1) When the economy is at a point below both the IS and LM curves, this economy has

a. Excess supply of both goods and money

b. Excess demand for both goods and money

c. Excess demand for goods but excess supply of money

d. Excess demand for goods but the money market is in equilibrium

e. Excess supply of goods but excess demand for money

2) The effects of a combined policy of fiscal contraction and monetary expansion will result in:

a. The same level of equilibrium output as the original level of equilibrium output

b. All of the answers are incorrect

c. A lower level of equilibrium output compared to the original level of equilibrium output

d. The level of equilibrium output which may either be higher, lower or the same as before

e. A higher level of equilibrium output compared to the original level of equilibrium output

3) Consider the goods market model where consumption is given by C = c₀+c₁(Y-T), investment is given by: I = b₀+b₁Y-b₂i, and G and T are given. Assuming c₀ = 100, c₁ = 0.5, b₀ = 150, b₁ = 0.3, and b₂ = 1000. Keeping all other things constant, what will be the change in the equilibrium investment (I*) in the goods market if the interest rate , i, is reduced by 1% or 0.01?