Question

20. Banks decide to raise the interest rate they pay on checking accoun action would A) increase money demand, shifting the LM curve up and to the ci B) increase money demand, shiftino the IM curve down and to the C) decrease money demand, shifting the M curve up and to the tem D) decrease money demand, shifting the LM curve down and to cing accounts from 1% to 2%. This curve down and to the right. & the LM curve down and to the right. corresponding to different goods-market-clearing 21. The AD Curve A) indicates the level of aggregate output corresponding to levels of the interest rate B) is downward sloping, because with spending. So equilibrium aggregate output declines C) explains how inflation affects output in the short run D) all of the above E) none of the above tion comes higher interest rates and lower 22. The increase in G will shift the A) IS curve to the right and AD curve to the left. B) IS curve to the right and AD curve to the right. C) IS curve to the left and AD curve to the right. D) MP curve to right and AD curve to the right. 23. A Phillips curve shows the short-run relationship between A) potential GDP and real GDP. B) the nominal interest rate and the real interest rate. C) tax rates and tax revenues. D) the unemployment rate and the inflation rate. 24. A decrease in the unemployment rate which is accompanied by an increase in the inflation rate is represented by a the Phillips curve. A) movement down B) movement up C) upward shift of D) downward shift of 25. What can be concluded from Milton Friedman and Edmund Phelps' expectations-augmented Phillips curve? A) that there is no long run tradeoff between unemployment and inflation B) that there is a short run tradeoff between unemployment and inflation C) that there are two types of Phillips curves D) all of the above

Answer 1

20. Decrease money demand , shifting the LM curve down and to the right.

Reason- When Interest rate rises, money demand falls. LM curve shifts rightward as downward shift of LM lowers interest rate and income.

21. D. All of the above.

Reason- AD curve shows the positive relationship between price level and output demanded.

22. B. IS curve shifts to the right and AD curve to the right.

Reason- AD=C+I+G+NX When G rises, AD rises so AD Curve shifts right. This leads to righward shift of IS curve.

23. D. The unemployment rate and inflation rate.

Reason- Philips curve shows that there is negative relationship between inflation and unemployment rate in the short run.

24. B. Movement up

Reason- Philips curve is drawn with Inflation on vertical axis and Unemployment rate on horizontal axis. A movement upwards along the Philip's curve shows rise in inflation and fall in unemployment rate.

25. D. All of the above.

Reason- Expectations augmented Philips curve shows tradeoff between unemployment rate and inflation not in long run but in short run. So there are two Philips curve.