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Questions and Answers
What will happen to the level of national income in an economy both taxation and government expenditure are reduced (assume other things remain unchanged)?
GDP is not a perfect measure of economic welfare as it omits considerations of:
A business cycle is the:
Diamond Trust LTD had the capacity to produce 100 units of product X in 2022 but was only able to produce 80 units in that year. In the year 2022, Diamond Trust LTD produced 100 units of product X. Which of the following represents the actual growth rate in output from 2022 to 2023
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The Ministry of Defense closes its Headquarters in Abu habi and transfers to a new building in Dubai. A worker at the Abu Dhabi office is given the opportunity and finance to move to Dubai. He turns down this opportunity because of family obligation. While he is searching for a new job he would be classified as:
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Which of the following does not directly affect aggregate demand
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Which of the following statements is false
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Which of the following will cause the aggregate demand curve to shift to the right?
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According to classical models, the level of employment is determined by:
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Which of the following is not a consequence of hyperinflation?
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Study Notes
National Income and Fiscal Policy
- If both taxation and government expenditure are reduced, the level of national income in an economy will increase.
Limitations of GDP
- GDP is not a perfect measure of economic welfare because it omits considerations of:
- Non-market activities (e.g., household chores)
- Leisure activities
- Income inequality
- Environmental degradation
- Underground economy
Business Cycle
- A business cycle is the: fluctuation in the economy's overall level of economic activity, typically involving periods of expansion and contraction.
Production and Capacity
- Diamond Trust LTD's production capacity in 2022 was 100 units of product X.
- If the company only produced 80 units in 2022, it did not utilize its full capacity.
- If the company produced 100 units in 2022, it means it utilized its full capacity.
Labor Market
- A worker who turns down a job opportunity due to family obligations and is searching for a new job is classified as: frictionally unemployed.
Aggregate Demand
- The following does not directly affect aggregate demand:
- Changes in productivity
- Changes in technology
- The following will cause the aggregate demand curve to shift to the right:
- Increase in government spending
- Decrease in taxes
- Increase in consumer confidence
- Increase in money supply
Classical Models
- According to classical models, the level of employment is determined by: the interaction of labor market forces (i.e., supply and demand).
Hyperinflation
- The following is not a consequence of hyperinflation:
- Increased savings rate
- Increased investment in the economy
- Increased economic growth
- Note: Hyperinflation typically leads to decreased savings, investment, and economic growth.
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Description
Test your understanding of the effects of simultaneous reductions in taxation and government expenditure on the national income of an economy. Assume other factors remain constant. How will this dual reduction impact the economy?
