Pearson Edexcel A Level · Economics A (9EC0)

2.2.3 Investment (I): Practice Questions

4 multiple-choice questions marked as you go, and 2 written questions with worked solutions. All on 2.2.3 Investment (I).

6 questions14 marksFree, no account

Question 1

1 mark

A firm's gross investment is \(£500\) million and its net investment is \(-£50\) million. Based on this data, which of the following statements must be true?

Question 2

1 mark

An economy is currently experiencing a rapid increase in the demand for its exports. How is this most likely to influence Investment (I) according to the accelerator effect?

Question 3

1 mark

According to Keynesian theory, 'animal spirits' refer to the human emotions and instincts that drive financial decisions. How do 'animal spirits' primarily influence the Investment (I) component of AD?

Question 4

1 mark

If the government introduces a new regulation that significantly increases the access to credit for small and medium-sized enterprises (SMEs), what is the most likely shift in the AD/AS model?

Question 5

4 marks

Using an AD/AS diagram to illustrate your answer, explain how an increase in the base interest rate by the central bank is likely to affect the level of Investment (I) and the equilibrium level of real national output.

Write your answer out first, then check it against the worked solution.

Question 6

6 marks

Explain how a period of sustained negative business expectations and confidence might lead to a ‘liquidity trap’ where Investment (I) remains unresponsive to further decreases in interest rates, and illustrate the impact on the Equilibrium levels of real national output.

Write your answer out first, then check it against the worked solution.

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