1. If the money demand does not depend on the interest rate,then the LM curve ______.

a. is horizontal

b. is vertical

c. shifts up to the right

d. shifts down to the right

2. If money demand becomes more income elastic, the LM curvewill __________.

a. become flatter

b. shift to the right

c. become stepper

d. shift to the left

3. The labour force is defined as _________.

a. the total number of working age individuals in thepopulation

b. the sum of employed and unemployed

c. the sum of the number of employed, unemployed and discouragedindividuals

d. the total number employed

4.

In the IS-LM model, an increase in money supply will_______.

a. increase income but decrease interest rates
b. decrease income but increase interest rates

c. increase income and interest rates

d. decrease income and interest rates

5. Efficiency wages refer to wages set at a level _________.

a. to maximise union members’ total earnings

b. to encourage greater worker productivity

c. that would make the natural rate of unemployment zero

d. that would result in equilibrium in the labour market of eachindustry

6. In the IS-LM model, if interest rates rise while output fallsthe _________.
a. money supply must have fallen

b. price level must have fallen
c. level of government spending must have fallen
d. level of government spending must have risen

7. If there is a decrease in government expenditures, then the___________.
a. LM curve will shift to the left
b. LM curve will become flatter and shift to the left
c. IS curve will shift to the left
d. IS curve will become steeper and shift to the left

8.  The IS curve is ______.
a. negatively sloped
b. positively sloped
c. shifted by change in money supply
d. a and c

9.

Why is there a negative relationship between unemployment andthe real wage?
a. Higher unemployment rates make workers more likely to look forbetter paying jobs.

b. Lower unemployment rates make workers less likely to look forbetter paying jobs.
c. Higher unemployment weakens workers’ position at the bargainingtable.
d. Higher unemployment empowers workers at the bargainingtable.

10. If goods markets are perfectly competitive, the markup ofthe price over cost (m) is _________.
a. equal to one
b. greater than one
c. equal to zero
d. greater than zero