Question

A. According to the Keynesian model:

		There is no relation between full employment GDP and inflation
		If the economy is at less than full employment, there could be an increase in GDP and an increase in inflation.
		If the economy is at less than full employment, there could be an increase in GDP without an increase in inflation.
		If the economy is at full employment, there could be an increase in GDP without an increase in inflation.

B. According to the theory of supply and demand:(select all that apply)

		As employment falls below full employment, wages will rise.
		As employment rises above full employment, wages will fall
		As employment rises above full employment, wages will rise
		As employment falls below full employment, wages will fall or stagnate.
		There is no relation between employment levels and wages.

Answer 1

Answer-1. Correct option is 'C'

According to the Keynesian model: If the economy is at less than full employment, there could be an increase in GDP without an increase in inflation. Keynesian theory implied that during a recession, when GDP was below potential, there could be an increase in GDP but the demand for the goods and services are weak, it is the sign that the economy may not be at full employment level and as a results, unemployment was high, inflationary pressure would be low.

Answer-2. Correct option are 'C' and 'D'

According to the theory of supply and demand:

C) as employment rises above full employment, wages will rise: Above full employment equilibrium describes a situation in which an economy's real gross domestic product (GDP) is higher than usual. An overly active economy creates more demand for goods and services which pushes prices and wages up as companies increase production to meet that demand.

D) as employment falls below full employment, wages will fall or stagnate : Below full employment equilibrium describes a situation in which an economy's real gross domestic product (GDP) is lower than usual. It is a situation of recession, the economy faces less demand for goods and services which reduce prices and wages down as companies decrease production to meet that demand.