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 1. Gross domestic 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 is Pareto efficient under certain conditions. 4. Central banks typically use changes of reserve requirements in their day-to-day control of the money supply 5. Gross national product of Finland includes profits from a plant which is located in China but owned by a Finnish firm. 6. A good is an inferior good if the substitution effect dominates the income effect. 7. In general equilibrium macro models fiscal policy has no effect on the economy 8. Unemployment rate means the ratio of unemployed people to working age population. 9. Production function FK,N).has constant returns to scale. 10. Production function ELK N) = Keer0.7 has constant returns to scale. 11. The government purchases of national income accounts include e.g. defense costs, costs of public education and unemployment benefits. 12. Current account is by definition equal to net exports 13. According to Fisher equation there is an approximate relation r = R between nominal interest rate R, real interest rate r and inflation rate i 14. Ricardian equivalence does not hold if there s proportional 15. Productivity growth does not affect growth of the economy in the 16. Inflation mean growth rate of price level taxation of labor income Solow model 17. In Keynesian macroeconomic models monetary policy does not affect the real economy at all 18. Keynesian macroeconomic models usually include some price rigidities in the short run.

Explanation / Answer

1.) True. All macroeconomic aggregates are flow variables.

2) False. There is significant correlation between investment and GDP, as increase in investment will lead to increase in aggregate demand which in turn increase the economic growth.

3) True. The First Welfare Theorem gives a Pareto-efficient allocation

4) True.

5) False.

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