Question

are the following true or false?

1.)If the demand for loanable funds has the usual downward-sloping shape, an increase in the savings rate will reduce the interest rate and increase the quantity of loans made if the supply of loanable funds is perfectly inelastic but not if the supply of loanable funds is perfectly elastic.

2.) Provided either the labor supply curve or labor demand curve is perfectly inelastic, a small increase in the minimum wage will not cause an increase in unemployment.

3.)The quantity theory of money only holds when changes in the money supply do not affect real output.

4.) If all possible uses for oil are equally valuable to consumers, the demand curve for oil will be vertical or perfectly elastic.

5.) In the Solow model, GDP and GDP per capita will grow at some positive, non-zero rate in the steady-state if the number of workers are fixed.

Answer 1

Answer-1 True

''If the demand for loanable funds has the usual downward-sloping shape, an increase in the savings rate will reduce the interest rate and increase the quantity of loans made if the supply of loanable funds is perfectly inelastic but not if the supply of loanable funds is perfectly elastic'', this statement is True. The demand curve is downward sloping because the higher interest rate, the less the demand of borrowing. The rise in saving shift the supply curve for loanable fund to rightward and reducing the equilibrium interest rate in the loanable fund market. if the supply of loanable funds is perfectly inelastic, increase the quantity of loans made.

Answer-2 True

''Provided either the labor supply curve or labor demand curve is perfectly inelastic, a small increase in the minimum wage will not cause an increase in unemployment'', this statement is True. If the supply curve is perfectly inelastic, supply curve is vertical line and indicate a small increase in the minimum wage will not cause an increase in unemployment. If the demand curve is perfectly inelastic, demand curve is vertical line and indicate a small increase in the minimum wage will not cause an increase in unemployment. This means that the same quantity will be demanded regardless of the wage.

Answer-3 True

''The quantity theory of money only holds when changes in the money supply do not affect real output'', this statement is True. The changes in the money supply do not affect real output because the IS curve does not move. A shift in IS curve occurs when equilibrium output changes at each give real interest rate. The factors of shifting are autonomous consumption, autonomous investment, autonomous net export, taxes and government purchases.

Answer-4 False

''If all possible uses for oil are equally valuable to consumers, the demand curve for oil will be vertical or perfectly elastic'', this statement is False. If all possible uses for oil are equally valuable to consumers, the demand curve for oil will be vertical or perfectly inelastic, because the demand curve for a perfectly inelastic good is depicted as vertical line in the graphical presentation because the quantity demanded is the same at any price.

Answer-5 False

''In the Solow model, GDP and GDP per capita will grow at some positive, non-zero rate in the steady-state if the number of workers are fixed'', this statement is False. Because in the steady state, capital per worker is constant, so output per worker is constant. Thus, the growth rate of steady-state output per worker is zero.