Q1. Cost-push inflation means that the general
prices have been hiked due to the increase in general costs of the factors of
production, i.e., labor and capital when production companies are running at
full production capacity caused by the aggregate supply curve shifts to the
left while inflation is caused by an increase in the aggregate demand curve.
Q2 Real disposable income is the mathematical
term used to describe the relationship between real consumption and real Gross
Domestic Product for it is the income which consumers remain with after taxes
have been deducted and any benefits added.
Q3 marginal propensity to invest (MPI) is the
mathematical term used to describe the relationship between real saving and
real Gross Domestic Product (GDP)
= change in investment/change in income
Q4 The value of the Average Propensity to
consume decreases as Real Gross Domestic Product decreases since APC is the
proportion of total disposable income consumed.
Q5 the value of the average propensity to save
decreases as real GDP decreases since the current disposable income is the
determinant of the level of saving.
Q6 since MPC + MPS = 1 and APC + APS = 1.
Therefore; APC + APS = MPC + MPS (TRUE)
Q7 Says Law states that supply creates its own
demand or desired aggregate expenditures will equal aggregate expenditure.Q8 The classical view of how the economy
works dwells on the fact that there cannot be involuntary unemployment and itâ€™s
impossible to occur. It views the economy as self-regulating and maintains that
the economy is always capable of achieving the natural level of real GDP when
there is full employment of the economyâ€™s resources.
Q9 The Great Depression was the historical occurrence
that changed the thinking of how the economy works since it was the phase of harsh
economic depression which was witnessed ten years after World War II.
Q10 Keynesian economics advocates that the
economy should be that of a â€˜mixed economyâ€™ and should be dominated by the
public c sector but the government should intervene during periods of
recessions. Moreover, the changes in aggregate demand, whether they are
anticipated or not have the grates short-run effect on the real output and
employment but not on the prices.
Q11 The investment demand curve can be
described as the rate of interest which usually makes a proposed investment
project to be viable since at lower rates of interest then more projects appear
to be financially feasible since the cost of borrowing money to finance the
projects is quite low while the investment schedule for an economy can be
describes as a relationship between the gross investment and capital.
Q12 The equilibrium level of real GDP is found
by setting current real national income, Y, equal to current aggregate
expenditure, AE whereby it can be said that: the equilibrium level of GDP is
equal to the level of autonomous expenditure. Full employment according to the
Keynesian theory of employment is the level of employment beyond which further
increases in effective demand does not increase either employment or output
Eachem, W.A. (2009) Econ for
Macroeconomics.) Mason, OH: South-Western Pub.
J.D. (2009) Economic Dynamics: Theory
and Computation. MIT Press (MA)
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