Exam Questions and Answers

Question 5

• Concept: Disposable income
• Given:
  • Personal Income (PI) = $3,500$ billion
  • Personal Taxes (PT) = $1,000$ billion
  • Depreciation (D) = $500$ billion
• Formula: Disposable Income (DI) = Personal Income (PI) - Personal Taxes (PT)
• Calculation: DI = $3,500 - 1,000 = 2,500$ billion
• Answer: (C) $2,500$ billion

Question 6

• Concept: Money demand curve
• Shape: Downward sloping
• Reason:
  • The opportunity cost of holding money rises as interest rates rise.
  • People prefer to hold less money when the opportunity cost is high.
• Answer: (B) people hold less money as the opportunity cost of holding money rises

Question 7

• Concept: Quantity theory of money
• Relates: Quantity of money to P