Question

 

1. if a country’s nominal GDP increases, it means the country is producing more goods and services

 

 

2. If nominal GDP increased by 5.1% and real GDP increased by 2.5% last year, Prices went up during the year.

 

 

3. The marginal propensity to consume is the change in consumption expenditure divided by the percentage change in income

 

 

4. The deficit will decrease during recessions and increase during expansions.

 

 

5. An increase in the money supply will shift the AD curve upwards and to the right.

6. The larger the MPC, the smaller the Keynesian government spending multiplier.

 

 

7. Contractionary monetary policy shifts the AD curve to the right.

 

 

8. Structural unemployment is caused by fluctuations in economic activity.

 

 

9. Nominal GDP can be equal to real GDP.

 

 

10. If the reserve ratio 0.1, the money multiplier is equal to 5

Answer 1

1) False

( Increase in nominal GDP may be caused by Increase in prices . For example, if price of one unit of a good is 10$ .lf it increases to 20$ in next year gdp will increase. But we can't say that one more unit of the good is produced. What happened was a 50% rise in prices. )

2) False.

( Nominal GDP is the money value of all the goods and services produced in the year whereas real GDP is nominal GDP adjusted for inflation. Here, increase in nominal GDP is higher than the Increase in real GDP, so prices were Increased. )

3) False

( Its change in consumption expenditure divided by change in income.mpc = ∆ consumption/∆ income)

4) False.

( Deficit will increase during reccesion and increase during inflation. During , reccesion government will have to increase the government Expenditure and Increase the taxation. So spending will be greater than revenue leading to a deficit.)

5) True

( Expansionary Monetary policy will increase Aggregate demand and contractionary monetary policy will decrease Aggregate demand. As a part of expansionary monetary policy, credit creation will increase, consumption and investment will increase ultimately leading to the rise in aggregate demand. )

6) False.

( Higher the MPC, higher the multiplier value. For example,Multiplier = 1/1-mpc . When MPC = 0.5 ,multipler = 1/1-0.5 = 2. When MPC = 0.6 multiplier = 1/1-0.6 = 2.5 . Thus, it's clear that MPC and value of multiplier has a direct relationship.)

7) False

( Contractionary fiscal policy will shift the aggregate demand curve to left. Contractionary fiscal policy involves reducing goverment Expenditure and increasing taxation. As a result, components of Aggregate demand like consumption and investment will fall , ultimately leading to a decline in aggregate demand.)

8) False.

( Cyclical unemployment is caused by economic fluctuations. Structural unemployment is caused by long term changes in the economy. Its mainly caused by the mismatch between the skills needed and skills of the unemployed.)

9) True

( Nominal GDP is real GDP adjusted for inflation. If there is no price change between base year and current year, nominal GDP and real GDP will be the same.)

10) False.

( Money multiplier =1/reserve ratio.

When reserve ratio is equal to 0.1, Money multiplier = 1/0.1=10)