6. An increase in total production (real GDP) causes the demand for money to and
interest rate to .
A. Increase; increase
B. Increase; decrease
C. Decrease; decrease
D. Decrease; increase
7. The theory of consumption which argues that consumption is based on a household’s
estimate of their income is called the
A. Relative income hypothesis
B. Duesenberry theory
C. Permanent income hypothesis
D. Life-cycle hypothesis
8. The term ‘investment’ in macroeconomics means
A. The total amount of capital goods in the country
B. Total amount of money invested in bonds and stocks C. Profit
D. The production of goods for immediate consumption.
9. The “velocity” of money is
A. The money supply multiplied by the price level B. The real money supply divided by the real GDP C. The ratio of real GDP to the real money supply D. The money supply divided by the price level.
10. The theory of …………… was propounded by ……………… A. Absolute advantage; David Ricardo
B. Absolute advantage; Adam Smith
C. Comparative advantage; Adam Smith D. Comparative advantage; Mercantilists.