Aggregate Demand In Canada
5 Questions
| Attempts: 73
This short quiz measures the student's understanding of the basic elements of the Canadian economy through the concept of aggregate demand. Questions relate to the elements of AD and their contribution to the total GDP of Canada.
Questions and Answers
- 1.
Which of the following variables is NOT part of the aggregate demand (AD) formula?
- A.
C - Consumption
- B.
G - Government spending
- C.
Y - Household income
- D.
X - Exports
- E.
M - Imports
Correct Answer
C. Y - Household incomeExplanation
The aggregate demand formula is AD = C + I + G + (X - M)
Household income (Y) is a supply side variable, and is not a part of the demand side equation.Rate this question:
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- 2.
Which are the two largest contributors to aggregate demand (AD) in Canada in a typical year?
- A.
C - Consumption
- B.
I - Investment
- C.
G - Government spending
- D.
X - Exports
- E.
M - Imports
Correct Answer(s)
A. C - Consumption
D. X - ExportsExplanation
Consumer spending (C - Consumption) contributes close to 55% of the Canadian economy. Exports (X) are another 45% to 50% in a typical year. Note: total contributions sum to 145%, since imports (M) are subtracted to bring the total to 100%.Rate this question:
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- 3.
The marginal propensity to consume (MPC) could be defined as the percentage of incremental income (Y) which Canadians would choose to spend on additional consumption (C), averaged across all Canadians.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
"Marginal" always refers to the next, or incremental, amount. MPC is amount of Y which becomes converted to C, the rest going to savings (S), taxes (T) or imports (M).Rate this question:
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- 4.
The aggregate demand multiplier is calculated by the formula:1 / (1 - _)
Correct Answer
MPCExplanation
The marginal propensity to consume (MPC) determines how much incremental income is plowed back into the economy. Because the increment amount goes around a second, third, etc. time, the multiplier acts like instant compound interest.Rate this question:
- 5.
If government spending is increased by $50B and the MPC is 0.75, what will the total impact on aggregate demand (GDP)?
- A.
$50B increase
- B.
$37.5B increase
- C.
$200B increase
- D.
$250B increase
- E.
$37.5B decrease
Correct Answer
C. $200B increaseExplanation
With an MPC of 0.75, the multiplier will be 1/(1-0.75) = 1/0.25 = 4. Therefore, the total impact will be an increase of $50B times 4, or $200B.Rate this question:
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Current Version
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Mar 18, 2022Quiz Edited by
ProProfs Editorial Team -
Dec 11, 2010Quiz Created by
JimJohnston
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