Explanation

• The Aggregate Demand (AD) curve slopes downward.
• This means when price level falls, demand increases.

It happens due to three main effects.

1. Wealth Effect: Lower prices → higher real wealth → more consumption
2. Interest Rate Effect: Lower prices → lower interest rates → more investment
3. Exchange Rate Effect: Lower prices → exports increase → higher demand

Last verified on 24-04-2026

Explanation

• In 2022–23, Pakistan faced severe economic instability.
• The biggest issue was rising inflation (high prices).
• Inflation reached multi-decade highs, affecting daily life.
• It reduced purchasing power of people.

Last verified on 24-04-2026

Explanation

• According to Classical Theory, output is fixed at full employment level.
• Changes in money supply affect only price level, not output.
• Decrease in money supply leads to lower demand and falling prices.
• So, only price level decreases, output remains unchanged.

Last verified on 24-04-2026

Explanation

• Total Revenue (TR) is the total income earned by a firm.
• It is calculated by multiplying price (P) and quantity (Q).
• Formula: TR = P × Q
• It shows total sales earnings of a firm.

Last verified on 24-04-2026

Explanation

• In oligopoly, few firms dominate the market.
• The collusive model involves firms cooperating with each other.
• They act like a monopoly to maximize joint profits.
• Firms may form cartels or agreements.

Last verified on 24-04-2026

Explanation

Own price elasticity shows percentage change in quantity demanded due to price change.

Formula: Elasticity = % change in quantity ÷ % change in price

Negative sign shows inverse relationship (law of demand).

Elasticity = -2.5 means demand is elastic (very responsive).

E_d = %ΔQ / %ΔP = -2.5  

If %ΔP = +10%  

Then %ΔQ = -2.5 × 10% = -25%.

Last verified on 24-04-2026

Explanation

• When demand and supply both increase (shift right) in a market.
• The quantity traded always increases.
• However, the price effect is uncertain.
• Price may increase, decrease, or remain stable depending on magnitude of shifts.

Last verified on 24-04-2026

Explanation

• This sentence compares prices between two cities.
• In negative comparisons, we use “not as + adjective + as”.
• It shows that Islamabad is more expensive than Lahore.
• “As cheap as” is the correct structure for comparison.

Last verified on 24-04-2026

Explanation

To find consumption spending, we can use the GDP formula:

• GDP = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (NX)

Given:

• GDP = $100 billion
• Government Spending (G) = $20 billion
• Investment (I) = $10 billion
• Net Exports (NX) = -$5 billion (negative because it's an import)

We rearrange the formula to solve for consumption:

• Consumption (C) = GDP - (Investment + Government Spending + Net Exports)
• Substituting the given values:
• Consumption (C) = $100 billion - ($10 billion + $20 billion - $5 billion)
• = $100 billion - $25 billion = $75 billion.

Last verified on 24-04-2026

Explanation

• The business cycle shows economic fluctuations over time.
• It has main phases like boom, slump, and recovery.
• These phases represent expansion and contraction of economic activity.
• “Acceleration” is not a standard phase of the business cycle.

Last verified on 24-04-2026