Question Nos. 33–36 are to be answered based on your understanding of the following passage from Economic Development and the Price Level by Geoffrey Maynard :
SUMMARY (transcriber's own words, NOT the paper's text). Maynard argues that unless agricultural and industrial output grow in an appropriate relation to one another, the terms of exchange between the two sectors must move. Because agricultural prices adjust to shifts in the balance of supply and demand far more quickly than industrial prices do, farm prices largely govern the behaviour of the general price level. When agricultural growth lags, excess demand emerges in the agricultural product market and the needed improvement in agriculture's terms of exchange is delivered by an absolute rise in agricultural prices rather than by a fall in industrial prices; that rise then raises industrial raw material costs and, through money wages, industrial costs generally, so industrial prices are prevented from falling and may even rise. Hence a relative slowing of agricultural output, or an acceleration of industrial growth, pushes the general price level up, while faster agricultural growth pushes it down.
[PASSAGE STORED AS A PAGE IMAGE - see asset_path]
The rise in agricultural prices
Tap an option to check your answer.