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. A good is an inferior good if the substitution effect dominates the income effect 2. Unemployment rate means the ratio of unemployed people to working age population . Current account is by definition equal to net exports 4. The government purchases of national income accounts include e.g. defense costs, costs of public education and unemployment benefits. 6. A)Ricardian equivalence does not hold if there is proportional taxation of labor income B)Productivity growth does not affect growth of the economy in the Solow mode 7. Inflation mean growth rate of price level 8 Keynesian macroeconomic models usually include some price rigidities in the short run.

Explanation / Answer

1. True

In case of inferior goods, quantity demanded decreases with increase in income and hence the substitution effect is stronger than the income effect.

2. True

Unemployment rate refers to the number of unemploymed peopledivided by the total numer of people in the labor force.

3. True

The current account means Exports- Imports which is known as Net exports

4. False

Government purchases are goodsand services directly bought by the government. transfer payments are spending of a sort in the economy where no goods or service is attained after the purchase. Defense costs, unemployment benefits are examples of transfer payments.

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