7 ] Suppose the economy is producing below the natural rate of output and the government is suffering from large budget deficits. To deal with the deficit problem, suppose the government takes a policy action to reduce the size of the deficits. This policy action will cause a __ in the unemployment rate in the short run and a__ in the aggregate price level in the short run, all else equal

a.

Decrease; decrease.

b.

Increase; increase.

c.

Decrease; increase.

d.

Increase; decrease.

31]

The preferred habitat theory of the term structure is closely related to the ___ theory of the term structure.

a.

Expectations.

b.

Liquidity premium.

c.

Segmented markets.

d.

Inverted yield curve.

38]

When the central bank __ the money supply, the MP curve shifts to the right, interest rates __ and equilibrium aggregate output ___, all else equal.

a.

Increases; fall; increases.

b.

Decreases; rise; decreases.

c.

Increases; rise; decreases.

d.

Decreases; fall; increases.