Question

Question 1. true or false or uncertain, explain briefly

a)

Consider a standard AD-AS model.

—If the SRAS curve is steep,a permanent increase in investment that increases

potential output leads to a relatively large short-run increase in inflation but no

long-run increase in inflation.

Answer true,false,or uncertain.Please briefly explain your answer.

b)

Consider a closed economy.

—The introduction of a fiscal stimulus package (i.e., more government purchases)will decrease real interest rates and the equilibrium quantity of saving supplied and demanded in this economy.

Answer true,false,or uncertain.Please briefly explain your answer.

c)

Consider a country that is initially in steady state.

According to the Solow-Swan model,if the saving rate and population growth rate increase,then the per capita capital stock increases and the country moves to a new,higher steady state level of per capita income.

Answer true,false,or uncertain.Please briefly explain your answer.

d)

There are two countries in the world,A and B,which trade only two goods, shirts and pants.Under autarky,shirts are cheaper in Country A than in Country B,whereas the pants are more expensive in Country A.

—Suppose that the world price of shirts lies above the two countries'autarky prices.Both Country A and Country B will only produce shirts when the opportunity to trade exists.

Answer true,false,or uncertain.Please briefly explain your answer:

Answer 1

Q1).

A) the correct option is

True.

We know that the intermediate zone in the middle of SRAS is upward sloping, so a rise in AD will cause higher output and price level , while a fall in AD will lead to lower output and price level. An increase in investment increases the potential output, which leads to increase in inflation in short run and but the inflation in long run is absent.

B). The correct option is

True.

The fiscal stimulus boosts disposable income and the propensity to consume is generally less than one in the economy. The govt. Purchases decrease the interest rates while as The government spending increases Interest rate.

C. The correct option is

False.

False.

According to solow-swan model A higher saving rate does result in a higher steady-state capital stock and a higher level of output. The shift from a lower to a higher steady-state level of output causes a temporary increase in the growth rate. An increase in the population growth rate lowers the steady-state level of per capita output. The higher growth of population has its impact on steady state because population is a income deepening factor. The per capita income falls with increase in population.

D). The correct option is

False.

The country A has an absolute advantage in the production of shirts, so obviously it will produce more shirts when world price increase. The country B has specialization in the production of B and is also having absolute advantage in production of pants. So both countries will produce that good for which it has comparative advantage.

Hope you got the answer.

Kindly comment for further explanation.

Thanks ?