1.A fiscal contraction will lead to

a. no change in output if the Fed simultaneously pursues contractionary monetary policy.

b. a reduction in the interest rate and a reduction in investment.

c. a reduction in the interest rate and an upward shift in the LM curve.

d. a reduction in the interest rate and an ambiguous effect on investment.

2.A decrease in the nominal interest rate by 2% and a simultaneous decrease in expected

inflation by 2% will cause

a. an increase in the real interest rate.

b. a reduction in the real interest rate.

c. a reduction in investment.

d. an increase in investment.

e. a decrease in money demand.

f. an increase in money demand.

g. an increase in the real interest rate and a reduction in investment.

3.If investment spending is not very sensitive to the interest rate

a. the LM curve should be relatively flat.

b. the LM curve should be relatively steep.

c. the IS curve should be relatively flat.

d. the IS curve should be relatively steep.

e. neither the IS nor the LM curve will be affected.

4.When the central bank pursues contractionary monetary policy we should expect to have

a. a reduction in bond prices and an increase in i.

b. an increase in bond prices and a reduction in i.

c. a reduction in bond prices and a reduction in i

d. an increase in bond prices and an increase in i.

e. none of these.

Explain each question elaborately..