Economics Question Paper

Question 1: Accuracy check of Solution Manual Manual 1.

Using the following instructions, perform accuracy check of Lecture Slide.
1. Ensuring all the concepts which are mentioned in the chapter are covered (in one way or other)
through lecture slide for that chapter (content missing). If something is missing, we will notify the same
2. The content which is mentioned in the lecture slide is accurate and is coming through the
corresponding chapter
3.

All the computations or formulae which are mentioned in lecture slides are accurate.

4.

Any examples which exists in lecture slides are relevant and correct.

5.

Any typos.

6. Slideshow of lecture slide is running and entire content is visible (nothing getting blocked in
slideshow). No alignment issues in slideshow.
7.

Any image trimming, alignment etc.

Question 2: Perform Accuracy check of Lecture Slide 1

Accuracy check
1. Slide-4, Point-1-People respond in predictable ways to incentives
2. Slide-4, Point-2-Self-interest is an extremely important incentive in economics
3. Slide-13, Point-2-Actual trade-offs are usually on the margin. Marginal means additional
Most economic choices are marginal choices
4. Slide-15- Wealth brings higher standards of living. Understanding economic growth is
crucial.
5. Slide-18-Incentives are sometimes lacking. Strong institutions that support these
incentives foster economic growth
6. Slide-19-Policymakers use Fiscal Policy and Monetary Policy to attempt to smooth out this
economic volatility.
7. Slide-23, Point-1- An increase in the general level of prices. Heavily indebted nations
often print money to pay down debt
8. Slide-25-The Federal Reserve is the U.S.s central bank. The Fed is in charge of money
supply helping the economy be stable Balancing inflation and unemployment Preventing
banking crises?

Question 3: If there are 100 transactions in a year and the average value of each transaction is
$10, then if there is $200 of money in the economy, transactions velocity is ______ times per
year.
A) 0.2 B) 2 C) 5 D) 10
SolutionC) 5
M*V = P*T, 200*V = 10*100, V = 5
Question 4: If the average price of goods and services in the economy equals $10 and the
quantity of money in the economy equals $200,000, then real balances in the economy equal:
A) 10. B) 20,000. C) 200,000. D) 2,000,000.
SolutionB) 20,000
$200,000 / $10= $20,000
Question 5:
According to the quantity theory of money, if money is growing at a 10 percent rate and real
output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over
time as a result of financial innovation, the rate of inflation must be:
A) increasing. B) decreasing. C) 7 percent. D) constant.
SolutionA) Increasing

Question 6:
If the money supply increases 12 percent, velocity decreases 4 percent, and the price level
increases 5 percent, then the change in real GDP must be ______ percent.
A) 3 B) 4 C) 9 D) 11
SolutionA) 3
M/M+V/V=P/P+Y/Y, 12-4=5++Y/Y, Y/Y=3

Question 7:
Percentage change in P is approximately equal to the percentage change in:
A)

M.

B)

M minus percentage change in Y.

C)

M minus percentage change in Y plus percentage change in velocity.

D)

M minus percentage change in Y minus percentage change in velocity.

SolutionC) M minus percentage change in Y plus percentage change in velocity

Question 8:
If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is:
A) 1 percent. B) 6 percent. C) 4 percent. D) 5 percent.
SolutionC) 4 percent
Question 9:
If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the
nominal interest rate must:
A) increase by 2 percent.
C)
remain constant.
B) increase by 1 percent.

D)

decrease by 1 percent.

SolutionB) Increase by 1 percent.

Question 10:
According to the quantity theory a 5 percent increase in money growth increases inflation by ___
percent. According to the Fisher equation a 5 percent increase in the rate of inflation increases
the nominal interest rate by _____.
A) 1; 5 B) 5; 1 C) 1; 1 D) 5; 5
SolutionD) 5; 5