Question

QUESTION 1

1. Total output in the economy is equivalent to:

   	A.	total (real) income in the economy.
   	B.	total consumption expenditure in the economy.
   	C.	total investment expenditure in the economy.
   	D.	none of the above.

10 points   

QUESTION 2

1. In the classical model, because of full employment, real interest rate is

   	A.	a fixed number.
   	B.	determined in the labor market equilibrium.
   	C.	determined in the goods market equilibrium.
   	D.	none of the above.

10 points   

QUESTION 3

1. Which of the following is NOT considered to be a major function of money?

   	A.	a way to display wealth.
   	B.	medium of exchange.
   	C.	storage of value or transfer purchasing power into the future.
   	D.	none of the above.

10 points   

QUESTION 4

1. The money supply, M, in the economy consists of:

   	A.	currency (coins and bills) alone.
   	B.	checking deposits or balances in checking accounts alone.
   	C.	bonds held by the public.
   	D.	none of the above.

10 points   

QUESTION 5

1. Checking deposits (balances of checking accounts) are:

   	A.	assets of the banks.
   	B.	liabilities of the banks.
   	C.	liabilities of the public.
   	D.	none of the above.

10 points   

QUESTION 6

1. banks create money when they:

   	A.	make new loans to the public.
   	B.	accept deposits.
   	C.	transfer checking balances from one customer to the checking account of another customer.
   	D.	none of the above.

10 points   

QUESTION 7

1. Which of the following would increase money supply in the economy?

   	A.	increasing the reserve requirement.
   	B.	the Fed lowering the discount rate.
   	C.	the Fed sells bonds in the open market.
   	D.	none of the above.

10 points   

QUESTION 8

1. If the reserves of the banks increase by $1, we expect:

   	A.	the money supply will increase by more than $1.
   	B.	the money supply will decrease by $1.
   	C.	the money supply will decrease by more than $1,
   	D.	none of the above.

10 points   

QUESTION 9

1. Banks' deposits with the Fed are  

   	A.	liabilities of the banks.
   	B.	part of the reserves of the banks.
   	C.	part of money supply, M.
   	D.	none of the above.

10 points   

QUESTION 10

1. According to the quantity theory of money, if the money supply, M, increases by 10%, then

   	A.	velocity increases by 10%.
   	B.	the rate of inflation (in %) increases by 10.
   	C.	the nominal GDP increases by 10%.
   	D.	none of the above.

10 points   

QUESTION 11

1. According to the quantity theory of money and the classical model, changes in nominal money supply, M, has

   	A.	no effect on real variables.
   	B.	no effect on inflation rate.
   	C.	no effect on nominal interest rate.
   	D.	none of the above.

10 points   

QUESTION 12

1. If the nominal interest rate is 4% while the rate of inflation is 1%, then the real interest rate is

   	A.	0%.
   	B.	1%.
   	C.	2%.
   	D.	none of the above.

10 points   

QUESTION 13

1. According to the quantity theory of money and the classical model, if money supply, M, increases by 1%, then

   	A.	the real interest rate (in %) increases by 1.
   	B.	the inflation rate (in %) increases by 1.
   	C.	the nominal interest rate (in %) increases by 2.
   	D.	none of the above.

10 points   

QUESTION 14

1. The opportunity cost of holding money (demand for money) is

   	A.	real interest rate.
   	B.	nominal interest rate.
   	C.	inflation rate.
   	D.	none of the above.

Answer 1

Question 1.

Total output in the economy refers to the total amount of goods and services produced by all the producer together in the economy.

Production depend upon two components: Consumption expenditure in the economy which producer use to know how much to produce and level of investment.

Total output = C+I

Where C is the consumption expenditure and I is the investment.

Investment is depend upon the level of savings in the economy.

I= sY

Here s is the savings rate and Y is the real income of the economy.

Total output= C+sY Equation 1

We know that the real income consist of two things: Consumption and savings. It implies:

Y= C+S

Here S is the level of saving in the economy. So

Y= C+sY Equation 2

From equation 1 and 2

We can infer that:

Y= Total output

Option A is the correct answer.