Question

The relationship between expenditures, income and the value of production is

	a.	expenditure - income = value of production
	b.	income - expenditure = value of production
	c.	expenditure - value of production = income
	d.	expenditure = value of production = income

Workers face the following choice as the economy starts to reopen this month. Ruin yourself financially by staying home or risk death by going to work. Which of the following would an economist recommend workers use to make an optimal decision?

	a.	production possibilities analysis
	b.	marginal analysis
	c.	the circular flow model
	d.	the income-expenditure model

The U.S unemployment rose from 3.5% in February to 12.4 % by April 18 as a result of the stay-at-home orders. This unemployment that is due to the coronavirus lockdown can be classified as

	a.	cyclical
	b.	structural
	c.	frictional
	d.	Natural

Guns (hundreds) 1 2 3 4 5

Butter (tons) 20 18 15 10 3

The table shows the production possibility frontier for the economy of Sauria. If the economy is able to produce 7 (hundred) guns and 10 (tons) of butter next year

	a.	efficiency has decreased
	b.	the production possibility frontier has shifted inward
	c.	the supplies of resources or technology has increased
	d.	the economy has moved along its production possibility frontier

Answer 1

QUESTION 1

According to the National Income Accounting, the value of total expenditure of a country should exactly equal to the total value of production in that year, which in turn is equal to the value of total income that is earned in the country.

Hence, d is the answer

QUESTION 2

According to the economist, the worker has to consider the marginal benefit of going to work versus the marginal cost. If the marginal cost is greater than the marginal benefit, the rational person would prefer not to go to work. However, if the reverse happens, she would prefer to go to work instead.

Hence this is an example of marginal analysis which helps us in understanding what decisions to take.

So, option b is the answer

QUESTION 3

The unemployment that arisees due to cyclical fluctuation in the economy is called cyclical unemployment. Note that due to COVID crisis, the firms were forced to shut down and hence unemployement shot up. The people were panicked and the aggregate demand was falling. In other words, the economy was contracting. This is an instance of cyclical fluctuation in the economy.

Hence, the unemployment is cyclical. And the answer is option a

QUESTION 4

We find that when the economy was producing 5 hundred guns, it was only producing 3 tons of butter. But now, the economy is producing 7 hundred guns and 10 tons of butter. Hence, both the goods' production has gone up. This can only happen when the supplies of resources or technology has increased.

This is because, normally, an economic resource/technology is scarce. So if you use it up in the production of one, you are left little to produce of the other good. Only when the supplies of resources increase/new technology arrives, the economy can produce higher levels of both the goods.

Hence option c is the answer