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.