MC#1: Suppose that the quantity theory of MC#5: In the simple AS-AD model of chapter money holds, and that prices are completely 9, a temporary adverse supply shock (like a flexible. If money growth is 1% per year in rise in the cost of oil) will cause which of the U.S., GDP is growing at 1%, and the following to happen in the short run: velocity is constant, then the inflation rate a ) price and output rise. should be: b) price and output fall. a) -2% c) price falls and output rises. b) -1% d) price rises and output falls. c) 0% d) 1% MC#6: Which of the following public policies e) 2% could help reduce the natural rate of unem- ployment in Europe: MC#2: According to the Fisher relation, if the a) Raise the legal minimum wage. inflation rate is expected to be 2% this year b) Lower unemployment insurance benefits. and the nominal interest rate is 1%, then the c) Expansionary monetary policy. ex-ante real interest rate is: d) All of the above. a) -1% b) 1% MC#7: If you observe a recession when c) 2% interest rates are low, which of the d) 3% following shocks could be the cause MC#3: For a country to stop its hyperinflation according to the IS-LM theory? a) a tax cut requires: b) a cut in money supply a) decreased money growth c) an exogenous fall investment due to b) decreased seigniorage pessimism c) fiscal restraint d) d) an exogenous fall in money demand all of the above MC#8: Our theory of money demand says it MC#4: The classical dichotomy: rises with a rise in: a) says real variables do not affect nominal a) income variables b) interest rate says nominal variables do not affect real c) expected inflation variables d) all of the above c) holds mainly in the short run but not in the long run d) all of the above