IAL Economics Unit 2 (AD/AS)

Which one of the following is likely to cause a decrease in the value of a country’s multiplier?

• A  A decrease in the marginal propensity to tax

• B  A decrease in the marginal propensity to save

• C  An increase in the marginal propensity to import

• D  An increase in the marginal propensity to consume

Between Q1 2020 and Q4 2020 the savings ratio in the Netherlands increased from 15.3% to 24.3%.

Ceteris paribus, which one of the following is the most likely effect of this increase in the savings ratio?

• A  A decrease in withdrawals from the circular flow of income

• B  An increase in injections into the circular flow of income

• C  A decrease in consumption

• D  An increase in imports

From Quarter 1 2020 to Quarter 2 2020, government expenditure in Russia increased by 25 billion roubles.

Ceteris paribus, what was the most likely effect of this increase?

• A  Aggregate demand decreased

• B  Withdrawals from the circular flow increased

• C  Aggregate supply decreased

• D  Injections into the circular flow increased

An economy has the following injections into, and withdrawals from, its circular flow of income in one year.

Which one of the following can be concluded from the data?

• A  The economy has a government budget surplus

• B  There is a net withdrawal out of the economy

• C  The economy has a balance of trade surplus

• D  There is a net injection into the economy

Between January 2014 and September 2020 the price of natural gas fell from $5.60 per cubic foot to $1.66 per cubic foot. Natural gas is an important source of energy for Japanese producers.

Draw a SRAS and AD diagram to show the effect of the decrease in the price of natural gas on the price level and real output for Japan.

Which one of the following statements about the Keynesian long-run aggregate supply (LRAS) curve is correct?

• A  The curve is perfectly inelastic at the full employment level of real output

• B  The curve is relatively elastic at the full employment level of real output

• C  The curve is relatively inelastic at high levels of spare capacity

• D  The curve is perfectly inelastic at high levels of spare capacity

Which one of the following aggregate demand and aggregate supply diagrams below illustrates an economy experiencing potential economic growth?

• A

• B

• C

• D

Between early 2012 and mid-2019 Brazil’s productivity fell by over 40%.

Draw a LRAS and AD diagram to show the possible impact of this change in productivity on the average price level and real output level in Brazil.