1 After the Global Financial Crisis of 2008, the US President introduced expansionary fiscal policies of $800 billion. The International Monetary Fund estimated that the multiplier at the time was approximately 1.5. (Source adapted from: https://www.economist.com/the-economist-explains/2016/09/07/what-is-the-keynesian-multiplier) (a) Which one of the following is a withdrawal from the circular flow of income? A) Exports B) Government spending C) Investment D) Taxation (b) Calculate the total final increase in US aggregate demand as a result of the President's expansionary fiscal policies; assigning no other changes.

A-Level Edexcel Economics A National Income: 1 After the Global Financial Cri

1 After the Global Financial Crisis of 2008, the US President introduced expansionary fiscal policies of $800 billion - Edexcel - A-Level Economics A - Question 1 - 2021 - Paper 2

Question 1

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1 After the Global Financial Crisis of 2008, the US President introduced expansionary fiscal policies of $800 billion. The International Monetary Fund estimated that... show full transcript

Worked Solution & Example Answer:1 After the Global Financial Crisis of 2008, the US President introduced expansionary fiscal policies of $800 billion - Edexcel - A-Level Economics A - Question 1 - 2021 - Paper 2

Step 1

Which one of the following is a withdrawal from the circular flow of income?

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Answer

The correct answer is D) Taxation.

Explanation:
- A) Exports represent an injection into the circular flow of income, as they provide revenue from foreign markets.
- B) Government spending also serves as an injection, stimulating economic activity and increasing aggregate demand.
- C) Investment is further categorized as an injection since it leads to increased production capacity and job creation.
- D) Taxation, however, removes money from the circular flow, making it the only correct answer.

Step 2

Calculate the total final increase in US aggregate demand as a result of the President's expansionary fiscal policies; assigning no other changes.

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Answer

To calculate the total increase in aggregate demand, use the formula for the multiplier effect:

Formula:

$ext{Total Increase} = ext{Multiplier} imes ext{Fiscal Policy Amount}$
Calculation:
- Multiplier = 1.5
- Fiscal Policy Amount = 800 billion
- Thus, the total increase in aggregate demand is:
$ext{Total Increase} = 1.5 imes 800 ext{ billion} = 1,200 ext{ billion}$
Conclusion: The total final increase in US aggregate demand as a result of the President's expansionary fiscal policies is 1,200 billion.

1 After the Global Financial Crisis of 2008, the US President introduced expansionary fiscal policies of $800 billion - Edexcel - A-Level Economics A - Question 1 - 2021 - Paper 2

Worked Solution & Example Answer:1 After the Global Financial Crisis of 2008, the US President introduced expansionary fiscal policies of $800 billion - Edexcel - A-Level Economics A - Question 1 - 2021 - Paper 2

Which one of the following is a withdrawal from the circular flow of income?

Calculate the total final increase in US aggregate demand as a result of the President's expansionary fiscal policies; assigning no other changes.

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