Question 1

Assuming there is no government or foreign sector, if the multiplier is 2.5, the MPC is

Accepted Answer

The multiplier is calculated as 1/(1-MPC), so if the multiplier is 2.5, it means 2.5 = 1/(1-MPC). Solving for MPC gives MPC = 0.6.

Question 2

Injections are assumed in the Keynesian model to be exogenously determined. Based on this, which of the following statements is false?

Accepted Answer

In the Keynesian model, injections are considered to be exogenously determined, meaning they are determined outside the model and not by the model itself. While it's true that injections are assumed to be constant with respect to changes in national income (A) and are represented by a horizontal line in the 45° line diagram (C), stating that injections are constant with respect to time (B) is false. In reality, injections can vary over time due to policy changes, economic conditions, and other factors external to the model.

Question 3

In symbols, the (injections) multiplier can be defined as

Accepted Answer

The answer of In symbols, the (injections) multiplier can be...

Question 4

Which of the following is an example of cumulative causation?

Accepted Answer

Cumulative causation refers to a process where a given effect acts as a cause to further enhance the original effect. All the options provided (A: The multiplier effect, B: A falling stock market leading to further falls, C: A buoyant house market leading to further rises) are examples of situations where an initial change leads to a series of reactions that amplify the initial change, fitting the definition of cumulative causation.

Question 5

The equation of quantity (or 'quantity equation') assumes that

Accepted Answer

The quantity equation (MV = PY) assumes that the velocity of circulation (V) and real GDP (Y) are independent of the money supply (M), meaning changes in the money supply do not directly affect V or Y.

Question 6

Assume that a £1.00 increase in exports increases GDP by £2.00, and a £1.00 increase in income increases import spending by £0.15. In this case, a £500 million increase in exports will increase net exports by

Accepted Answer

A £500 million increase in exports increases GDP by £1,000 million (since a £1 increase in exports increases GDP by £2). A £1,000 million increase in income increases import spending by £150 million (since a £1 increase in income increases import spending by £0.15). Therefore, the net increase in exports is £500 million (initial increase) minus £150 million (increase in imports) = £350 million.

Question 7

Which of the following would cause the value of the multiplier to fall?

Accepted Answer

The multiplier effect is inversely related to the marginal propensity to save. If people save more, the marginal propensity to consume decreases, leading to a lower multiplier.

Question 8

The following diagram shows injections and withdrawals. If national income is currently Y₁, national income will

Accepted Answer

The answer of The following diagram shows injections and withdrawals.
...

Question 9

A fall in withdrawals will lead to a multiplied rise in national income. This means that

Accepted Answer

The multiplier effect suggests that a decrease in withdrawals (such as savings, taxes, and imports) from the circular flow of income will lead to a larger increase in the national income. Therefore, if OW represents the initial fall in withdrawals, the resultant rise in national income (OY) will be greater, making OW < OY.

Question 10

The equation MV = PT is an expression of the quantity theory of money formulated by

Accepted Answer

The equation MV = PT, where M stands for the money supply, V is the velocity of money, P is the price level, and T is the volume of transactions, is an expression of the quantity theory of money formulated by Irving Fisher in 1911. This theory suggests that the amount of money in circulation in an economy is directly proportional to the level of prices in the economy.

Question 11

Monetarists think that inflation is caused by

Accepted Answer

Monetarists, such as Milton Friedman, argue that inflation is primarily the result of too much money in the economy chasing too few goods. They believe that controlling the money supply is key to controlling inflation.

Question 12

Monetarist models assume that people's expectations of inflation

Accepted Answer

The answer of Monetarist models assume that people's expectations of...

Question 13

According to non- Monetarist views of inflation, which of the following could bring inflation?
(i) An increase in import prices
(ii) An increase in money supply
(iii) An increase in inflationary expectations
(iv) An increase in wages

Accepted Answer

Non-Monetarist views of inflation consider a variety of factors beyond just the money supply as potential causes of inflation. These include cost-push factors like an increase in import prices and wages, as well as demand-pull factors and psychological factors such as inflationary expectations. Therefore, all the options listed (i, ii, iii, iv) are considered potential causes of inflation from a non-Monetarist perspective.

Question 14

The equation of exchange says that________ 	= PY.

Accepted Answer

The equation of exchange in economics is represented as MV = PY, where M stands for the money supply, V is the velocity of money, P represents the price level, and Y denotes the real output or real GDP. Thus, the correct choice is C) MV.

Question 15

In an economy whose real national income is £200 million (measured in base- year prices), whose velocity of circulation is 8 and where the price index in base- year prices is 2, the money supply must be

Accepted Answer

The answer of In an economy whose real national income...

Question 16

In an economy whose real national income is £100 million (measured in base- year prices), whose money supply is £10 million and where the price index in base- year prices is 2.5, the velocity of circulation must be

Accepted Answer

Velocity of circulation = Real national income/Money supply= 100 million/10 million= 10

Question 17

According to the equation of exchange, if the money supply rises by £10 million and the velocity of circulation is 4, nominal national income will rise by

Accepted Answer

The equation of exchange is MV = PQ, where M is the money supply, V is the velocity of circulation, P is the price level, and Q is the quantity of goods and services produced (real GDP). If the money supply rises by £10 million and the velocity is 4, the increase in nominal national income (PQ) will be 4 times £10 million, which is £40 million.

