Question

8.

According to the Classical Dichotomy, a country with a hyper-inflation due to excessive money supply growth should have:

	nominal wage falling
	real wage falling
	real wage rising
	nominal wage rising

9.

According to the Quantity Theory of Money and the Fisher equation, a rise in money supply (for a given level of GDP and velocity) should raise the:

	nominal interest rate and real interest rate
	inflation rate, nominal interest rate, and real interest rate
	inflation rate and nominal interest rate
	inflation rate and real interest rate

12. Suppose a country experiences a recession in which investment expenditure rises. Under the assumptions of the IS-LM model we studied, which of the following shocks could be the cause of this recession? (You have to apply some logic to figure this out.)

	an exogenous fall in consumption due to low consumer confidence
	a cut in money supply
	a reduction in taxes
	an exogenous fall in money demand

13.

In the IS-LM model, if investment becomes more sensitive to the interest rate, this makes the ____ curve _____.

	LM, flatter
	IS, flatter
	IS, steeper
	LM, steeper
	money demand, steeper
	money demand, flatter

Answer 1

8) According to the Classical Dichotomy, a country with a hyper-inflation due to excessive money supply growth should have: nominal wage rising i.e.Option(D) is correct.

9)According to the Quantity Theory of Money and the Fisher equation, a rise in money supply (for a given level of GDP and velocity) should raise the:inflation rate and nominal interest rate i.e. Option(C) is correct

12)

Cause of this recession isan exogenous fall in consumption due to low consumer confidence.i.e.option (a)is correct.Downward pressure on aggregate demand will shift the IS curve to the left.

13)In the IS-LM model, if investment becomes more sensitive to the interest rate, this makes the IS curve flatter.i.e.option (B) is correct