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output andwhile the short-run model determines 42. The long-run model determines inflation. and potential; long-run inflation
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Answer #1

Q.42.

The long-run model determines potential output and the long-run rate of inflation. The short-run model determines current output and current inflation.

Correct Ans - A

Q.43.

\frac{I_t}{\bar{Y_t}} = \bar{a_t} - \bar{b}(R_t - \bar{r})

If \bar{b} \rightarrow 0 , investment is not very sensitive to changes in real interest rate.

Correct Ans - A

Q.44.

M1 = coins and currency in circulation + checkable (demand) deposit + traveler’s checks.

M2 = M1 + savings deposits + money market funds + certificates of deposit + other time deposits.

If $100 is withdrawn from checking account and deposited in saving accounts, M1 decreases and M2 remains unchanged.

Correct Ans - E

Q.45.

Using fischer's equation:

Real interest rate = Nominal interest rate - Inflation

If inflation > nominal interest rate, real interest rate is negative.

Correct Ans - C

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