Question

true or false or Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important.

A5-1. The transaction of a consumer who buys a “meal-kit” sent to their home adds less to GDP than a similar consumer who goes out to a restaurant for the same meal. A5-2. When Canada legalized cannabis consumption it likely led to an increase in Canadian GDP and an increase in general economic well-being.

A5-3. In an economy with no government and no foreign sector, an increase in the marginal propensity to consume would result in a decrease in the size of the aggregate expenditure (AE) multiplier.

A5-4. When inventories fall below planned levels, firms increase production so national income rises. A5-5. When aggregate consumption is $100 (billion) while disposable income is $120 (billion), the marginal propensity to save from disposable income must be 20%

Answer 1

A 5-1. True. Because the services involved in preparing meal at home are not added in GDP but services at restaurant are taken into account.

A5-2. true. legalising cannibis consumption will lead to increased demand and supply. More consumption means more addition to GDP. Also economic well being will be more because get people will get cannibis at going market prices. This will make both consumers and producers happy. Total surplus will be maximum.

A.5-3. false. Aggregat expanditure multiplier = ( 1/1 - MPC). when MPC increases, aggregate expenditure multiplier also increases.

A.5-4.True. Because production in current year add to GDP.

A.5-5. False. Because marginal propensity to save = 20/120 = 16-25%.