1. Which of the following is considered an important determinant of money demand?

a. real income

b. average personal income tax rate

c. interest rate

d. both a&c

2. If velocity is $5 trillion and nominal GDP is $6 trillion, quantity of money is

1. 0.8
2. 1.2
3. 11
4. not computable unless the value of the price level is given

3. In developed countries people use near money substitutes (automated teller machines (ATM), credit cards, checking deposits,..) more frequently. In this case, what happens to M1 velocity?

1. increased
2. decreased
3. did not affect
4. caused nominal balances to rise more slowly than real balances

4. Equilibrium in goods market (IS) and money market (LM) gives the

a. long-run equilibrium

b. short-run equilibrium

c. both

d. none

5. Which of the following shift the aggregate demand curve to the right?

1. decrease in the central banks inflation target
2. increase in investment in business plant and equipment
3. increase incost of production
4. increase in imports

6. If inflation is higher than expected, it redistributes wealth from

a. employers to employees

b. the government to taxpayers

c. borrowers to lenders

d. lenders to borrowers

7. If inflation rises from 5% to 10% (5 percentage points), then nominal interest rates

a. decrease by 5 percentage points

b. increase by 5 percentage points

c. does not change

d. increase by 10 percentage points

8. The slope of the LM curve is determined by

a. the sensitivity of investment spending to the real interest rate

b. the gap between the return on money and the market interest rate

c. the effectiveness of monetary policy

d. the sensitivity of the demand for real money balances to the nominal interest rate

9. Contractionary fiscal policy shift the

a. IS curve to the right & AD curve to the right

b. LM curve to the right & AD curve to the right

c. IS curve to the left & AD curve to the left

d. LM curve to the left & AD curve to the left

10. If disposable income is 6,000, consumption is 4,500, government spending is 800 and tax

revenues are 800, national saving (or supply of loanable funds) is equal to:

1. 1,000
2. 500
3. 1,500
4. 300

11. A positive LM shock shifts

a. LM and AD to left, causing Yto rise

b. LM and AD to right , causing Yto rise

c. LM and AD to left, causing Yto fall

d. LM and AD to right, causing Yto fall

12. Private saving is:

1. income minus consumption minus government spending
2. disposable income minus consumption
3. disposable income minus government spending
4. taxes minus government spending

13. Economic growth and money growth ratesare 4% and 9%, respectively. Then, the rate of inflation is

a. 9 %

b. -5 %

c. 13 %

d. 5 %

14. Monetary neutrality shows

a. the negative relationship between money supply and price level

b. the positive relationship between money supply and price level

c. that money growth affect the real variables

d. none

15. ................occurs when the demand for most goods and services falls, less production is needed and consequently fewer workers are needed and mass unemployment results.

a. frictional unemployment

b. structural unemployment

c. cyclical unemployment

d. natural rate of unemployment