Question

For any given interest rate an increase in bullishness among investors would have which of the following effects?

		increase investment
		decrease investment
		no change in investment
		drive bond prices and interest rates down

2)

"A portion of every income is spent creating another income from which a portion is spent again and so on." This statement is describing which of the following features of the Keynesian model?

		the savings investment equality
		the liquidity theory of the interest rate
		the multiplier effect
		the invisible hand

Who was Marriner S. Eccles?

		The first real Chair of the Federal Reserve
		Principle architect of banking reform in 1935
		From Professor Bradbury's home town
		all of the above

3)

For Keynes the opportunity cost of holding money is?

		the interest rate earned on bonds
		the commodities one could have purchased
		the liquidity associated with money
		the equity that could have been earned in stocks

4)

Assume a marginal propensity to consume of .80. How would an increase in income of $1000 impact consumption and savings in the Keynesian model?

		Consumption and savings both increase by $500
		Consumption would rise by $1,000 and savings would remain unchanged
		Consumption increases by $800 and savings rises by $200
		Consumption increase by $800 and the change in savings cannot be determined

Answer 1

1)A...... because, a bull market refers to a market that is on the rise. It is typified by a sustained increase in price, for example in equity markets in the prices of companies' shares. In such times, investors often have faith that the uptrend will continue over the long term. Typically, in this scenario, the country's economy is strong and employment levels are high.these actions will drive capital inflows i.e increases investment.

2)A...............the savings investment equality............... because, In Keynes’ ‘General Theory’, saving and investment equality is derived from the general equality of aggregate demand and aggregate supply (Y = C + I) Equilibrium in the economy is arrived at when total demand in the economy is equal to aggregate supply. Another name for this Y = C + I is the equality between saving and investment.

3)A..... interest rates earned on bonds.......The cost of money is the opportunity cost of holding money in hands instead of investing it. The trade-off between money now and money later (investing) depends on, among other things, the rate of interest that can be earned by investing.

4)C........Consumption increases by $800 and savings rises by $200......... because, The marginal propensity to consume is measured as the ratio of the change in consumption to the change in income. MPC = change in consumption / change in income.