Question 3: In the two-period Irving Fisher model, suppose that the lifetime budget constraint holds with equality. Additionally suppose thatC1= 125,C2= 287.5,Y1= 150, andY2= 250. What is the net real interest rate?

(a)r=0.5(b)r=0.6(c)r=0.75(d)r=0.25

Question 4: In the context of the Irving Fisher two-period model, if a person is a saver (i.e.,C1< Y1), a fall in the real interest rate causes:

(a)C1to rise;C2to fall

(b)C1ambiguous;C2to fall (c)C1to fall;C2ambiguous (d)C1to fall;C2to rise

Question 12: Suppose thatY=AK4L4

product of capital (MPK)?

(a) MPK =27(b) MPK =32(c) MPK =1

(d) MPK =2.723

whereA= 4,L= 65,610, andK= 10. What is the marginal

Question 17: Our formulation of the planned expenditure function in our IS-LM model was given byPE=C+I(r)+G. NowsupposeitisgivenbyPE=C(r)+I(r)+G,where,forchangesinr,thesubstitutioneffect always dominates the income effect for consumption. In this case the slope of the IS curve will be

(a) steeper

(b) flatter

(c) unchanged

(d) it does not affect the IS curve, but instead the LM curve

Question 18: One purported reason that falling money supply and deflation was so devastating during the Great Depression was because of thedebt-deflation channel, which suggests that

(a) deflation leads firm to take on more debt

(b) deflation decreases the real value of debt

(c) deflation increases the amount households would like to borrow (d) deflation increases the real value of debt

Question 19: One reason that much of the focus of the Great Depression is on the US is that Canada's experience can be explained by

(a) A similar experience with many bank failures

(b) the fact that Canada did not have a recession during this time period

(c) Canada's reliance on exports meant it was subject to a foreign demand shock (d) A large stock market boom

4

Question 20: One objection to the money supply contraction explanation of the Great Depression is that according to the IS-LM model

(a) A contraction in money supply leads to an increase in the price level, opposite to the observed data (b) A contraction in money supply leads to a rise in interest rates, opposite to the observed data

(c) Shifts in the IS curve do not increase output

(d) Consumers will intertemporally smooth consumption in response to a change in the money supply

Question 30: In the context of the IS-LM model, if the Bank of Canada adjusts the money supply to keep the interest rate constant in response to shocks originating from the goods and services market then

(a) output fluctuations will be larger than a policy which lets the interest rate fluctuate (b) output fluctuations will be smaller than a policy which lets the interest rate fluctuate (c) the crowding out effect will be higher

(d) the demand for money will be constant

Question 35: In the Keynesian-cross model, if the MPC equals 0.8, then a$1 billion decrease in taxes increases planned expenditures by and increases the equilibrium level of income by.

(a)$1 billion; more than$1 billion

(b)$0.75 billion; more than$0.75 billion (c)$0.75 billion;$0.75 billion

(d)$1 billion;$1 billion