Determine whether following statements are true or false. Right answer is worth

Question

Determine whether following statements are true or false. Right answer is worth 0.5 points and wrong answer costs 0.5 points. The total points cannot be negative however. There is a single right answer to each item mestic product is a flow variable. 2. There is no significant correlation between investments and gross domestic product at business cycle frequencies. 3. First fundamental welfare theorem states that general equilibrium allocation 4. Central banks typically use changes of reserve requirements in their 5. Gross national product of Finland includes profits from a plant which is 6. A good is an inferior good if the substitution effect dominates the income 7. In general equilibrium macro models fiscal policy has no effect on the is Pareto efficient under certain conditions. day-to-day control of the money supply. located in China but owned by a Finnish firm effect. economy.

Explanation / Answer

1) True.

GDP is the value of all final goods and services produced within a country 'in a year'. Thus GDP is measured over a period of time and not at a point of time. Thus GDP is a flow variable.

Note: Flow variables are measured over a period of time and Stock variables are measured at a point of time.

2). False.

There is a significant correlation between Investment and GDP. The aggregate demand equation says: Y=C+I+G+NX. Thus as investment increases, GDP also increases and vice-versa.

3). True.

The First fundamental theorem of welfare economics says that any Competitive equilibrium is Pareto efficient under certain ideal conditions like Perfect competition, Perfect information, Local non-satiation, etc.

4) False.

Reserve requirements are rarely used by central banks as a monetary policy tool. This is because, frequently Changing Reserve requirements can lead to liquidity problems in commercial banks.

5) True.

GNP = GDP + net Factor income from abroad(Factor income from abroad - Factor income to abroad.)

Profits earned by a Finnish factory located in China is a part of Factor income from abroad. Thus it is included in Finland's GNP.

6)FALSE.

A good is an inferior good if it has a negative income effect. Inferiority does not depend on whether substitution effect dominates income effect or vice-versa. When income effect is negative and dominates substitution effect, the good is called a Giffen good which is also inferior.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.