Question

Question 1

1. In the short run, a decrease in consumption spending causes output to _______________and the unemployment rate to ______________.

   		a. increase; decrease
   		b. decrease; increase
   		c. increase; increase
   		d. decrease; decrease

1 points   

Question 2

1. In the short run, an increase in investment spending causes output to ___________ and the unemployment rate to ____________.

   		a. increase; increase
   		b. increase; decrease
   		c. decrease; increase
   		d. decrease; decrease

1 points   

Question 3

1. In the short run, an expansion in Europe causes U.S. exports and aggregate demand to ___________and the unemployment rate to _____________.

   		a. increase; increase
   		b. decrease; decrease
   		c. increase; decrease
   		d. decrease; increase

1 points   

Question 4

1. In the short run, a decrease in the money supply causes the price level and inflation to _____________ .

   		a. not change
   		b. increase
   		c. increase or not change
   		d. decrease

1 points   

Question 5

1. In the short run, an increase in the money supply causes output to _______­­­­___.

   		a. increase
   		b. decrease
   		c. not change
   		d. decrease or not change

1 points   

Question 6

1. In the short run, an increase in the money supply causes the price level and inflation to ________________.

   		a. decrease
   		b. increase
   		c. not change
   		d. decrease or not change

1 points   

Question 7

1. If the nominal interest rate is 4% and the inflation rate is 1%, then the real interest rate is

   		a. -5%
   		b. 3%
   		c. 5%
   		d. -3%

Answer 1

1)

In short run decrease in consumption will shift IS curve and hence AD curve to the left and in the short run, supply curve is upward sloping and not vertical. Thus leftward shift of AD curve will result in decrease in output and this further result in lesser people employed => Unemployment will increase.

Hence the correct answer is (b) decrease ; increase

2)

In short run Increase in consumption will shift IS curve and hence AD curve to the Right and in the short run, supply curve is upward sloping and not vertical. Thus Rightward shift of AD curve will result in increase in output and this further result in more people employed => Unemployment will decrease.

Hence, the correct answer is (c) increase ; decrease

3)

The correct answer is (b) increase ; decrease.

Expansion of Europe will result in increase in Europeans income and hence they will demand our home products more and hence Exports will increase. In short run Increase in Exports will shift IS curve and hence AD curve to the Right and in the short run, supply curve is upward sloping and not vertical. Thus Rightward shift of AD curve will result in increase in output and this further result in more people employed => Unemployment will decrease.

Hence, the correct answer is (b) increase ; decrease.

4)

A decrease in money supply will shift LM curve to the left and hence this result in AD curve to shift to the left. As, tn the short run, supply curve is upward sloping and not vertical. Thus Leftward shift of AD curve will result in decrease in output and decrease in price level

The correct answer is (d) decrease

5)

An Increase in money supply will shift LM curve to the Right and hence this result in AD curve to shift to the Right. As, tn the short run, supply curve is upward sloping and not vertical. Thus Rightward shift of AD curve will result in Increase in output and Increase in price level

Hence, The correct answer is (a) Increase

6)

An Increase in money supply will shift LM curve to the Right and hence this result in AD curve to shift to the Right. As, tn the short run, supply curve is upward sloping and not vertical. Thus Rightward shift of AD curve will result in Increase in output and Increase in price level This increase in price level means that there will be increase in Inflation.

Hence, The correct answer is (b) increase

7)

Formula:

Real interest rate = nominal interest rate - inflation rate

= 4% - 1%

= 3%

Hence, The correct answer is (b) 3%.