problem 1: If nominal GNP increases at a rate of 10 % per year while the GNP deflator increases at 8 % per year, then:
A) Real GNP remains constant
B) Real GNP rises by 10 %
C) Real GNP falls by 8 %
D) Real GNP rises by 2 %
problem 2: Assume that national income is initially at its equilibrium level when desired investment falls. We would expect:
A) A fall in national income, however not by as much as the fall in desired investment.
B) No change in national income even although desired investment spending drops.
C) An increase in national income by an amount equivalent to the reduction in investment spending.
D) A fall in national income by some multiple of the fall in desired investment spending.
problem 3: If the MPC for the economy is 0.8, then:
A) MPS is 1/0.8
B) The multiplier is 4
C) The multiplier is undefined
D) The MPS is 0.2
problem 4: The prevention of main swings in economic activity can be handled most simply by the:
A) Household sector.
B) Business sector.
C) Financial sector.
D) Government sector.
problem 5: Expansionary fiscal policy:
A) Reduces aggregate demand.
B) Takes place when the government takes actions to stimulate the economy.
C) Takes place when the government cuts spending.
D) Takes place when the government reforms the public sector through privatization.
problem 6: Commercial banks make money by:
A) Loaning out pounds they receive as deposits.
B) Printing currency.
C) Collecting bad debts.
D) Earning profits.
problem 7: Assume that Mr. Robinson deposits pounds 600 in currency at a bank. Later that day Ms. Volker borrows pounds 1200 from the same bank. The money supply will have:
A) Raised by pounds 1200.
B) Raised by pounds 600.
C) Reduced by pounds 600.
D) Stayed the same.
problem 8: Assume that the per capita income in Alfaland (with initial high per capita income) is growing faster than it is in Betaland (with initial low per capita income).Then:
A) The real value of the output generated by Alfaland exceeds that of Betaland.
B) The difference in living standards between Alfaland and Betaland remain constant over time.
C) The gap in standard of living among the two countries reduces over time.
D) The gap in the standard of living among the two countries widens over time
problem 9: If the Bank of England wanted to discourage investment spending and decrease aggregate demand, it could:
A) Decrease the required reserve ratio.
B) Sell securities on open market.
C) Lower the discount rate.
D) Buy securities on open market.
problem 10: Assume that the marginal propensity to consume (MPC) is 0.9. Starting from equilibrium, investment demand increases by 50. How much equilibrium income increase?
Show the computation and elucidate the mechanism.