Question

73. Both a pre-requisite and a co-requisite to long-term economic growth is: (a) contraction of the money supply; (b) rising expectations for business earnings; (c) a marginal propensity to consume close to zero; (d) a balanced federal budget.

74. Perhaps the most fundamental relationship in all of economics is which of the following? (a) spin rates and curve balls; (b) human capital accumulation and the performance of the VIX index; (c) real disposable income and personal consumption expenditures; (d) money supply growth and in-flow of immigrants.

75. When increases in the money supply are said to have no lasting impact upon the level and composition of output, we say that money is: (a) neutral; (b) inflationary; (c) green; (d) transitory.

76. According to Keynes’s “liquidity preference theory,” interest is: (a) the ability to stay awake in your economics class; (b) a reward for saving; (c) a reward for surrendering liquidity temporarily; (d) a moral source of income to lenders.

Answer 1

73. b. Rising expectations of business earnings will increase business growth. Growth of business will increase investments as well as employment. Increase in employment will increase personal income thereby increasing consumption.

74. c. Disposable income and consumption are directly related. Increase in disposable income will increase consumption.

75. b. Increase in money supply may increase prices i.e. inflation. M*V = P*Y (So increase in M i.e. money supply can increase P i.e. price level)

76. c. Keynes beleive in spending, but not spending all of your disposable income. According to keynes, interest is a reward for parting with liquidity.