Question

40) Ryan saved $50,000 last year so that he could buy asr.In this case, money served the4) function of a A) measure of inflation C) store of value B) unit of account D) medium of exchange 41) Which of the following is likely to be true when an economy is in a boom? 41) A) The size of the govermment expenditure multiplier is relatively small. B) The inflation rate is negative. C) The unemployment rate is high. D) The size of the government expenditure multiplier is relatively large. 42) 42) Anna, Barry, and Clara grew up together in Michigan. After college,they each went overseas to countries that had different currencies. They had a group chat in which they were comparing costs of living. So that they could understand one another, they each converted their costs into US dollars. Of the 3 functions of money, what function did the U.S. dollar serve in their conversation? B) Loanable fund D) Store of value A) Medium of exchange C) Unit of account 43) 43) If the value of a government taxation multiplier is 18, which of the following is likely to be true if all other variables remain unchanged? A) A $1 reduction in taxation increases GDP by $1.80 B) A $1.80 reduction in taxation increases GDP by $1.80 C) A $1 increase in taxation increases GDP by $1.80 D) A $1.80 increase in taxation increases GDP by $1.80 Scenario: Mike's housekeeper charges $30 for mowing his lawn. 44) Refer to the scenario above. Which of the following will happen if Mike decides to mow his lawn 44) B) GDP will increase. D) GDP will remain unchanged. himself instead of paying his housekeeper for the service? A) Income per capita will increase. C) GDP will decrease.

Answer 1

Part 1) When Ryan saved $50,000 last year to buy a car, money served the function of a store of value.

Part 2) During a period of economic boom the size of the government expenditure multiplier is relatively small. This is because, during the period of economic boom the economy is operating at relatively higher interest rate or on the relatively vertical section of the LM curve. In such a situation, an increase in the government spending will raise the interest rate high enough to reduce investment spending such that the effect of government expenditure is minimum.

Part 3) Since, Anna, Barry and Clara are comparing the cost of living in terms of a specific currency (U.S. Dollars), so the U.S. Dollar serves the function of unit of account.

Part 4) A government tax multiplier of 1.8 means that $1 reduction in taxation increases GDP by $1.80.

Part 5) If Mike decides to mow his lawn himself instead of paying his housekeeper for the service then GDP will decrease. This is because, the economic value of the work done by Mike himself is not added to the GDP, while the payment made to the housekeeper for mowing the lawn is included in the GDP.