Question : The equilibrium in the aggregate market occurs when:
Option 1: Aggregate demand equals aggregate supply
Option 2: Consumption equals investment
Option 3: Government expenditure equals net exports
Option 4: Saving equals investment
Correct Answer: Aggregate demand equals aggregate supply
Solution : The correct answer is (a) Aggregate demand equals aggregate supply.
The equilibrium in the aggregate market occurs when aggregate demand (AD) equals aggregate supply (AS). This is the point at which the total quantity of goods and services demanded in the economy is equal to the total quantity of goods and services supplied.
Aggregate demand represents the total spending by households, businesses, government, and foreign entities on goods and services in an economy. It consists of consumption expenditure, investment expenditure, government expenditure, and net exports (exports minus imports).
Aggregate supply represents the total quantity of goods and services that businesses are willing and able to produce and supply in the economy. It reflects the productive capacity of the economy and is determined by factors such as labor, capital, technology, and resources.
At the equilibrium, aggregate demand matches aggregate supply, indicating a balance between the quantity of goods and services demanded and the quantity of goods and services supplied in the economy. This equilibrium point determines the level of real GDP and the price level in the economy.
Question : In the aggregate expenditure model, equilibrium occurs when aggregate expenditure is equal to:
Option 1: Consumption expenditure
Option 2: Investment expenditure
Option 3: Government expenditure
Option 4: Net exports
Question : In an open economy, aggregate demand is estimated as:
Option 1: Private consumption expenditure
Option 2: Private consumption expenditure + Government expenditure
Option 3: Private investment expenditure + Private consumption expenditure + Government expenditure
Option 4: Private consumption expenditure + Private investment expenditure + Government expenditure + Net exports
Question : In the Keynesian theory of income determination, equilibrium income is achieved when:
Option 2: Consumption equals savings
Option 3: Investment equals savings
Option 4: Leakages equal injections
Question : Aggregate demand in a two sector model involves-
Option 1: Consumption and investment
Option 2: Investment and net exports
Option 3: Net exports and consumption
Option 4: Consumption and government
Question : Demand-pull inflation occurs when:
Option 1: Aggregate demand exceeds aggregate supply
Option 2: Aggregate supply exceeds aggregate demand
Option 3: Wages and input costs increase
Option 4: The government increases taxes
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