Economics Answers

Which one of the following statement about the demand for money is incorrect?

1. As the income level increases, the amount of money that individuals hold, decreases
2. The quantity of money that people hold is negatively related to the interest rate level
3. The income level and the interest rate level affect the quantity of money
4. An increase in the interest rate leads to a decrease in the quantity of money created

B. Which one of the following is the essential function of money

1. Medium of exchange
2. Store of value
3. Factor of production
4. Unit of account

Which one of the following statement is incorrect regarding financial institutions in the circular flow of income and spending

1. Financial capital flows into the financial institutions from households and firms
2. Financial institutions include Banks and insurance companies
3. The money, which households and firms provide to financial institutions, is called savings.
4. The role of financial institutions in the economy is to buy factors of production from households

In the circular flow of income and spending, that is, the basic flow of income and spending between households and firms supplemented by the foreign, financial and government sectors...

1. Exports are leakage from the circular flow
2. Savings are injections into the circular flow
3. Imports are injections into the circular flow
4. Taxes are leakages from the circular flow

B. If the South African reserve Bank decides to decrease the repo rate, the quantity of money created will............ (Ceteris paribus).

1. Decrease
2. Remain the same
3. Increase
4. Cannot be determined

In the simple circular flow of economic activity, goods and services flow via.....

1. Factor markets from households to firms
2. Goods markets from households to firms
3. Factor markets from firms to households
4. Goods markets from firms to households

B. Use the following two statement to answer the question.

A. The factors of production are capital, rent ,money and labour
B. Net exports are equal to exports plus imports

1. Only B is correct
2. A is incorrect and B is correct
3. Both A and B are correct
4. Both A and B are incorrect

Suppose 100 million people are in the civilian labor force and 90 7. million people are employed. How many people are unemployed? What is the unemployment rate?

Suppose 60 million people are employed, 10 million unemployed, and 30 million not in the labor force. What does the civilian non- institutional population equal?

Consider an economy that abides by the standard classical model specifications. Suppose policymakers reduce the retirement age, resulting in a large number of workers falling out of the labor force. Using graphs and written discussion, examine the economic dynamics in the wake of the shock. Capture the timing in your written discussion
• If a curve shifts, explain why/economic intuition
• If a market is in disequilibrium, explain how it returns to equilibrium • Explain, if possible, the final outcome in terms of important variables:
Y,N,P,C, W/P ,W,r,S,PuS,PrS,I

NOMINAL GDP GDP DEFLATOR

YEAR (IN BILLIONS) (BASE YEAR 1992)

1993 $725 101.2

1994 $762 102.4

a. What was the growth rate of nominal income between 1993 and 1994? (Note: The growth rate is the percentage change from one period to the next.)

b. What was the growth rate of the GDP deflator between 1993 and 1994?

c. What was real income in 1993 measured in 1992 prices?

d. What was real income in 1994 measured in 1992 prices?

e. What was the growth rate of real income between 1993 and 1994?

f. Was the growth rate of nominal income higher or lower than the growth rate of real income? Explain.

Define a market failure and distinguish between negative and positive externalities. Give at least two examples of each- prefer those not identified in your textbook. For examples of negative externality identify the external costs (third party costs); for examples of positive externality, identify the external benefits (third party benefits). In the case of negative externalities, how can the government internalize, force the producer to pay for, the external costs of his/her production?

Suppose that Joe can produce 10 Pizzas or 100 Beers per day. Meanwhile, Bob can produce 20 Pizzas or 40 Beers per day.

What determines who should produce beer and who should produce pizza (not just in this case but always)?