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      Question

      Knife-edge equilibrium

      means:
      A The economy is always in stable equilibrium Correct Answer Incorrect Answer
      B The equilibrium is achieved automatically without any external intervention Correct Answer Incorrect Answer
      C The equilibrium is unstable and slightest deviation leads the economy away from equilibrium Correct Answer Incorrect Answer
      D The economy never attains full employment equilibrium Correct Answer Incorrect Answer

      Solution

      Knife-edge equilibrium means that the equilibrium is unstable and the slightest deviation leads the economy away from equilibrium. This implies that the system requires extremely precise conditions to maintain equilibrium, and any small shock will push it off course.

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