The correct Answer is A-4, B-2, C-1, D-3
Explanation
This question pertains to macroeconomic concepts related to aggregate demand, aggregate supply, and their implications for price levels and economic activity. It involves understanding the effects of demand imbalances and the role of the multiplier in an economy.
Statement-wise Analysis
- A. Excess Demand:
- Correct. Excess demand occurs when aggregate demand exceeds aggregate supply at full employment. This situation typically leads to inflationary pressures, causing a rise in prices in the long run as the economy attempts to adjust to the higher demand. Therefore, A-4 is correct.
- B. Deficient Demand:
- Correct. Deficient demand (or deficient aggregate demand) occurs when aggregate demand falls short of aggregate supply at full employment. This leads to a deflationary gap, resulting in a decline in prices in the long run as producers lower prices to clear unsold stock and stimulate demand. Therefore, B-2 is correct.
- C. Multiplier:
- Correct. The multiplier effect describes how an initial change in autonomous expenditure (e.g., investment, government spending) leads to a proportionally larger change in aggregate income. It amplifies the impact of autonomous expenditure changes on the overall economy. Therefore, C-1 is correct.
- D. Inventory Accumulation:
- Correct. Inventory accumulation occurs when firms produce more goods than consumers are willing to purchase. This signals that the supply of goods in the market exceeds the current demand for those goods, leading to an increase in unsold stock. Therefore, D-3 is correct.
Key Takeaway
Understanding the macroeconomic implications of demand-supply imbalances (excess and deficient demand) on price levels, the amplifying effect of the multiplier on autonomous expenditure, and inventory changes as indicators of market conditions is crucial.