Answer each question as "True", "False", or "Uncertain", justifying your answer. [5 marks per question]

1.If petrol and cars are complements, a decrease in the price of petrol causes the demand for cars to decrease. In other words, shift to the left.

2.Because there are many buyers and sellers in a perfectly competitive market, neither has any power to influence price. They are said to be price makers.

3.When drawn on a graph that measures the quantity of a good on each axis, indifference curves are usually straight lines that slope downward (negatively).

4.The price elasticity of supply tends to be more inelastic as the firm's production reaches maximum capacity.

5.The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1).

6.If the price of a good falls and the good is an inferior good, the income effect causes a decrease in the quantity demanded of that good.

7.If a market generates a negative externality, the social cost curve is above the supply curve (private cost curve).

8.A common resource is excludable but not rival.

9.The gross domestic product (GDP) measures the value of the production of final goods and final services within the borders of a country, regardless of producers' nationality.

10.A housing bubble increases both the consumer price index (CPI) and the deflator of the gross domestic product.

11.If the unemployment rate is 10%, it means that 90 out of 100 citizens are working in a country.

12.A reduction in the overnight deposits reduces the stock of money (M) in a country.

13.The Quantity Theory of Money predicts that if a Central Bank injects a large amount of money into the economy, it will increase the velocity of money.

14.If the money multiplier is 5 in the UK, it means that the banking system can create money, and any additional pound printed by the Bank of England will increase the stock of money (M) by 5 additional pounds.

15.In the context of the IS-LM model, a tax cut to balance government's budget will result in an increase in both the equilibrium interest rate and the equilibrium output.

16.If the nominal exchange rate is 2 pounds (GBP) per dollar (USD), and if the price of the same t-shirt is $20 in the USA and 30 in the UK, then the real exchange rate is 2/3 British t-shirt per one American t-shirt.