Question 7 (1 point) Table 2 (Data for USA) Real GDP Inflation rate 15.43 trilli

Question

Question 7 (1 point) Table 2 (Data for USA) Real GDP Inflation rate 15.43 trillion $15.92 trillion Year 2012 2013 1.7% 1.5% Refer to Table 2. The likely source of this economic change is A) an increase in the aggregate demand curve because real GDP increased and inflation decreased. B) an increase in the aggregate supply curve because real GDP increased and inflation decreased. C) a decrease in the aggregate demand curve because real GDp increased and inflation decreased. D) a decrease in the aggregate supply curve because real GOp increased and inflation decreased. Save Question 8 (1 point) Fiat money has A) a great intrinsic value that is independent of its use as monev. OB) little to no intrinsic value but is backed by the quantity of gold held by the central ba C) little to no ntnnsie value and is authorized by the central bank or governmental body D) value, because it can be redeemed for gold by the central bank Save Question 9 (1 point)

Explanation / Answer

Question 7 - Answer is B (An increase in aggregate supply curve because real GDP Increased and inflation decreased)

Points to be noted.

1. Decrease in price of commodity leads to decline in rate of inflation.

2. Both Demand and Supply factors determines GDP Growth.

Supply [AS = Land, Labour, Capital, Technology, Inflation]

Demand [AD = C+I+G+(X-M)]

Where AD = Agggregate Demand, C = Consumption, I = Investment, G = Government Spending, (X-M) = Net Export, AS = Aggregate Supply

3. Real GDP represents growth and stability in the long run (where changes can be made in all the factors of production)

Reasons:

A) Increase in aggregate demand will be inflationary (excess) and will not contribute to real GDP.

B) US has managed an increase in growth with a decline in rate of inflation because of the incease in Long run aggregate supply curve otherwise Aggregate demand will be inflationary. According to Table 2, US is able to meet the Aggregate demand by producing adequate amount of products.

2. Technological advancement in production may also lead to reduction in cost of production and consequently the prices of the commodity will decrease.

3. Decline in prices makes the local commodity cheaper to foreign markets which can leads to increase in net exports adding to real GDP.

4. Infrastructural developments to bringing effeciency in production and brings the cost down.

5. Increased labour productivity streamlines poduction process and effeciency.

C) Decrease in growth will lead to decrease in aggregate demand because it will discourage investment and supply of money will shrink. People will hoard money in the form of savings. Therefore (C) can not be the answer.

D) Decrease in growth will lead to decrease in demand and ultimately supply will be reduced. Hence this will lead to unemployment and may furthur take a form of recession and depression.

Question 8 - Answer is C

because fiat money is a legal tendor money backed by the govt. of the state and it does not carry any intrinsic value (value of the material) or may carry a neglible intrinsic value. Paper Notes or Bills are the best example of fiat money. The intrinsic value of paper is comparatively zero to the face value $100 bill.

Thank you.

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