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Q1. a. Why is national income equal to GDP? b. Briefly explain, with the aid of diagrams, the aggregate demand and aggre...

Q1.
a. Why is national income equal to GDP?
b. Briefly explain, with the aid of diagrams, the aggregate demand and aggregate supply model?
c. What is "less than full employment" national income equilibrium?
d. Which two principal macroeconomic policies might be applied to achieve full employment equilibrium?
e. Explain, with the aid of diagrams, how the policies in (d. above) might be applied.
f. Explain, with the aid of diagrams, the consequences of an excessive macroeconomic stimulus.

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Answer #1

The first question is answered :

a) Gross Domestic Product ( GDP ) measure the goods and services the economy produces in a stipulated time period . This should be equal to national income because national income measures income generated through production process . Every penny spent by a buyer or every cost to a buyer is obviously income to a seller . GDP calculated by expenditure method means total expenditure in the economy by various economic entities or agents . This has to be equal to total income because expenditure by one is income to another .

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