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2.2 How the macroeconomy works: the circular flow of income, aggregate demand/aggregate supply analysis and related concepts

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Question 77

An economy has a constant capital-output ratio of 2.0. The table below shows the level of national output (YYY) over three consecutive years:

YearNational Output (Y) (£ billion)115021803195 \begin{array}{|c|c|} \hline \text{Year} & \text{National Output (}Y\text{) (£ billion)} \\ \hline 1 & 150 \\ \hline 2 & 180 \\ \hline 3 & 195 \\ \hline \end{array} Year123​National Output (Y) (£ billion)150180195​​

According to the accelerator theory, which of the following describes net investment in Year 3 compared to Year 2?

A

Net investment rises to £60 billion£60\text{ billion}£60 billion because national output increased in Year 3.

B

Net investment falls to £30 billion£30\text{ billion}£30 billion because the rate of growth of national output has slowed down.

C

Net investment remains constant at £30 billion£30\text{ billion}£30 billion because the capital-output ratio is constant.

D

Net investment becomes negative (−£30 billion-£30\text{ billion}−£30 billion) because the growth in output is smaller in Year 3 than in Year 2.

Markscheme

2.2 How the macroeconomy works: the circular flow of income, aggregate demand/aggregate supply analysis and related concepts Questions

  1. A Level
  2. /Economics
  3. /2.2 How the macroeconomy works: the circular flow of income, aggregate demand/aggregate supply analysis and related concepts

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.

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