Question

1.

In the money market, money supply is determined by the central bank, such as the Fed in the U.S. Because of this, money supply curve is usually vertical in the short run, while the money demand curve is downward sloping. The quantity demanded of money has an inverse relationship with the interest rate, but a direct relationship with both the price level and real GDP. Therefore, when the general price level increases, what will most likely happen?

		A. The money demand curve will shift to the right.
		B. The money demand curve will shift to the left.
		C. Both the interest rate and investment will rise.
		D. Only A and C.
		E. Only B and C.

3.

Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is in the Keynesian range of the aggregate supply curve, then

		A. real GDP will fall and the price level will rise.
		B. real GDP will rise and the price level will fall.
		C. only the real GDP will fall.
		D. only the price level will fall.
		E. both real GDP and the price level will fall.

5.

Which of the following will shift the aggregate demand curve to the left?

		A. The federal government increases spending for highways and bridges.
		B. Consumers expect an economic downturn.
		C. The federal government increases income taxes.
		D. Only A and C.
		E. Only B and C.

6.

Which of the following will shift the aggregate supply curve to the left?

		A. All workers agree to a reduction in wages.
		B. The federal government increases the gasoline taxes.
		C. An improvement in technology raises labor productivity.
		D. Only A and C.
		E. Only B and C

8.

There are also two kinds of deflation, the demand-pull deflation and cost-push deflation. Then which of the following is most likely to be true?

		A. An increase in AD will cause the demand-pull deflation.
		B. An increase in AS (or SRAS) will cause a cost-push deflation.
		C. Economists worry about the demand-pull deflation more than the cost-push deflation.
		D. Only A and C.
		E. Only B and C.

9.

The short-run aggregate supply curve (SRAS) can be written as follows: Y = Yf + b (p - pe), where Y = real GDP, Yf = full-employment real GDP, p = price level, pe = expected price level, and b is a positive coefficient. The SRAS can be re-written as p = pe - (1/b)(Yf) + (1/b)(Y). Then which of the following is true?

		A. An increase in pe will cause a rightward shift of the SRAS curve.
		B. An increase in pe will cause a leftward shift of the SRAS curve.
		C. An increase in Yf will cause a leftward shift of the SRAS curve.
		D. Only A and C.
		E. Only B and C.