Which of the following are true about the real interest rate, r? There may be more than one answer.

a) In the long-run, r is determined by the IS-LM system. b) In the short-run, r is determined by the IS-LM system. c) If expected inflation e rises by 2%, the LM curve implies that r must rise in the long-run.

d) If expected inflation e rises by 2%, the LM curve implies that r must decline in the short-run. [4 marks]

Which of the following are true about fiscal and monetary policy? There may be more than one answer.

a) A change in tax policies can affect output in the long-run. b) A change in government purchases can affect output in the short-run. c) Since money supply can only affect prices, it can never affect output in the long-run.

d) Since money supply can only affect prices, it can never affect output in the short-run.