepts with this quiz!
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