SECTION A: TRUE OR FALSE WITH REASONS.(30 MARKS)

There are 9 questions in this section. Answer ALL questions and provide reasons to support your answer.

2.When total expenditure (TE) exceeds total production (TP), inventory levels rise unexpectedly, which sends a signal to firms that they have overproduced, so they cut back on production.

Answer:

Reason:

3.With a progressive income tax, as real income rises, one's tax burden rises more than proportionally.

Answer:

Reason:

4.Complete crowding out occurs when an increase in government spending is completely offset by an equal increase in tax revenues.

Answer:

Reason:

5.The existence and use of the Internet has lowered the transaction costs of making some exchanges.

Answer:

Reason:

6.To a bank, checkable deposits are classified as a liability.

Answer:

Reason:

7.The simple quantity theory of money predicts that the larger the percentage change in the money supply, the larger the percentage change in Real GDP.

Answer:

Reason:

8.In the simple quantity theory of money, Real GDP and velocity are assumed to be constant.

Answer:

Reason:

9.As the interest rate falls, the quantity supplied of money falls and the quantity demanded of money rises.

Answer:

Reason:

10.When an economist states that the monetarist transmission mechanism is "direct" it means that a change in the money supply creates a direct impact on the goods and services market.

Answer:

Reason: