21)
wat u need to knw here is
M x V = P x Q
where M=money supply
V= velocity of circulation of money
P= Price level
Q=output/ real expenditure
since MV = PQ
we can say here that (M x 1.06) x v = (MV) x 1.04 yea?(MV could reperent nominal income)
so u can see only a decrease in V (velocity ) would bring it to 1.04
IF u want take some figures & see , u'll understand better that way !
22)
An increse in public desire to hold cash will mean that they will not deposit / save but keep it with them selves,
& of course gov expenditure wouldent reduce cash deposits , it will increase em actually i.e More expenditure by gov means more income & therefore more savings & deposites!
it cant be (c) because a reduction cash holding ratio (i.e the % of cash kept to pay on demand deposits by bank wouldent reduce cash deposites ) in fact it will increase em , as the credit multiplier increases with that, i.e banks create more money.
23)
if firms keep stocks in prooprtion to sales, the purchase of stocks reduce with reduction in sales(so demand reduces further), which enhances the recession.
