Question 1

Assume there is a bank run in an economy---i.e., there is a sharp increase in the currency-deposit ratio, cu. Which of the following will not be a result of the bank run?

1. The money multiplier will decline.
2. The money supply will increase.
3. The monetary base will fall.
4. The LM curve will shift in and to the right.

Question 2

Which of the following is not an important benefit of an (politically) independent central bank?

1. Independence allows the central bank to "monetize" government debt.
2. Independence allows the central bank to fight inflation free of political pressures.
3. Independence allows the central bank to control the money supply when needed without political approval.
4. Independence allows the central bank to raise interest rates when necessary without political approval.

Question 3

Which of the following does not cause a shift in the LM curve?

1. A change in the nominal money supply, M
2. A change in the real money supply, M/p
3. A change in inflation expectations,p^e
4. A change in government spending, G

Question 4

Assuming no other changes in government spending, orany other taxes, etc., a permanent decrease in income tax rates should do all of the following except...

1. ...shift the aggregate demand (AD) curve up and out through an increase in consumption.
2. ...shift the IS curve up and out through an increase in consumption.
3. ...increase the output price, p.
4. ...lower the real interest rate, r.

Question 5

Assuming no other changes in production, productivity, costs, etc., an increase in firms' energy costs(i.e., an increase in their input costs)should achieve all of the following except...

1. ...shift the Short-Run Aggregate Supply Curve (SRAS) curve in and to the left.
2. ...shift the LMcurve out and to the right.
3. ...increase the output price, p.
4. ...lower (short-run) equilibrium output, Y.

Question 6

Which of the following best describes the Phillips curve?

1. The Phillips curve is a historically positive relationship between inflation,p, and unemployment, u.
2. The Phillips curve is a negative, and sometimes flat, relationship between the inflation gap,p -p*, and the unemployment gap, u-u*
3. The Phillips curve gives the relationship between optimal interest rate policy, r -r*,given the inflation gap,p -p*, and the output gap, Y -Y*.
4. The Phillips curve is a historically positive relationship between the real wage, w/p, and unemployment, u.

Question 7

If a central bank is following some version of the Taylor rule, which of the following generally will not be true?

1. A positive output gap, Y -Y*, with a positive inflation gap,p -p*, will cause the central bank to raise nominal interest rates, i.
2. An increase in inflation expectations,p^e, will cause the central bank to raise nominal interest rates, i.
3. A negative output gap, Y -Y*, will cause the central bank to lower nominal interest rates, I, no matter what.
4. A decline in long-run real interest rates, r*, for whatever reason, will cause the central bank to lower nominal interest rates, i.