Question

8. According to the Classical Dichotomy, a country with a hyper-inflation due to excessive money supply...

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

Homework Answers

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

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