Question

9. Which of the following statements about inflation is correct?

Select one:

A.Inflation means goods and services are more expensive to purchase

B.Inflation and unemployment increase and decrease together

C.The unemployment rate and GDP level have no relationship to the inflation rate

D. High inflation is always better than low inflation

5. If a 4% increase in the price of gin leads to a 0.8% decrease in demand, then the price elasticity of demand for gin is

Select one:

A.5.0 and demand is elastic

B.5.0 and demand is inelastic

C.0.2 and demand is elastic

D. 0.2 and demand is inelastic

7.In the aggregate demand / aggregate supply (AD/AS) model a recession is where real GDP is

Select one:

A.Higher than nominal GDP

B.Higher than potential GDP

C.Less than nominal GDP

D.Less than potential GDP

8.

Contractionary fiscal policy refers to a(n)

Select one:

A.Change in official interest rates

B.Decrease in government spending or an increase in taxation

C.Increase in imports or exports

D.Increase in government spending or a decrease in taxation

16. Explain what the aggregate demand (AD), short run aggregate supply (SAS) and long run aggregate supply (LAS) curves show.  

Answer 1

Answer : 9) The answer is option A.

Inflation means that the prices of goods and services are increased. As a result, the purchasing goods and services become more expensive. Hence except option A other options are not correct. Therefore, option A is the correct answer.

5) The answer is option D.

Price elasticity of demand = % changes in quantity demanded / % changes in price level = 0.8 / 4 = 0.2.

Here the price elasticity of demand is 0.2 which is less than 1. This means that here the demand is inelastic.

Hence except option D other options are not correct. Therefore, option D is the correct answer.

7) The answer is option D.

In recession the actual real GDP become lower than the potential real GDP. Hence except option D other options are not correct. Therefore, option D is the correct answer.

8) The answer is option B.

For contractionary fiscal policy the government either decrease the spending or increase the tax rate. Hence except option B other options are not correct. Therefore, option B is the correct answer.

16) AD curve shows the inverse relationship between price and quantity demanded. Hence Ad curve is downward sloping.

SAS curve shows the positive relationship between price and quantity supplied. Hence SAS curve is upward sloping.

LAS curve is vertical. This means that at any price level the aggregate supply is fixed.