Explanation

Real GDP = Nominal GDP / (GDP deflator / 100)  

Real GDP = 5 / (125/100) = 5 / 1.25 = $4 trillion

Last verified on 22-04-2026

Explanation

Total cost = Fixed cost + Variable cost  

$6,000 = Fixed cost + $5,000  

Fixed cost = $6,000 - $5,000 = $1,000

Last verified on 22-04-2026

Explanation

At 10% per year for 3 years:

PV = FV / (1.10)³  

1.10³ = 1.331

So Rs. 1,331 in 3 years → PV = 1331 / 1.331 = Rs. 1,000

True statement: The present value of Rs. 1,331 in three years’ time is Rs. 1,000

Last verified on 22-04-2026

Explanation

• Real variables measure quantities adjusted for price changes.
• They reflect actual production, income, and living standards.
• Examples include real GDP, real wages, and employment.
• They are different from nominal variables (which include prices).
• Real variables determine the standard of living.

Last verified on 22-04-2026

Explanation

• Marginal utility theory explains satisfaction from consuming goods.
• As a person consumes less of a good, each unit becomes more valuable.
• This follows the law of diminishing marginal utility (reverse case).
• Scarcity of a liked good increases its importance.
• Therefore, marginal utility rises when consumption decreases.

Last verified on 22-04-2026

Explanation

• The Lerner index measures monopoly power.
• It shows how much price exceeds marginal cost.
• When demand is more elastic, consumers are more sensitive to price.
• Firms cannot charge high markups in this case.
• So, the Lerner index becomes lower.

Last verified on 22-04-2026

Explanation

• A recessionary gap occurs when actual output is below potential output.
• There is excess supply of labour → unemployment is high.
• In the long run, wages adjust downward.
• Lower wages reduce costs and shift supply.
• This leads to falling prices and falling unemployment.

Last verified on 22-04-2026

Explanation

Firm hires until: Price × MP of labor = Wage  

10 × (1/L) = 1  

10/L = 1  

L = 10  

So the firm will hire 10 units of labour.

Last verified on 22-04-2026

Explanation

• GDP ↑ → Income ↑
• Imports (M) ↑ due to higher consumption
• Exports (X): not dependent on domestic GDP directly
• Government spending (G): policy decision
• Model: C + I + G + (X − M)

Last verified on 22-04-2026

Explanation

• The actual budget deficit is the total government deficit in a given year.
• It has two main parts: structural and cyclical deficits.
• Structural deficit exists even at full employment.
• Cyclical deficit changes with the business cycle.
• Therefore, actual deficit = structural + cyclical deficit.

Last verified on 22-04-2026