Question

Which of the following is true?

(a). M1 includes M2 plus some other deposits.
(b).If consumption is an increasing function of disposable income and a decreasing function of the real interest rate, then a decrease in the incentives to invest will increase the equilibrium real interest rate in a closed economy.
(c).All else equal, if the marginal propensity to consume is greater than 0 and less than 1 , a $50 million decrease in tax revenue will decrease national saving by more than $50 million.
(d).None of the other answers is correct.

Answer 1

The correct statement related to money supply, consumption function, and national saving is that M2 includes M1 plus other deposits, not the other way around. Therefore, (a) is untrue with the given wording, while (b) and (c) do not align with economic principles, so the correct answer is (d) None of the other answers is correct.

Step-by-step explanation:

To determine which statement is true, let's review the concepts given M1 and M2 are categories of money supply. M1 includes currency, demand deposits, and other liquid deposits, which constitutes the most liquid forms of money. M2 includes all of M1 plus savings deposits, time deposits, and non-institutional money market funds.Based on the understanding of these economic principles, the correct option is (a). M1 includes M2 plus some other deposits, which is incorrect, as M2 includes all of M1 and more. The correct statement should be: M2 includes M1 plus some other deposits. Options (b) and (c) are inconsistent with the principles of macroeconomics.