Part lI TrueFalse questions 10 points 2 points for each Note

Part lI True/False questions (10 points, 2 points for each) Note: You are only required to write Tfor true, Ffor false and U for uncertain. No explanation is needed. 1. The main determinants of investment are the level of sales and the interest rate. 2. If 3. GDP is the sum of consumption, investment, government spending, inventory investment, and government spending and taxes increase by the same amount, the IS curve does not shift. exports minus imports

Solution

1. False, the main determinants of investment are expected rate of return and rate of interest.

2. False because tax is a function fo income and it will not affect IS as much as government spending.

3. False GDP is sum total of Consumption, Investment, government spending and exports minus imports, Inventory investment is already included in investment.

4. True because if sales are more than production, inventory investment will be negative and vice versa.

5. True.