Very Short Question Answers:

1.What are injection and leakages in a circular flow diagram of a four sector open economy?

- Injections: Investment, Government Spending(G) and Exports

- Leakages: Savings, Taxes, Imports

2. Mention basic issues in macroeconomics. 

- Inflation, Economic Growth, Unemployment, Aggregate Demand, Aggregate Supply, Fiscal Policy and Monetary Policy, Business Cycles, Globalization ,etc. are the basic issues in macroeconomics.

3. Give a brief concept of nominal GDP.

- Gross Domestic Product is a key economic indicator that represents the total monetary value of all goods and services produced within a country’s borders during a specific time period.

4. Show the relationship between supply and demand for good according to the classical theory of employment.

- According to the classical theory of employment, in economics, aggregate supply and demand are used to determine the production and purchasing power of the economy.

5. How does a Keynesian approach to the theory of employment resist the wage cut policy of the classical theory of employment?

- Keynesian approach resists the wage cut policy of the classical theory of employment by emphasizing the idea that wage cuts may not be effective in reducing unemployment, especially in the short run when wages are sticky.

6. Given apc = mpc = 0.5. Calculate the value of investment multiplier.

MPC = APC = 0.5

The formula for the investment multiplier is:

K=1/1-MPC​

Plugging in the value of MPC (which is equal to APC):

K=1/1-0.5 = 2

7. Distinguish between the government expenditure multiplier and tax multiplier based on GDP.

- Government expenditure increases GDP by directly stimulating demand, while tax changes affect GDP indirectly by influencing consumer spending and saving behaviors.

8. From the past five years data, which year shows the highest rate of inflation?

       Year:                         2017         2018          2019         2020          2021

       GDP deflator             100           106            113           121             129

- Inflation Rate = (( GDP Deflator in Year N)-(GDP Deflator in year N-1))/ (GDP Deflator in Year N-1)*100. So, Year 2020 shows the highest rate of inflation.

9. When is a deflationary gap in the business cycle?

- A deflationary gap is an economic situation that occurs when the actual level of Gross Domestic Product in an economy is lower than its potential GDP or full-employment level of output.

10. Mention three types of budgetary policies.

- Three types of Budgetary policies are:

a. Neutral or Balanced Budgetary Policy

b. Contractionary Budgetary Policy

c. Expansionary Budgetary Policy