Question

10) Over a long period of time, perhaps many years, changes in real GDP come primarily from

Question 10 options:

A)    upward shifts of the AE curve.

B)    leftward shifts of the AD curve.

C)    upward shifts of the SRAS curve.

D)    rightward shifts of the AD curve.

E)    continuous increases in potential GDP.

12) Suppose the government of a closed economy has a budget deficit of $1.2 billion. If the country's level of private saving is $2 billion, then its level of investment spending must be

Question 12 options:

A)    - $1.2 billion.

B)    - $800 million.

C)    $0.

D)    $800 million

E)    $3.2 billion

Answer 1

10. Over a long period of time changes in real GDP primarily takes place if there is continuous increase in potential GDP over those years(i.e. shift in LRAS to the right).

Answer- option E

11. For the eciecon, G+TR-T = $1.2 Billion

For a closed economy, private savings = income (Y) + Transfer payment(TR)- Tax (T) - consumption (C)

And, Y= C+ investment (I) + government expenditure (G)

Therefore, private savings = C+I+G+TR-T-C

Here, G+TR- T is the government's budget deficit = $1.2 billion

Therefore, private savings = 2=I+1.2

Or, I= $(2-1.2) billion = $0.8 billion = $ 800 million

Answer- option D