When the amount of business spending does not change even though the economy (GD

Question

When the amount of business spending does not change even though the economy (GDP) is changing, then this business spending is called investment. 39. If inflation exists, Classical Theory would suggest that it will only be solved if to do would be to 40. However, the same economists would say that the proper thing Suppose the economy is experiencing a recession. In general, is it better to implement an expansionary policy or a contractionary policy to fight the recession? 41. equal in order for The Circular Flow diagram requires that the economy to be in equilibrium 42. During the Great Depression, according to the Circular Flow diagram, the economy was not in equilibrium becausewere greater than In order for the economy to get back to equilibrium, Keynes realized the economy could not decrease (price level/ real GDP / interest rates) so he suggested that the economy should increase AS / price level). There are multiple determinants to this and the most logical determinant to increase was This obviously meant that Keynesian Theory put tremendous emphasis on the use of (fiscal / monetary / international) policy to solve the problem of unemployment. 43. AE /

Explanation / Answer

Q39) Answer: Autonomous.

This is called autonomous investment which doesn’t depend on economic growth, like increasing GDP. Few examples are spending on infrastructural development, inventory replenishment, etc.

Q40) Answer: Supply of money decreases

Answer: Create opportunities

Classical theory only concern about money while giving conclusion on inflation; if there is inflation, money supply should be reduced for solving.

Money helps to create opportunities, which helps to increase supply of goods and services and can bring down the inflation.

Q41) Answer: expansionary policy

Recession is a situation where an economy is experiencing acute money crisis. Since the economy is in declining growth, the government should come forward with expansionary policies like increasing spending, tax cut, etc to increase the money supply in the market. This thing can create the economy stable.

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