Government Policies and Economy Stabilization Quiz
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Questions and Answers

What are the two components of aggregate consumption mentioned in the text?

  • Fixed and independent of income
  • Variable and dependent on savings
  • Autonomous and dependent on income (correct)
  • Slope and marginal propensity to consume

    • How does the marginal propensity to consume vary across different households according to the text?

  • It is constant across all households
  • It is large for wealthy households
  • It is small for poor households (correct)
  • It is dependent on government policies

    • Which factor is reflected in autonomous consumption according to the text?

  • Government spending decisions
  • Current income level
  • Credit constraints
  • Expectations about future income (correct)

    • In what way can government spending help stabilize the economy based on the text?

    <p>By increasing autonomous consumption</p> Signup and view all the answers

    What does the slope of the consumption function represent as per the text?

    <p>Marginal propensity to consume</p> Signup and view all the answers

    How do poor households with credit constraints typically react to changes in current income according to the text?

    <p>By having a large marginal propensity to consume</p> Signup and view all the answers

    Why is the multiplier greater than one sometimes, as mentioned in the text?

    <p>The circular flow of expenditure, income, and output</p> Signup and view all the answers

    What determines the slope of the Aggregate Demand (AD) line?

    <p>Marginal Propensity to Consume (MPC)</p> Signup and view all the answers

    Which factor is NOT mentioned as influencing Aggregate Investment function in the text?

    <p>Government spending</p> Signup and view all the answers

    What are considered as 'leakages' from the circular flow of income according to the text?

    <p>Saving, taxation, and imports</p> Signup and view all the answers

    How does a lower interest rate affect investment, as discussed in the text?

    <p>Increases investment</p> Signup and view all the answers

    What is the purpose of adding government to the Aggregate Demand (AD) equation?

    <p>To stabilize economic fluctuations</p> Signup and view all the answers

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