Practise calculating multipliers and propensities, balancing injections and withdrawals, identifying national-income gaps and applying the accelerator to investment changes.
What is a necessary assumption of the Keynesian multiplier model?
increasing average propensity to save
flexible costs and prices
full employment of resources
open economies
When is an increase in national income most likely to induce an increase in investment spending?
when firms have spare production capacity
when firms use labour-intensive production
when the increase in income is regarded as permanent
when the increase in income is regarded as temporary
The diagrams show the performance of an economy using different measures.
If an economy is currently at point X on each diagram, what is the most likely conclusion that can be made based on this evidence?
Prices will increase significantly as the economy grows in the near future.
Supply-side policies would be the best option to encourage economic growth.
The economy is currently experiencing a deflationary gap.
There are shortages of skilled labour throughout the economy.