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ECON2 AQA MCQ help watch

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    Hi,

    Could someone people tell me why the answer to the question below is D?

    The economy is currently operating at its normal capacity level of output. It is estimated that the long-run trend rate of growth of the economy is around 2.5% per annum. In the coming year, it is expected that inflation will be 4% per annum and money national income will grow by 5%. Which one of the following is most likely?

    A Unemployment will fall and the economy will grow below its trend rate
    B Employment will be stable and the economy will grow at its trend rate
    C Employment will rise and the economy will grow above its trend rate
    D Unemployment will increase and the growth of the economy will be below its trend rate

    Thank you
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    (Original post by bestfriends33)
    Hi,

    Could someone people tell me why the answer to the question below is D?

    The economy is currently operating at its normal capacity level of output. It is estimated that the long-run trend rate of growth of the economy is around 2.5% per annum. In the coming year, it is expected that inflation will be 4% per annum and money national income will grow by 5%. Which one of the following is most likely?

    A Unemployment will fall and the economy will grow below its trend rate
    B Employment will be stable and the economy will grow at its trend rate
    C Employment will rise and the economy will grow above its trend rate
    D Unemployment will increase and the growth of the economy will be below its trend rate

    Thank you
    Keeping in mind that trend growth rate is 2.5% - if inflation is 4% and national income is 5%, that is only 1% real (taking into account inflation) national income and as the trend rate is 2.5% there is an output gap of 1.5%, an output gap means unemployment (especially cyclical).

    Hope this helped
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    (Original post by Secret.)
    Keeping in mind that trend growth rate is 2.5% - if inflation is 4% and national income is 5%, that is only 1% real (taking into account inflation) national income and as the trend rate is 2.5% there is an output gap of 1.5%, an output gap means unemployment (especially cyclical).

    Hope this helped
    Thank you so much.. really helpful explanation
    Gave you a +rep too
 
 
 
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