1) Which of the following shifts the investment curve upward? a) An increase in
ID: 1151812 • Letter: 1
Question
1) Which of the following shifts the investment curve upward?
a) An increase in disposable income.
b) A decrease in the rate of inflation.
c) A decrease in the real interest rate.
d) None of the above.
2) Which of the following statements best represent the definition of the demand side equilibrium GDP?
a) The demand side equilibrium GDP is the level of GDP at which there is no recession or inflation.
b) The demand side equilibrium GDP is the level of GDP at which aggregate supply exceeds aggregate demand.
c) The demand side equilibrium GDP is the level of GDP at which firms have no incentive to increase or decrease their total product.
d) c and a.
3) Which of the following cause(s) a decrease in the demand side equilibrium GDP?
a) A stronger home currency.
b) A weaker home currency.
c) An increase in the real interest rate.
d) a and c
e) b and c.
4) Which of the following shifts the investment curve downward?
a) A decrease in disposable income.
b) An increase in the value of our domestic currency.
c) A decrease in the real interest rate.
d) None of the above.
4.1) Which of the following cause(s) an increase in the demand side equilibrium GDP?
a) A stronger home currency.
b) A weaker home currency.
c) An increase in the real interest rate.
d) a and c
e) b and c.
Explanation / Answer
1. (c) As the rate of interest is inversely proportional to the investment, with a decrease in the real interest rate the investment curve will shift upwards.
2. (d) Firstly equilibrium is a situation where no changes are made by the inherent forces and thus in the demand side equilibrium GDP, there is no recession or inflation.On the demand side equilibrium level of GDP is the point where the total production is equal to the total spending. Firms are already at the optimum point where there is no incentive to increase or decrease their total product.
3. (e) A weaker home currency decreases the exchange rate and because of the rise in the real interest rates, the aggregate expenditure will decrease and thus, would cause a decrease in the demand side equilibrium GDP.
4. (a) A decrease in the disposable income would shift the investment curve downward.
4.1 (a) A stronger home currency would increase the exchange rate and thus would cause an increase in the demand side equilibrium GDP.
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