UPSC Exam > UPSC Questions > Consider the following statements. 1. There ...
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Consider the following statements.
1. There may be times when demand exceeds available output under conditions of low utilisation of labour and economy
2. The intervention of the government whether to expand demand or reduce it constitutes the stabilisation function
Which of these statements are not correct?
- a)1 Only
- b)2 Only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
Consider the following statements. 1. There may be times when demand ...
- The overall level of employment and prices in the economy depends upon the level of aggregate demand which depends on the spending decisions of millions of private economic agents apart from the government.
- These decisions, in turn, depend on many factors such as income and credit availability. In any period, the level of demand may not be sufficient for full utilisation of labour and other resources of the economy.
- Since wages and prices do not fall below a level, employment cannot be brought back to the earlier level automatically. The government needs to intervene to raise the aggregate demand.
- On the other hand, there may be times when demand exceeds available output under conditions of high employment and thus may give rise to inflation. In such situations, restrictive conditions may be needed to reduce demand. The intervention of the government whether to expand demand or reduce it constitutes the stabilisation function.
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Consider the following statements. 1. There may be times when demand ...
Explanation:
To determine which statements are correct and which are not, let's analyze each statement separately.
Statement 1: There may be times when demand exceeds available output under conditions of low utilization of labor and the economy.
This statement is correct. In certain situations, such as during periods of economic downturn or when there is a significant amount of unused labor and resources, it is possible for demand to exceed the available output. This can lead to inflationary pressure and an imbalance in the economy.
Statement 2: The intervention of the government, whether to expand demand or reduce it, constitutes the stabilization function.
This statement is also correct. One of the key roles of government in a market economy is to stabilize the economy and promote economic growth. This can be done by implementing policies to either expand or reduce demand. For example, during periods of recession, the government may implement expansionary fiscal policies such as increasing government spending or reducing taxes to stimulate demand and boost economic activity. Conversely, during periods of inflation, the government may implement contractionary policies such as reducing government spending or increasing taxes to reduce demand and control price levels.
Therefore, both statements are correct.
Conclusion:
The correct answer is Option D) Neither 1 nor 2.
To determine which statements are correct and which are not, let's analyze each statement separately.
Statement 1: There may be times when demand exceeds available output under conditions of low utilization of labor and the economy.
This statement is correct. In certain situations, such as during periods of economic downturn or when there is a significant amount of unused labor and resources, it is possible for demand to exceed the available output. This can lead to inflationary pressure and an imbalance in the economy.
Statement 2: The intervention of the government, whether to expand demand or reduce it, constitutes the stabilization function.
This statement is also correct. One of the key roles of government in a market economy is to stabilize the economy and promote economic growth. This can be done by implementing policies to either expand or reduce demand. For example, during periods of recession, the government may implement expansionary fiscal policies such as increasing government spending or reducing taxes to stimulate demand and boost economic activity. Conversely, during periods of inflation, the government may implement contractionary policies such as reducing government spending or increasing taxes to reduce demand and control price levels.
Therefore, both statements are correct.
Conclusion:
The correct answer is Option D) Neither 1 nor 2.
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Consider the following statements. 1. There may be times when demand exceeds available output under conditions of low utilisation of labour and economy2. The intervention of the government whether to expand demand or reduce it constitutes the stabilisation functionWhich of these statements are not correct?a) 1 Onlyb) 2 Onlyc) Both 1 and 2d) Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer?
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