A True or false

For each of the statements in Section A, determine whether it is true or false, then explain ina few sentences why that is the answer. Note: no marks will be given for answers that donot include an explanation.

1. In the long-run model of chapter 4, the real money supply is exogenous.

2. When inflation is below its anticipated level, lenders typically gain at the expenseof borrowers.

3. The LM curve gives the short-run equilibrium combination of r and Y .

B Short answer

Answer each of the questions in Section B. Answers should typically be no more than 2-3sentences in length.

1. Consider the long-run model of chapter 4, and suppose inflation increases. Howmight this affect demand for real money balances? Explain.

2. Define the ex ante and ex post real interest rates, and explain why they might bedifferent.

3. What is the difference between the nominal interest rate and the real interest rate?As part of your answer, define these two interest rates.

4. In our model of chapters 9-10, we said that output was "supply-determined" in thelong run, but "demand-determined" in the short run. Explain in your own words what thismeans.

5. Explain why the IS curve is downward-sloping using the goods-market approach.