Question

In: Economics

1)Which of the following cause(s) an increase in thedemand side equilibrium GDP?a)A stronger home...

1)Which of the following cause(s) an increase in the demand side equilibrium GDP?

a)A stronger home currency.

b)A weaker home currency.

c)An increase in the real interest rate.

d)a and c

e)b and c.

2)An inflationary gap is a result of

a) Government deficit.

b) Inadequate aggregate demand.

c) Too much expenditures.

d) Both a and b.

3)Which is more likely to happen as a result of a sudden increase in aggregate demand?

a)Recession only.

b)Inflation only.

c)The economy will be out of equilibrium

Expert Solution

Ans. Option b

A weaker currency will make imports from other countries expensive in home country but exports from home to foreign countries cheaper. So, the demand for exports increases but the demand for imports decreases. Thus, the net exports from home country increases, increasing aggregate demand for goods and services.

Ans. Option a

A government budget deficit will be from excess government spending, so, the aggregate demand for goods and services will increase. This will lead to an increase in real output and price level. As both real output and price level will rise, so, this will create an inflationary gap

Ans. Option b

Sudden increase in aggregate demand will lead to shortage of goods and services in the economy. This will put an upward pressure on the price level, leading to inflation

Rahul Sunny answered 2 years ago

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