Question

21. In the long run an increase in the saving rate

a. doesn’t change the level of productivity or income.

b. raises the levels of both productivity and income.

c. raises the level of productivity but not the level of income.

d. raises the level of income but not the level of productivity.

22. Investment from abroad

a. is a way for poor countries to learn the state-of-the-art technologies developed and used in richer countries.

b. is viewed by economists as a way to increase growth.

c. often requires removing restrictions that governments have imposed on foreign ownership of domestic capital.

d. All of the above are correct.

23. The cob Douglas production function given by exhibits

a. constant returns to scale if

b. increasing returns to scale if

c. decreasing returns to scale if

d. None of the above

24. 1000 dollars is deposited in a bank that pays 14% interest rate. If no withdrawals or new deposits are made, this amount will double in

a. 6 years.

b. 5 years.

c. 140 years.

d. 9.8 years.

25. Stock represents

a. a claim to a share of the profits of a firm.

b. a claim to partial ownership in a firm.

c. equity finance.

d. All of the above are correct

26. Which of the following equations will always represent GDP in a four sector economy?

a. S = I – G

b. I = Y - C + G

c. Y = C + I + G

d. Y = C + I + G + NX.

27. In a closed economy, what does (T – G- transfer payment) represent?

a. national saving

b. government tax revenue

c. public saving

d. private saving

28. The source of the supply of loanable funds

a. is saving and the source of demand for loanable funds is investment.

b. is investment and the source of demand for loanable funds is saving.

c. and the demand for loanable funds is saving.

d. and the demand for loanable funds is investment.

29. Other things the same, when the interest rate rises

a. people would want to lend more, making the supply of loanable funds increase.

b. people would want to lend less, making the supply of loanable funds decrease.

c. people would want to lend more, making the quantity of loanable funds supplied increase.

d. people would want to lend less, making the quantity of loanable funds supplied decrease.

Answer 1

25. d. All of the above are correct

Stock gives the shareholds partial ownership in the firm, gives share in the profit of the firm.

26. d. Y = C + I + G + NX.

GDP is the market value of final goods and services produced within the domestic territory of a country during one year. Components of GDP are Consumption expenditure, investment spending, government expenditure and net exports.

a) Private Final Consumption Expenditure: It refers to expenditure on final goods and services by the individuals, households, and non-profit private institutions serving society. It includes: consumer services, consumer non durable goods and consumer durable goods.

b) Government final consumption expenditure (G): It refers to expenditure on final goods and services by the Government like expenditure on purchase of goods for consumption by the defence personnel.

c) Investment expenditure (I): It refers to expenditure on final goods and services by the producers.

d) Net exports refers to the difference between exports and imports during an accounting year.

27. c. public saving

Public saving shows the saving of government which is the excess of government revenue from taxation from government spending.

28. a. is saving and the source of demand for loanable funds is investment.

In the classical system components of AD plays their explicit role in determining interest rate. The Classical theory of interest is based on loanable fund theory. According to it, interest rate gets determine by equality of supply and demand for loanable fund. It is supplied by household through their savings. On the other hand, it is demanded by firms for Investment and by government to meet its budget deficit.

20. c. people would want to lend more, making the quantity of loanable funds supplied increase.

Increase in interest rate induces people to lend more because they get more money in the form of interes which increases the quantity of funds supplied.