Question

1 Official GDP may understate the actual output of an economy. Give one possible reason to explain this 2. The following graphs show the loanable funds market. Give an example scenario, which is represented by a shift from line 3 to line 2. Line 1 Line 4 Vertical Axis Υ Line 3 Une 2 С D Horizontal Axis

Answer 1

1) one possible reason why a actual GDP maybe above the official GDP because of the informal sector which is not taken into account as the informal sector accounts for production and service activities and their incomes are not accounted for correctly so that they might not be in the record which might make offical GDP less.

2) line 3 to line 2 means there's a shift in the demand curve to the left which means the demand decreases where one prime reason why demand for loanable funds decreases is that the investor confidence may decrease so that he would not demand much loanable funds for investing purposes as a result of which the demand curve shift to left as shown in the figure