Question

Use the following information of a hypothetical economy to answer this question: National Income (Y) = 5,200; Government Budget Deficit = 150; Disposable Income (Yd) = 4,400; and Consumption (C) = 4,100. The value of Investment (I) is

Group of answer choices

A150

B260

C270

D280

Enone of the above

Suppose that the economy is characterized by the money demand function with nominal income $Y = 4000 and money supply . Which of the following is false?

Group of answer choices

A equilibrium money demand is 200

B the equilibrium interest rate is i = 0.025

C an increase in nominal income will increase the equilibrium interest rate

D an increase in the money supply will decrease the equilibrium interest rate

E the equilibrium interest rate i = 0 if central bank increases money supply to

Suppose the population of a country is 100 million people, of whom 50 million are working age. Of these 50 million, 20 million have jobs. Of the remainder: 10 million are actively searching for jobs; 10 million would like jobs but are not searching; and 10 million are discouraged workers. The labour force participation rate is

Group of answer choices

A 0.6

B 0.3

C 0.8

D 0.4

Assume the economy is initially operating at the natural level of output. Suppose that individuals decide to increase their saving. Which of the following must increase in both the short run and median run equilibria?

Group of answer choices

A output

B interest rate

C price level

D investment

E consumption

Answer 1

1.

Answer: A

Savings = Yd – C

            = 4400 – 4100

            = 300

Hence,

Savings – Investments = Budget deficit

300 – Investments = 150

300 – 150 = Investments

Investments = 150

2.

Answer: A

The equilibrium money demand cannot be 200, since the income is much higher (4,000). Money demand depends on the income, which cannot be lower than income.

3.

Answer: A

Total number of employed (E) = have jobs = 20 millions

Total number of unemployed (U) = actively searching = 10 million

Working age = 50 million

Participation rate = (E + U) / Working age

                             = (20 + 10) / 50

                             = 30 / 50

                           = 0.6

4.

Answer: D

The increasing savings increases investment opportunity in the short-run and medium-run. This happens because people would be reluctant to high consumption and financial sectors (like bank) get an increasing deposit for providing loans to investors.