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: a. 1,000 b. 500 c. 1,500 d. 300 11. A positive LM shock shifts a. LM and AD to left, causing Y to rise b. LM and AD to right, causing Y to rise c. LM and AD to left, causing Y to fall d. LM and AD to right, causing Y to fall