Question 18

According to the equation of exchange, if the money supply rises by £50 million and the velocity of circulation is constant and greater than 1, nominal national income will rise by

Accepted Answer

The equation of exchange is MV = PQ, where M is the money supply, V is the velocity of circulation, P is the price level, and Q is the quantity of goods and services produced (real GDP). If the money supply rises and the velocity of circulation is constant and greater than 1, nominal national income (PQ) will rise by more than the increase in the money supply because the same unit of money is used in multiple transactions.

Question 19

According to the equation of exchange, if the money supply rises by 10% and the velocity of circulation and price level are constant, then real national income will rise by

Accepted Answer

The equation of exchange is MV = PY, where M is the money supply, V is the velocity of circulation, P is the price level, and Y is the real national income. If M increases by 10% and V and P remain constant, then Y must also increase by 10% to maintain the equality.

Question 20

According to the equation of exchange, if the money supply rises by £10 million and the velocity of circulation and price level are constant, then real national income will rise by

Accepted Answer

The answer of According to the equation of exchange, if...

Quiz 29: Business Activity, Employment and Inflation

Assuming there is no government or foreign sector, if the multiplier is 2.5, the MPC is

Injections are assumed in the Keynesian model to be exogenously determined. Based on this, which of the following statements is false?

In symbols, the (injections) multiplier can be defined as

Which of the following is an example of cumulative causation?

The equation of quantity (or 'quantity equation') assumes that

Assume that a £1.00 increase in exports increases GDP by £2.00, and a £1.00 increase in income increases import spending by £0.15. In this case, a £500 million increase in exports will increase net exports by

Which of the following would cause the value of the multiplier to fall?

The following diagram shows injections and withdrawals. If national income is currently Y₁, national income will

A fall in withdrawals will lead to a multiplied rise in national income. This means that

The equation MV = PT is an expression of the quantity theory of money formulated by

Monetarists think that inflation is caused by

Monetarist models assume that people's expectations of inflation

According to non- Monetarist views of inflation, which of the following could bring inflation? (i) An increase in import prices (ii) An increase in money supply (iii) An increase in inflationary expectations (iv) An increase in wages

The equation of exchange says that________ = PY.

In an economy whose real national income is £200 million (measured in base- year prices) , whose velocity of circulation is 8 and where the price index in base- year prices is 2, the money supply must be

In an economy whose real national income is £100 million (measured in base- year prices) , whose money supply is £10 million and where the price index in base- year prices is 2.5, the velocity of circulation must be

According to the equation of exchange, if the money supply rises by £10 million and the velocity of circulation is 4, nominal national income will rise by

According to the equation of exchange, if the money supply rises by £50 million and the velocity of circulation is constant and greater than 1, nominal national income will rise by

According to the equation of exchange, if the money supply rises by 10% and the velocity of circulation and price level are constant, then real national income will rise by

According to the equation of exchange, if the money supply rises by £10 million and the velocity of circulation and price level are constant, then real national income will rise by

Quiz 29: Business Activity, Employment and Inflation

Assuming there is no government or foreign sector, if the multiplier is 2.5, the MPC is

Injections are assumed in the Keynesian model to be exogenously determined. Based on this, which of the following statements is false?

In symbols, the (injections) multiplier can be defined as

Which of the following is an example of cumulative causation?

The equation of quantity (or 'quantity equation') assumes that

Assume that a £1.00 increase in exports increases GDP by £2.00, and a £1.00 increase in income increases import spending by £0.15. In this case, a £500 million increase in exports will increase net exports by

Which of the following would cause the value of the multiplier to fall?

The following diagram shows injections and withdrawals. If national income is currently Y1, national income will

A fall in withdrawals will lead to a multiplied rise in national income. This means that

The equation MV = PT is an expression of the quantity theory of money formulated by

Monetarists think that inflation is caused by

Monetarist models assume that people's expectations of inflation

According to non- Monetarist views of inflation, which of the following could bring inflation? (i) An increase in import prices (ii) An increase in money supply (iii) An increase in inflationary expectations (iv) An increase in wages

The equation of exchange says that________ = PY.

In an economy whose real national income is £200 million (measured in base- year prices) , whose velocity of circulation is 8 and where the price index in base- year prices is 2, the money supply must be

In an economy whose real national income is £100 million (measured in base- year prices) , whose money supply is £10 million and where the price index in base- year prices is 2.5, the velocity of circulation must be

According to the equation of exchange, if the money supply rises by £10 million and the velocity of circulation is 4, nominal national income will rise by

According to the equation of exchange, if the money supply rises by £50 million and the velocity of circulation is constant and greater than 1, nominal national income will rise by

According to the equation of exchange, if the money supply rises by 10% and the velocity of circulation and price level are constant, then real national income will rise by

According to the equation of exchange, if the money supply rises by £10 million and the velocity of circulation and price level are constant, then real national income will rise by

The following diagram shows injections and withdrawals. If national income is currently Y₁, national income will