Question

1.19. A decrease in the price level will 

A shift the AS curve to the left. 

B. shift the AS curve to the right. 

C. shift the AD curve to the left. 

D. shift the AD curve to the right. 

E. leave both the AD curve and the AS curve unchanged. 

1.20 If inflation was 10% in a particular year and you received a 20% increase in income during the same year, then over the year your: 

1. A real and nominal income both fell. 

2. real and nominal income both rose. 

3. real income fell, but nominal income rose. 

4. real income rose, but nominal income fell. 

5. nominal income rose, but real income was unchanged. 

Question 2

Define the following economic concepts: 

 2.1.

 The Consumer Price Index (CPI)

 2.2. Lorenz-curve.

 2.3. Money.

 2.4. Nationalisation.

 2.5

 Fiscal policy.

 2.5. Inflation.

 2.6.

 Stagflation.

 2.7

 Gross Domestic Product

Answer 1

1.19

Short run aggregate demand curve shows the relationship between price level and quantity of real GDP demanded by households, firms and government, holding everything else constant.

Aggregate supply curve shows the relationship between price level and real GDP supplied by firms.

A change in the price level, keeping other variables constant then there will be a movement along a stationary AD or AS curve. The AD or AS curves will not shiftl

Answer is E

1.20

B. Both real income and nominal income both rose.

Real income takes into account the inflation rate and nominal income does not take into account the inflation rate.

Inflation rate is 10%, salary increase is 20%, since the increase in salary is > than increase in the price level, both nominal and real income rose.

2.

2.1.

CPI or the Consumer Price Index measures the changes in the cost of a typical basket of goods bought by consumers over a period.

2.2

Lorenz curve shows the distribution of national wealth. The 45^o line shows the perfectly equal distribution of wealth and the other line shows the inequality of income distribution. By looking at the curve, we can find out the distribution of wealth.