1) If nominal GNP increases at a rate of 10 per cent per year while the GNP def

    1)
    If nominal GNP increases at a rate of 10 per cent per year while the GNP deflator increases at 8 per cent
    per year thenA.
    real
    GNP remains constantB.
    real
    GNP rises by 10 per centC.
    real
    GNP falls by 8 per cent D.
    real GNP rises by 2 per centExplain.2) Suppose
    that national income is initially at its equilibrium level when desired investment falls. We would
    expectA.
    a
    fall in national income but not by as much as the fall in desired investmentB.
    no
    change in national income even though desired investment spending fallsC.
    an increase in national income by an amount
    equal to the reduction in
    investment spending D. a fall in national income by some multiple
    of the fall in desired investment spendingExplain.3) If the MPC for the economy is 0.8 thenA.MPS
    is 1/0.8B.the
    multiplier is 4C.the
    multiplier is undefinedD.the
    MPS is 0.2Why?
    4)
    The prevention of major swings in economic activity can be handled most easily by theA.
    household sector B.
    business sector C.
    financial sector D.
    government sectorExplain
    how. 5) Expansionary fiscal policyA.
    decreases aggregate demandB.
    occurs when the government takes actions to
    stimulate the economyC.
    occurs when the government cuts spendingD.
    occurs when the government reforms the public sector through
    privatisationHow?
    6)
    Commercial banks create money byA.
    loaning out pounds they receive as deposits B.
    printing currency C.
    collecting bad debts D.
    earning profitsExplain.
    7) Suppose 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 haveA.
    increased by pounds 1200B.
    increased by pounds 600C.
    decreased by pounds 600D.
    stayed the sameExplain how. 8)
    Suppose 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 produced by Alfaland exceeds that of BetalandB.the
    difference in the living standards between Alfaland and Betaland remain
    constant over timeC.the
    gap in the standard of living between the two countries decrease over timeD.the
    gap in the standard of living between the two countries widens over timeExplain.
    9) If the Bank of England wanted to discourage
    investment spending and reduce aggregate demand it could A.
    reduce the required reserve ratio B.
    sell securities on the open market C.
    lower the discount rate D.
    buy securities on the open marketExplain.10)
    Suppose the marginal propensity to consume (MPC) is 0.9. Beginning from equilibrium investment demand increases by
    50. How much does equilibrium income increase?A. a)50B. b)100C. c)250D. d)500Show
    the calculation and explain the mechanism.

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