Reason Based Question’s
(Q1) Are inventory stocks zero when Aggregate Supply = Aggregate Demand ?
Ans: False , Only undersired(unplanned) inventory stocks are zero when AS= AD Desired inventory stocks are maintained
(Q2) Under the situation of full employment equilibrium , there is no unutilized capacity in the economy
Ans: True , Full employment equilibrium refers to that situation when AS =AD corresponding to fuller utilization of resources.
(Q3) Ex-ante saving is always equal to the ex-ante investment
Ans: False , They will be equal only at the equilibrium level of income
(Q4) Equilibrium beyond full employment is a better situation (in terms of the level of GDP) than equilibrium at full employment
Ans: False , Output remains constant even beyond full employment equilibrium. Because, full employment equilibrium output is the maximum output.
(Q5) Situation of underemployment better than that of over-employment because in a state of underemployment price level does not rise
Ans: False , Underemployment leads to lower level of income . It cause a fall in AD and the economy might be driven into a situation of low level equilibrium trap.
(Q6) Even in a state of full employment, there is a possibility of an increase in output
Ans: False , output will not increase if it is assumed that technology remains constant.
(Q7) In case AS = AD, there is an obvious equally between S and I.
Ans: True , The equality between AS and AD implies the equality between S and I. Accordingly, there is only one level of equilibrium output when AS = AD and S = I.
(Q8) Ex-post investment cannot be less than ex-ante investment
Ans: True , because, ex-post investment includes investment both in desired as well as undesired stock (with the producers) while ex-ante investment includes investment only in desired stock.
(Q9) The producers suffer losses when actual stocks are less than the desired stocks.
Ans: True , when the actual stocks are less than the desired stocks , the producers suffer the loss of unfulfilled demand.
(Q10) In a situation when planned S > planned I , inventory investment of the producers is expected to be larger than desired
Ans: True , when planned S > planned I, some output would remain unsold and producers will have undesired stock of goods
(Q11) The producer suffer losses when actual stocks are less than the desired stock
Ans: True , loss of unfilled demand
(Q12) State True or False , giving reason
(a) There can be excess stocks corresponding to the state of equilibrium in the economy
(b) Full employment implies there is no involuntary unemployment in the economy
(c) If planned investment falls short of planned saving , then stock of goods tend to pile up.
(d) According to Keynes, the equilibrium level of income is always determined corresponding to full employment level.
(e) In the situation of underemployment equilibrium , there is no unutilized capacity in the economy.
(f) The problem of unemployment means the problem of voluntary unemployment.
(g) Increase in investment cause a backward shift in the equilibrium level of income and output.
(h) When planned investment falls short of planned saving, then planned inventory falls.
(i) An increase in the stock of goods held by consumer will contribute to capital formation.
(j) ‘Saving and investment are always equal’.
(k) Excess demand can be found at any level of employment.
(Q1) “ General Price Level shouldn’t rise before full employment ’. Do you agree with the given statement ? Give valid reason in support of your answer.
Ans: The given statement may be supported under short run price determination model where we presume a perfectly inelastic Aggregate Supply curve to exist under the condition of full employment. At any level of output prior to the full employment , AS tends to rise in response to any rise in AD , accordingly , the general price level remains more or less constant. But as the full employment level is reached , AS stops rising in response to a rise in AD, accordingly, price level tends to rise.
(Q2) Shouldn’t greater saving imply greater investment and greater flow of goods and services
Ans: Relationship between greater saving and greater investment holds good in poor economics where what is lacking is the capacity to produce or aggregate supply in relation to aggregate demand. It does not hold good in affluent economics where what is lacking is aggregate demand or AD in relation to aggregate supply. In these economics, greater saving would mean lesser consumption, lesser demand and lesser production even when capacity to produce exists in the economy.
(Q3) “ Ex-ante & ex-post are one and the same thing ”. Do you agree with the given statement ? Give valid reasons in support of your answer.
(Q4) Equilibrium beyond full employment is a better situation than equilibrium at full mployment. Defend or Refute ?