Question

Please answer the correct answer and explain it.

1.   In the 1980s, one often-heard explanation for the low levels of net investment in the US and UK was that
a)   developed economies had no incentives for acquiring new capital
b)   investment opportunities were limited because the already large capital stock was inducing a low marginal product of capital
c)   depreciation and obsolescence were so rapid that firms could barely keep up with demands for replacing existing capital
d)   stock market participants sought short-term capital gains from market appreciations rather than long term dividends from investment
e)   rapid price inflation was creating excessive investor uncertainty

Explain your Answer:

2.   Comparing State economies to that of the US as a whole shows that
a)   about half the States are in recession at any point in time
b)   when the US enters a recession, about 20% of the States experience economic expansion, and vice versa
c)   there is very little correlation between the national and regional economies
d)   there is a highly positive correlation between the national economy and most State economies
e)   the 12 Federal Reserve districts experience business cycles independently of each other

Explain your Answer:

3.   Inflation is primarily a problem
a)   because even low inflation rates severely hamper GDP growth
b)   for those who are heavily indebted
c)   when it is volatile and thus unpredictable
d)   because it is severely underestimated, especially when products are improving in quality
e)   for accounting and record-keeping, but it does not affect the actual trading of goods and services

Explain your Answer:

The next two questions refer to the following.

Consider the following hypothetical annual growth rates of real GDP:

Long run trend       1996   1997   1998   1999   2000   2001   2002   2003
  2.5%    3.0%   2.5%   2.0%   -1%   0.5%   2.0%   2.5%   3.0%

1.   1998 appears to have been a year of
a)   economic expansion
b)   recession
c)   depression
d)   growth recession
e)   stagflation

Explain your Answer:

2.   Economic recovery from recession appears to have begun in
a)   1999
b)   2000
c)   2001
d)   2002
e)   2003

Explain your Answer:

Answer 1

First section:-

1) Answer:- Option e:-

Reason:- In the both US and UK countries, the effect of inflation has restricted many investors to invest in the new market. In the US, Federal Bank adopted contractionary monetary policy in order to control the exceed money supply, But in contrary, it raised the price of all the goods and services to very high level. This in turn many investors were faced losses in their business and many employees lost their jobs. In the UK, the then new Government of England framed new policies to set clear the demand for the Trade union people who fought for their employment rights. But the government failed to solve the problem as the inflation raised above the optimum equilibrium of setting price level of all goods and services. So it totally hindered the industry growth due to situation of null investment done by the investors of developed nations like US and UK.   

2) Answer:- Option a:-

Reason:- Nearly half of the states have experienced the effects of recession in the form of availing less funds for allocating medical insurance, Collecting less tax from the people who dont have income source and the less public spending. All effected the normal life of the people who are denied for the basic facilities for short time.

3) Answer:- Option b:-

Reason:- The indebtedness of all individual will eventually effect the income and savings habit and also purchasing power of the people. Obviously the demand for the goods and services will fall. In return of the Real GDP will affect with high inflation rate. The less production leads to low sales of volume leads to unemployment problem in the country.

Second section:-

1. Ans. Option b. recession.

Reason:- When the GDP rate is decreased to 2.5%, it is obviously we can confirm that effects of Real GDP has created the recession again. The state of rising prices above the equilibrium level when the Margin productive efficiency decreases to the considerable effect. Real GDP includes the inflation. And also if inflation is controlled below the equilibrium level. Then there will be chance of stable economic conditions which can break the evil effect of recession.

2. Ans. Option c. 2001.

Reason:- In the early 2000s, the NASDAQ stock market was entirely crashed. In this situation US nations's GDP was effected and the Fed reserve bank implemented some safety measures to boost the repaired economy by increasing the interest rate for advancing loans to the investors and thus business activities were picked up gradually leading to the step-by-step increase in the GDP. Thus recession status was moved in to recovery status in the year 2001.