Q9 According to long-run macroeconomic theory, relatively poor countries tend to

Question

Q9

According to long-run macroeconomic theory, relatively poor countries tend to grow

faster than relatively rich countries; this is called the catch-up effect.

slower than relatively rich countries; this is called the fall-behind trap.

slower than relatively rich countries; this is called the poverty trap.

faster than relatively rich countries; this is called the constant-returns-to-scale effect.

Q13

According to short-run macroeconomic theory, what is one possible explanation for the upward slope of the short-run aggregate supply curve?

an increase in the interest rate increases investment spending

as the price level falls, the exchange rate falls

nominal wages are slow to adjust to changing economic conditions

an increase in the money supply lowers the interest rate

faster than relatively rich countries; this is called the catch-up effect.

slower than relatively rich countries; this is called the fall-behind trap.

slower than relatively rich countries; this is called the poverty trap.

faster than relatively rich countries; this is called the constant-returns-to-scale effect.

Explanation / Answer

Question 9

Long-run macroeconomic theory states that overtime relatively poor countries tends to have similar income levels as rich countries have at current time period.

This assertion is based on catch-up effect which states that poor countries tends to have higher economic growth rate relative to rich countries and this higher economic growth rate enable these poor countries, overtime, to come on par with rich countries.

Thus, according to the long-run economic theory, relatively poor countries tend to grow faster than relatively rich countries, this is called the catch-up effect.

Hence, the correct answer is the option (a).

Question 13

In short-run, wages tends to be rigid that is they tends to change slowly.

So, when price level rises, wage rigidity does not lead to equivalent rise in cost which in turn increases the profit margin of firm and induces them to supply more at increased price level.

This gives upward sloping shape to the short-run aggregate supply curve.

So, according to the short-run aggregate supply curve is due to slow adjustment of nominal wages to changing economic conditions.

Hence, the correct answer is the option (c).

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