Which one of the following best describes the action of the multiplier effect in an economy?
An increase in interest rates leads to a reduction in household consumption.
An initial injection into the circular flow of income results in a larger ultimate increase in national income.
A rise in corporate tax rates leads to a reduction in domestic investment.
An increase in productivity leads to a rightward shift in the long-run aggregate supply curve.
222 exam-style questions on AQA A Level Economics 2.2 How the macroeconomy works: the circular flow of income, aggregate demand/aggregate supply analysis and related concepts, covering 2.2.1 The circular flow of income, 2.2.2 Aggregate demand and aggregate supply analysis, 2.2.3 The determinants of aggregate demand, 2.2.4 Aggregate demand and the level of economic activity, 2.2.5 Determinants of short-run aggregate supply, and 2.2.6 Determinants of long-run aggregate supply. Each one has a worked solution and a mark scheme showing where the marks go.