Which of the following is true?
Answer(s): D
GNP measures the productive value generated by the labor and capital owned by the citizens of a country, regardless of whether those citizens and assets reside within the country or out of it. Hence, while calculating GNP, the income generated by foreign nationals residing in the country as well as by assets owned by foreign nationals is excluded. On the other hand, GDP measures the productive activity within the country, regardless of who produces it.
When the economy is in short-run equilibrium below potential output, then
Answer(s): A
An equilibrium below potential output implies that demand for labor and other resources is weak. This implies that the actual rate of unemployment will be greater than the natural rate since the natural rate prevails when the economy is operating at full employment.
Full employment means that which of the following is zero?
Answer(s): C
Full employment is the level of employment that results from the efficient use of the labor force after allowance is made for the normal rate of unemployment due to information cost, dynamic changes and the structural conditions of the economy. Cyclical unemployment is short run and therefore must be zero in order to attain full employment.
Keynesian analysis implies that
According to Keynes, the major source of business instability is fluctuations in aggregate demand.Thus, policies that effectively stabilize aggregate demand substantially reduce economic instability.
An economy is currently in equilibrium at full employment. If there is an anticipated governmental demand- stimulus policy and people correctly anticipate the effects, which of the following effects can be seen in the short run?
Answer(s): B
If the buyers and sellers in the resource market completely anticipate the effects of an increase in demand, then they will correctly forecast the higher future inflation. This will prompt buyers to try and buy the goods today, at lower prices. On the other hand, suppliers would prefer to sell in the future, at higher prices. Thence, the demand curve will quickly move to the right and the supply curve will move tothe left. An equilibrium will be reached at a higher price which leaves the real quantities unaffected, changing only the nominal variables.
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