Deflation sets in when aggregate supply exceeds aggregate demand. Recession sets in. This will lead to a buildup in stocks (inventories) and this sends a signal to producers either to cut prices (to stimulate an increase in demand) or to reduce output so as to reduce the buildup of excess stocks. Either way there is a tendency for output to move closer to the current level of demand.

Correct Option: C

Deflation sets in when aggregate supply exceeds aggregate demand. Recession sets in. This will lead to a buildup in stocks (inventories) and this sends a signal to producers either to cut prices (to stimulate an increase in demand) or to reduce output so as to reduce the buildup of excess stocks. Either way there is a tendency for output to move closer to the current level of demand.

In 1936, John Maynard Keynes published the book “The General Theory of Employment, Interest and Money to explain the prolonged and massive unemployment in the Great Depression. The book criticises the classical model. Keynes turns Say’s Law on its head, arguing that aggregate demand determines national output and employment in the economy. In this sense, demand creates its own supply. Unlike the Classical economists, Keynes believes that prices and wages are rigid, especially in the downward direction and hence the economy is not a selfcorrecting mechanism. In other words, Keynes believes that as prices and wages are rigid, the economy can stay at a below-full-employment equilibrium. Suppose that the economy is at the full-employment equilibrium. Further suppose that aggregate demand falls. When this happens, national output will fall below the full-employment level which will lead to unemployment resulting in a downward pressure on wages.

Correct Option: A

In 1936, John Maynard Keynes published the book “The General Theory of Employment, Interest and Money to explain the prolonged and massive unemployment in the Great Depression. The book criticises the classical model. Keynes turns Say’s Law on its head, arguing that aggregate demand determines national output and employment in the economy. In this sense, demand creates its own supply. Unlike the Classical economists, Keynes believes that prices and wages are rigid, especially in the downward direction and hence the economy is not a selfcorrecting mechanism. In other words, Keynes believes that as prices and wages are rigid, the economy can stay at a below-full-employment equilibrium. Suppose that the economy is at the full-employment equilibrium. Further suppose that aggregate demand falls. When this happens, national output will fall below the full-employment level which will lead to unemployment resulting in a downward pressure on wages.

The marginal efficiency of capital (MEC) is that rate of discount which would equate the price of a fixed capital asset with its present discounted value of expected income. The term “marginal efficiency of capital” was introduced by John Maynard Keynes in his General Theory, and defined as “the rate of discount which would make the present value of the series of annuities given by the returns expected from the capital asset during its life just equal its supply price

Correct Option: D

The marginal efficiency of capital (MEC) is that rate of discount which would equate the price of a fixed capital asset with its present discounted value of expected income. The term “marginal efficiency of capital” was introduced by John Maynard Keynes in his General Theory, and defined as “the rate of discount which would make the present value of the series of annuities given by the returns expected from the capital asset during its life just equal its supply price

Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period of time. Per capita income or average income or income per person is the mean income within an economic aggregate, such as a country or city. It is calculated by taking a measure of all sources of income in the aggregate (such as GDP or Gross National Income) and dividing it by the total population. It does not attempt to reflect the distribution of income or wealth. Per capita income is often used as average income, a measure of the wealth of the population of a nation, particularly in comparison to other nations. It is usually expressed in terms of a commonly used international currency such as the Euro or United States dollar, and is useful because it is widely known, easily calculated from readily-available GDP and population estimates, and produces a useful statistic for comparison.

Correct Option: A

Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period of time. Per capita income or average income or income per person is the mean income within an economic aggregate, such as a country or city. It is calculated by taking a measure of all sources of income in the aggregate (such as GDP or Gross National Income) and dividing it by the total population. It does not attempt to reflect the distribution of income or wealth. Per capita income is often used as average income, a measure of the wealth of the population of a nation, particularly in comparison to other nations. It is usually expressed in terms of a commonly used international currency such as the Euro or United States dollar, and is useful because it is widely known, easily calculated from readily-available GDP and population estimates, and produces a useful statistic for comparison.

Primarily there are three methods of measuring national income. Which method is to be employed depends on the availability of data and purpose. The methods are product method, income method and expenditure method. According to product method, the total value of final goods and services produced in a country during a year is calculated at market prices. According to this method only the final goods and services are included and the intermediary goods and services are not taken into account. In this method, National Output = National Expenditure (Aggregate Demand) = National Income.

Correct Option: D

Primarily there are three methods of measuring national income. Which method is to be employed depends on the availability of data and purpose. The methods are product method, income method and expenditure method. According to product method, the total value of final goods and services produced in a country during a year is calculated at market prices. According to this method only the final goods and services are included and the intermediary goods and services are not taken into account. In this method, National Output = National Expenditure (Aggregate Demand) = National Income.