2. Macroeconomics

Aggregate Demand — Quiz

Test your understanding of aggregate demand with 5 practice questions.

Practice Questions

Question 1

In an open economy with marginal propensity to consume (MPC) of 0.75, marginal propensity to import (MPM) of 0.10, and marginal propensity to tax (MPT) of 0.05, by how much will aggregate demand change if the government increases spending by \$100 million?

Question 2

With the same leakages (MPC=0.75, MPM=0.10, MPT=0.05), what is the change in aggregate demand if taxes are cut by \$100 million?

Question 3

Which statement best explains why the government spending multiplier is larger in absolute value than the tax multiplier in an open economy?

Question 4

In a liquidity trap where the nominal interest rate is at the zero lower bound, an open market purchase by the central bank will most likely:

Question 5

What is the primary implication of long implementation and recognition lags for discretionary fiscal policy on aggregate demand management?