12 Questions
What are the two components of aggregate consumption mentioned in the text?
Autonomous and dependent on income
How does the marginal propensity to consume vary across different households according to the text?
It is small for poor households
Which factor is reflected in autonomous consumption according to the text?
Expectations about future income
In what way can government spending help stabilize the economy based on the text?
By increasing autonomous consumption
What does the slope of the consumption function represent as per the text?
Marginal propensity to consume
How do poor households with credit constraints typically react to changes in current income according to the text?
By having a large marginal propensity to consume
Why is the multiplier greater than one sometimes, as mentioned in the text?
The circular flow of expenditure, income, and output
What determines the slope of the Aggregate Demand (AD) line?
Marginal Propensity to Consume (MPC)
Which factor is NOT mentioned as influencing Aggregate Investment function in the text?
Government spending
What are considered as 'leakages' from the circular flow of income according to the text?
Saving, taxation, and imports
How does a lower interest rate affect investment, as discussed in the text?
Increases investment
What is the purpose of adding government to the Aggregate Demand (AD) equation?
To stabilize economic fluctuations
Test your knowledge on how government can stabilize the economy through policies and understand the link between output and unemployment. Explore the role of aggregate demand in stabilizing the economy and factors affecting government policies' effectiveness.
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