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    Question

    An economy’s output in year 0 is 10 percent below its

    maximum potential output and the maximum potential output steadily increases at the rate of 5 per cent per annum after that. In such circumstances, for how many years would it be possible for that economy to maintain a 6 percent per annum rate of growth of actual output? 
    A Not possible at all Correct Answer Incorrect Answer
    B 5 years Correct Answer Incorrect Answer
    C 11 years Correct Answer Incorrect Answer
    D 15 years Correct Answer Incorrect Answer

    Solution

    Solution The economy would not be able to maintain 6% per annum rate of growth of actual output, because the rate of growth in potential output is below the rate of actual growth desired.

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