Practice Summary (4) - Chapter 2: Theory of Income and Employment

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6 sample questions

Question 1.
Define Aggregate Demand.
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Think about what people and businesses spend money on.
Question 2.
What happens when AD is greater than AS?
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Consider what might happen if everyone wants something that’s not enough.
3Question 3.
What does aggregate demand consist of?
- Consumption, Investment, Exports, Government Spending
- Only Investment
- Only Government Spending
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Remember the formula AD = C + I + G + (X - M).
4Question 4.
True or False: Keynesian economics supports the idea of a self-correcting market.
- True
- False
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Think about each theory's stance on government involvement.
Question 5.
Design a fiscal policy intervention that could help reduce unemployment in a recession. What components would you include?
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Consider sectors that create immediate jobs.
Question 6.
Discuss the implications if an economy's aggregate demand consistently exceeds its aggregate supply. What are potential long-term effects?
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Look at historical examples of inflation to draw conclusions.

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