Economics Quiz: Excess Demand and Inflation

What is Excess Demand?

• When the quantity demanded is less than the quantity supplied

• When the price of a good is lower than the equilibrium price

• When the price of a good is higher than the equilibrium price

• When the quantity demanded is more to the quantity supplied at the level of full employment.

What causes excess demand on output, employment, and prices?

• decrease in imports

• Reduction in taxes

• Deficit financing

• ALL OF THE ABOVE

What does inflation refer to?

• Stagnation in general level of prices in an economy

• Fall in general level of prices in an economy

• Rise in general level of prices in an economy

• No change in general level of prices in an economy

What is the inflationary gap?

• The excess of aggregate demand over and above its level required to maintain full employment equilibrium in the economy

• The deficit of aggregate demand below its level required to maintain full employment equilibrium in the economy

• The equilibrium level of aggregate demand in the economy

• The level of aggregate demand that leads to recession

What causes excess demand in an economy?

• Fall in exports

• Reduction in government expenditure

• Rise in propensity to consume

• Decrease in investment

What is the difference between Quantity Demanded (QD) and Quantity Supplied (QS) in excess demand?

• QD is equal to QS

• QD is greater than QS at the level of full employment

• QD is not related to QS

• QD is more than QS

What does excess supply refer to?

• When the quantity demanded is equal to the quantity supplied

• When the price of a good is higher than the equilibrium price

• When the price of a good is lower than the equilibrium price

• When the quantity demanded is less than the quantity supplied

What is the impact of excess demand on prices in an economy?

• Causes deflation

• Has no impact on prices

• Causes inflation

• Leads to price stability

What is the impact of excess demand on employment in an economy?

• Leads to unemployment

• Increases employment

• Leads to underemployment

• Has no impact on employment

What is the impact of excess demand on output in an economy?

• Has no impact on output

• Increases output

• Leads to decrease in output

• Leads to stagnation in output