Question

15. When we say that income is a flow variable, we mean that: 1. income is measured at a given point in time 2. income is very liquid 3. income is measured over a period of time 4. income is another word for money

25. Which of the following statements is true? 1. Wealth increases when C exceeds income 2. Wealth is a flow variable

3. Wealth increases when income exceeds C 4. A and B are both true

26. The initial seller of a bond is considered to be the: 1. lender 2. lender or the borrower, depending on how the funds are used 3. borrower 4. lender or the borrower, depending whether interest rates are rising or falling

29. When you borrow from a bank to buy a new car, you are participating in the process of: 1. Direct finance 2. Indirect finance 3. primary finance 4. principal finance

30. Which of the following statements is true? 1. inflation makes everyone worse off since they have to pay higher prices 2. deflation makes everyone worse off since incomes are falling 3. inflation redistributes income 4. deflation harms people who are on fixed income

Answer 1

15. When we say that income is a flow variable, we mean that:

1. income is measured at a given point in time

2. income is very liquid

3. income is measured over a period of time

4. income is another word for money

Ans: (3)

Explanation: When we say income is a flow variable we mean that income is calculated over period of time and the income during this time period is not constant. In other words, we can say that the income accruing during a period of time varies.

25. Which of the following statements is true?

1. Wealth increases when C exceeds income

2. Wealth is a flow variable

3. Wealth increases when income exceeds C

4. A and B are both true

Ans: (3)

Explanation: Wealth increases when income exceeds consumption is true because when income exceeds consumption there is savings. When these savings are invested in market then there is a probability of more earnings which results in wealth accumulation or increase in wealth.

26. The initial seller of a bond is considered to be the:

1. lender

2. lender or the borrower, depending on how the funds are used

3. borrower

4. lender or the borrower, depending whether interest rates are rising or falling

Ans: (3)

Explanation: The initial seller of a bond is a borrower because they receive money for future repayment and the buyer of the bond is a lender as they pay money for future repayment.

29. When you borrow from a bank to buy a new car, you are participating in the process of:

1. Direct finance

2. Indirect finance

3. primary finance

4. principal finance

Ans: (1)

Explanation: Borrowing loan from the bank for purchasing a new car is a direcr finance because there is no involvement of third party itermediaries.

30. Which of the following statements is true?

1. inflation makes everyone worse off since they have to pay higher prices

2. deflation makes everyone worse off since incomes are falling

3. inflation redistributes income

4. deflation harms people who are on fixed income

Ans: Statements (3)

Explanation: Inflation redistributes wealth and income between debtors and creditors because debtors repay creditors with dollars which is less in terms of purchasing power.

Statements 1 and 2 are not true because not all will be negatively affected by inflation and deflation.

Statement 4 is not true because deflation creates greater purchasing power for people on fixed income.