Question

Indicate whether you consider each of the following statements to be true, false or uncertain, and then explain your answers

1. [ 8 points) Gross National Product (GNP) is higher than Gross Domestic Product (GDP) for an economy. 2. [ 8 points] An increase in the price level (such as GDP price index) will shift the IS curve to the right. 3. [ 8 points] Monetary policy is more effective when the LM curve is relatively steeper. 4. [ 8 points) According to the life-cycle theory of consumption, early retirement increases an individual's annual consumption.

Answer 1

1) Solution: True
Explanation: When there are large numbers of foreign firms that are producing within borders of a country, GDP will be exceeds GNP. On contrary when the country is a large producer of products abroad, its GNP will exceed the GDP.

2) Solution: True
Explanation: An increase in the price level causes a rightward shift in money demand curve, the interest rate rises, the aggregate expenditure line shifts downward, and there is upward movement along the aggregate demand curve

3) Solution: True
Explanation: A steeper LM curve indicates that money demand is less interest elastic. The demand for money is less interest elastic, the larger is the decline in the rate of interest when the money supply is increased

4) Solution: False
Explanation: Over the early working years the income increases sharply, peaks, and then falls, especially with retirement.