Question
Question 1 Define the following terms, 1. Full employment output 2. Aggregate Supply 3. Aggregate Demand 4. Laissez-Faire 5. Unemployment Rate Question 2 Using graphical
Question 1
Define the following terms,
1. Full employment output 2. Aggregate Supply 3. Aggregate Demand
4. Laissez-Faire 5. Unemployment Rate
Question 2
Using graphical illustration of AS-AD framework, show the effects of following events on real output and price level in the economy.
- A wave of immigration increases the labor force.
- An earthquake destroys some of the capital stock.
- A technological advance improves the production.
- The government raises taxes by $100 billion.
- Government announces an interest rate cut to encourage business investment.
Question 3
Consider a three sector economy that can be classified by following equation,
Y = C + I + G
Where, C = 250 + 0.75(Y T), G = 1,000, T = 1,000, I = 1,000
Using the information given above, calculate the output of the economy.
Question 4
Why the classical economists failed to explain the reason of the great depression? What did the Keynesian economists put forward in reponse to that event?
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