10 Questions
What is the impact of spare capacity on the elasticity of SRAS?
It makes SRAS elastic
What happens to the size of the multiplier in an economy with spare capacity?
It increases
What is the likely outcome if SRAS is inelastic?
Lower multiplier effect
What happens to interest rates when prices increase?
They increase
What is a 'reverse' multiplier?
A withdrawal of income from the circular flow of income leading to a larger decrease in income
What is the likely impact of higher interest rates on the economy?
Discourages spending and borrowing
What happens to national income if SRAS is elastic?
It increases rapidly
What is the likely outcome if there is a decrease in AD?
National income decreases
Why does an increase in AD lead to a larger increase in national income in an economy with spare capacity?
Because SRAS is elastic
What is the likely impact of a 'reverse' multiplier on the economy?
It leads to a decrease in economic growth
Explore the circular flow of income model, where firms and households interact and exchange resources in an economy. Learn about the flow of income, wages, dividends, and goods and services.
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