Saving is not a problem in the classical model because A) savers and investors are the same people. B) interest rates are flexible, and savings were channeled into investment. C) the classical economists assume that saving was beneficial to people for retirement. D) saving would be spent by consumers eventually. ANSWER B
Which of the following is TRUE? A) MPC + MPS = 1 B) MPC * MPS = 1 C) MPC – MPS = 1 D) MPC / MPS = 1 ANSWER A
Explain the relationship between economic growth and labor productivity. What will be an ideal response? ANSWER Economic growth equals the sum of the growth rates of all inputs plus the rate of growth in the productivity of the inputs. Hence, other things constant, an increase in labor productivity leads to an increase in economic […]
Which of the following correctly explains the role of the government in a free market? A) The government acts as a referee by enforcing contracts and preventing stealing. B) The government sets prices according to the relative value of each good. C) The government allocates goods to those buyers who value the goods the most. […]
Define economics. Who are economic agents? What will be an ideal response? ANSWER Economics is the study of how agents choose to allocate scarce resources and how these choices affect society. An economic agent is an individual or a group that makes choices.
According to Keynesian theory, the most important determinant of saving and consumption is A) the stock of durable goods in the consumer’s possession. B) the stock of liquid assets. C) the level of real disposable income. D) the level of consumer indebtedness. ANSWER C
Which of the following statements is TRUE? A) There is a direct relationship between investment and the interest rate. B) There is an inverse relationship between investment and the interest rate. C) Investment is always less than savings. D) There is no relationship between investment and the interest rate. ANSWER B
Fiscal policy involves which of the following? A) interest rates B) tax policy C) buying and selling government-agency bonds D) none of the above ANSWER B
An individual holds $10,000 in a non-interest-earning checking account, and the overall price level rises significantly. Other things being constant, we would expect A) the individual’s real wealth to decrease and consumption to decline. B) no change in the individual’s real wealth but a decline in real national product. C) the individual’s stock of real […]
In an economy with no government and no international trade, consumption expenditures will be less than the total value of goods and services when A) people save some of their income. B) people barter rather than use money in making exchanges. C) saving is zero. D) investment is zero. ANSWER A
