1. Which of the following statements is/are true?

I. In macroeconomics, stocks and bonds are examples of money.

II. In macroeconomics, money serves the role of a medium of exchange.

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true.

2. Both _____ and _______ are Bank of Canada assets

A. currency in circulation; advances to banks.

B. currency in circulation; government securities.

C. government securities; advances to banks.

D. government securities; bank reserves.

3. The monetary base can be increased by

I. a decrease in Bank of Canada advances to private banks.

II. a shift of currency into deposits.

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true.

4. Decisions by depositors to increase their holdings of ________, or of banks to hold ________ will result in a ________ expansion of deposits than the simple multiplier model predicts.

A. deposits; desired reserves; larger.

B. deposits; excess reserves; smaller.

C. currency; desired reserves; larger.

D. currency; excess reserves; smaller.

5. Suppose depositors hold money solely as demand deposits (no cash) and private banks hold reserves with reserve to deposit ratio rr as 0.2. Now, the Central Bank injects money into the economy and increases the monetary base by $3 trillion, the money supply of the economy will increase by

A. $3 trillion.

B. $5 trillion.

C. $0.6 trillion.

D. $15 trillion.

6. If the money supply is 500 and nominal GDP is 4000, the velocity of money is

A. 20.

B. 8.

C. 1/8.

D. 1/20.

7. According to the theory of money in the LR and very LR, when velocity is constant, a one-time increase in money supply will

I. increase inflation rate in the very LR.

II. increase the general price level.

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true.

8. Which of the following statements is/are true?

I. According to the Fisher equation, i=r- e .

II. When the money demand function is given by (M/P)d=kY/i, insofar as i does not exhibit any long-run trend growth, the LR velocity growth rate is still zero.

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true.

9. Which of the following statements is/are true according to the notion of classical dichotomy and monetary neutrality in the LR and very LR?

I. Increase in money growth does not affect real GDP growth rate.

II. Faster real GDP growth rate does not affect the inflation rate.

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true.

10. Which of the following statements is/are true?

I. One distinction between the short run and the long run horizons studied in macroeconomics is that in the short run the stock of labour is treated as fixed but in the long run the stock of labour is treated as growing.

II. Another distinction between the short run and the long run horizons studied in macroeconomics is that all prices (factor prices, goods prices and financial market prices) are assumed to be sticky in the short run but completely flexible in the long run.

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true

11. According to the Keynesian cross of the short-run closed economy, as taxes increases,

I. the planned expenditure schedule will shift down.

II. the IS curve will not shift.

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true.

12. In the IS-LM model of the short run closed economy, (with completely sticky goods prices), if autonomous investment (I0) increases,

I. the LM curve will shift to the right.

II. equilibrium real interest rate will decrease.

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true.

13. Continue with the above question, with the increase in autonomous investment,

I. equilibrium consumption will increase.

II. equilibrium investment spending will not change.

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true.

14. In the IS-LM model of the short run closed economy, (with completely sticky goods prices), if money demand increases exogenously (that is, the parameter k increases in the money demand function (M/P)d=kY/i),

I. the LM curve shifts left.

II. real interest rate will increase.

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true.

15. Continue from the above question, with the increase in k,

I. investment will increase.

II. consumption will increase.

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true.

Use the following information for #16 and 17.

Consider the IS-LM model with completely sticky goods prices.

Suppose C=100+0.6*(Y-T).

I=200-5000*r.

G=300.

T=500.

M=50000.

P=2. Expected inflation is 2%. The money demand function is given by (M/P)d=5Y/i.

16. Which of the following is/are true?

I. The IS curve is given by Y=750-12500r.

II. The LM curve is given by Y=100+5000r.

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true.

17. The equilibrium real interest rate is

A. 4.86%.

B. 8.67%.

C. 3.71%.

D. 11.33%.

18. Which of the following statements is/are true?

I. In the model with completely sticky goods prices, the SRAS curve is vertical in the AD-AS diagram.

II. In sticky nominal wage model (with partially sticky goods prices), the SRAS curve is upward sloping in the AD-AS diagram.

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true.

19. In the money market diagram of short run closed economy, if general price level (P) increases,

I. the real money supply will shift right.

II. the LM curve will shift down (to the right).

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true.

20. Continue with the above question, such increase in P will

I. cause real interest rate to fall in the IS-LM equilibrium.

II. shift the AD to the left.

A. Only I is true.

B. Only II is true.

C. Both I & II are true.

D. Neither I nor II is true.