Question

The economic theory that states a positive relationship between national income and the price level is commonly known as

Job creation

Macroeconomic equilibrium

The Phillips Curve

Macroeconomic equilibrium

Okun's Law

Answer 1

Let us first understand all the above concepts

· A macroeconomic equilibrium refers to an economic condition in which the quantity of aggregate supply equals the quantity of aggregate demand. If the supply or demand changes, then corresponding changes occurs in the price levels, unemployment and inflation levels. A National income refers to the total income earned within the country and the price level indicates the current prices in the economy.

Thus, it can be seen that at macroeconomic equilibrium, the supply and demand would be theoretically the same and hence a positive relationship occurs between the national income of a nation and the existing price levels at macroeconomic equilibrium

· A Philips curve is a curve that represents the relationship between inflation and unemployment. It states that inflation and unemployment always have a stable and inverse relationship. The curve states that inflation occurs with economic growth, which in turn leads to more jobs and less unemployment and vice versa

· Okun’s Law gives the relationship between unemployment and the losses in the production of a nation. It states that for every 1% increase in the unemployment rate, the GDP of a nation would be approximately 2% less than the potential GDP of the nation and the GNP would be 3% lesser than the potential GNP. It also implies that when the unemployment of a nation falls, the production of a country will be increased and correspondingly a 1% fall in the unemployment rate would result in approximately 2% rise in the GDP and 3% rise in the GNP when compared to the potential levels. This law is mostly applicable to the US economy.

Thus, from the analysis of the above options, it can be seen that a positive relationship between national income and the price levels occurs at macroeconomic equilibrium where the aggregate supply and aggregate demand would be equal