Question

Answer all please!

In the Keynesian theory of consumption, an increase in the propensity to save will:

	A.	Reduce the propensity to consume and consumption spending.
	B.	Reduce the propensity to consume but increase consumption spending.
	C.	Increase the propensity to consume and consumption spending.
	D.	Reduce the propensity to invest and investment spending.
	E.	Increase the propensity to invest and investment spending

	According to Tobin Q's theory, a rise in stock prices will A.	Increase investment spending by leading to a rise in household wealth.
	B.	Increase investment spending by pushing businesses to purchase more new capital rather than buy used capital on the stock market.
	C.	Increase investment spending by enabling businesses to sell more stock to the public.
	D.	Reduce investment spending by increasing medium and long-term interest rates.
	E.	Reduce investment spending by providing an incentive for stock ownership rather than starting new businesses.

	Commodity money is A.	A money that is valuable relative to its bulk.
	B.	A money that has a dual value as both money and commodity.
	C.	A money that is durable.
	D.	A money that serves as a store of value.
	E.	A money that never changes its value.

Banks face insolvency problems when	A.	There is a large loss that exceeds a bank's reserves.
	B.	There is a large outflow of funds by depositors and creditors that exceeds a bank's capital.
	C.	There is a large loss that exceeds a bank's capital.
	D.	There is a large outflow of funds that exceeds a bank's deposits.
	E.	There is a large outflow of funds that exceeds a bank's reserves.

Answer 1

1. A. Reduce the propensity to consume and consumption spending.
( propensity to consume + propensity to save equals 1. So, as propensity to save increases,  propensity to consume will decrease and thereby this will reduce consumption spending as consumption depends on propensity to consume)

2. B. Increase investment spending by pushing businesses to purchase more new capital rather than buy used capital on the stock market
(As prices of stocks increases, firm's capital value will increase. Thus firm can purchase new capital and this will increase investment spending of the firm)

3. B. A money that has a dual value as both money and commodity
(commodity money has intrinsic value because of the metal they are made of and also a monetary value)

4. C. There is a large loss that exceeds a bank's capital
(As losses of banks exceeds the value of its assets, it means banks have no source of recovering their loss and thus banks face insolvency problem)