The Table Below Shows Data for India's Economy The Economy Is Experiencing ________ Gap and Firms Will ________

question 243

Multiple Choice

The table below shows data for India's economy. Real GDP is measured in millions of rupees.Suppose that full employment occurs when real GDP is 27,000 million rupees. $$\begin{array} { | c | c | c | c | } \hline & \text { Price level } & \begin{array} { c } \text { Real GDP } \\\text { supplied in the short } \\\text { run }\end{array} & \text { Real GDP demanded } \\\hline \text { a } & 114 & 23,501 & 35,898 \\\hline \text { b } & 120 & 25,355 & 32,341 \\\hline \text { c } & 125 & 27,670 & 27,670 \\\hline \text { d } & 131 & 30,366 & 18,569 \\\hline \text { e } & 138 & 33,164 & 15,898 \\\hline\end{array}$$
The economy is experiencing ________ gap and firms will ________.

• A) an inflationary gap; increase production
• B) an inflationary gap; increase money wages paid to workers
• C) a recessionary gap; increase production
• D) a recessionary gap; decrease money wages paid to workers

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Definitions:

Moral Hazard

The situation in which an entity has the incentive to take undue risks because the cost of those risks will be borne, at least in part, by others.

Firm-Specific Risk

The risk associated with an individual company, which can be reduced through diversification in investment.

Market Risk

The possibility that investors might incur losses because of elements influencing the general performance of the financial markets.

Informationally Efficient

A market condition where all existing information is completely accounted for in stock prices, thereby eliminating the possibility of consistently securing above-average profits.