Question

In: Economics

1. Which of the following statements is (are) correct? (x) Business cycles are fluctuations in real...

1. Which of the following statements is (are) correct?
(x) Business cycles are fluctuations in real GDP and related economic variables such as investment and unemployment that occur over time.
(y) A short period of falling incomes and rising unemployment is called a recession and a short period of rising incomes and falling unemployment is called an expansion.
(z) During recessions firms may find that they are unable to sell all they produce and, as a consequence, workers are laid off.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (x) only


2. Which of the following statements about the United States is (are) correct?
(x) In the United States, investment is a small part of real GDP compared to consumption, yet it accounts for a large share of the fluctuation in real GDP.
(y) Spending on new factories and housing typically rises during economic expansions in the U.S.
(z) The rapid increase in asset prices, including stocks and capital equipment, was a probable cause of the Great Depression in the U.S.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (x) only


3. The overall price level in the U.S. is measured by the
A. rate of inflation.
B. rate of deflation.
C. CPI or the GDP deflator.
D. price of some particular commodity or service.
E. Either A or B

Solutions

Expert Solution

1] Ans- *option (C)*

Explanation for correct answer -
• *X is correct* because business cycles are ups and downs in business which results in high & low profits so there is fluctuations in real GDP and simultaneously it results changes in other economic variables
like investment, employment,income etc.
  
• *Z is correct because* during recession all economic activities slows down, whatever production produced by producer is not sold wholely in market because people are unable to purchase due to low incomes.


Explanation for incorrect answer -
• *Y is incorrect* because a long period of falling incomes and rising unemployment is called a recession and a long period of rising incomes and falling unemployment is called an expansion.

________________

2] Ans- *option (E)*

Explanation for correct answer-
In USA a large part of the income is spent for consumption purpose so savings part is comparatively low, so there are large fluctuations in real GDP.

Explanation for incorrect answers-
The statements are false regarding USA.

______________


3] Ans- *option (E)*

Explanation for correct answer-
The overall price level in the is measured by increase in price level with constant income and income increases but prices remaining constant i.e. at rate of deflation.

Explanation for incorrect answers-
The price level in USA is neither measured by GDP deflator nor based on price of some particular commodity or service.

_________________


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