Question

1. Handsome Barbershop uses 12 workers, each working 8 hours, to cut hair for 192 heads. What is Handsome Barbershop's productivity?

Group of answer choices

96 heads per hour

24 heads per hour

2 heads per hour

16 heads per hour

2. The country of Venus does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Venus is $5 billion. For Venus, investment is

Group of answer choices

$6 billion and consumption is $7 billion.

$6 billion and consumption is $6 billion.

$7 billion and consumption is $7 billion.

$7 billion and consumption is $6 billion.

3. Because of Coronavirus, the business community is pessimistic about the profitability of capital. Using the Market for Loanable Funds model, the equilibrium

Group of answer choices

interest rate and saving will fall

interest rate rises and saving falls.

saving falls and interest rate rises.

interest rate and saving will rise.

4. In the Market for Loanable Funds model, which of the following events would shift the savings curve to the right?

Group of answer choices

In response to tax reform, firms are encouraged to invest more than they previously invested.

In response to tax reform, households are encouraged to save more than they previously saved.

Government goes from running a balanced budget to running a budget deficit.

Any of the above events would shift the savings curve to the right.

5. If the reserve ratio is 8 percent, then the money multiplier is

Group of answer choices

2.5

12.5

0.08.

10.

6. If the reserve ratio is 20 percent, then $1,200 of additional deposits would ultimately generate

Group of answer choices

$24,000 of money.

$6,000 of money.

$60,000 of money.

$1,200 of money.

7. If Y and V are constant and M triples, the quantity theory of money equation implies that the price level

Group of answer choices

more than triples.

changes but less than triples.

triples.

does not change.

Answer 1

Question 1)

Labor Productivity = Output/ Man Hours used = 192/(12 x 8) = 192/ 96 = 2

c) 2 heads per hours

Question 2 )

Income = Y = Consumption + savings + taxes

A part of income is taxed away , a part is consumed and rest is saved

Y = C + Private savings + Taxes

17 = C + 5 + 6

Consumption = 17 - 11 = $6 Billion

GDP = Y = Consumption + government purchases + investment

Y = C + G + I

17 = 6 + 5 + I

I = $6 Billion

Investment is $6 billion and consumption is $6 billion.

Question 3)  a) interest rate and saving will fall

As investors are pessimistic , the will borrow less and this will reduce the demand for loanable funds. As demand falls , rate of interest will fall and savings will too fall.

Question 4) b) In response to tax reform, households are encouraged to save more than they previously saved.

As people savve more there is more avalable for savings this increase the supply of savings and shifts the curve rightwards

The rest of the option suggest a change in demand for funds not for savings curve

Question 5) b) 12.5

Reserve ratio = 8% = 0.08

Money multiplier = 1/ Reserve Ratio = 1/0.08 = 12.5

Question 6) $6,000 of money

Money multiplier = 1/ reserve ratio = 1/0.2 = 5

Change in money supply = money multiplier x Change in deposits

Change in money supply = 5 x 1200 = $6000

Question 7 ) triples.

Quantity theory of money equation

P x V = M x Y

If M triples there will be a one-to-one change in price

So price will also triple