This is macro economics. All questions are multiple choices but I want to reason clearly why you choose this answers.

1. The quantity theory of money, can be used to show what relationship between P, M and Y?

a. Inverse relationship between P and M, given Y

b. Inverse relationship between P and Y, given M

c. Positive or direct relationship between P and Y, given M

d. None of the above

2. Sticky prices give us what type of supply curve?

a. Long run horizontal supply curve

b. Long run vertical supply curve

c. Short run horizontal supply curve

d. Short run vertical supply curve

3. The long run aggregate supply curve (LRAS) implies that unemployment is

a. At the natural rate

b. The sum of structural and frictional unemployment

c. Both (a) and (b)

d. None of the above

4. Imagine that the economy is at the intersection of LRAS, SRAS and AD curves. If M is increased what happens to prices?

a. They are unchanged in the SR and rise in the LR along the AD

b. They rise in the SR

c. They are unchanged in the SR and fall in the LR along the AS

d. None of the above

5. Imagine that the economy is at the intersection of LRAS, SRAS and AD curves. If M is decreased what happens to output ?

a. They are unchanged in the SR and rise to the LR level along the AD

b. They fall in the SR and fall to the LR level along the AD

c. They rise in the SR and fall to the LR level along the AD

d. They fall in the SR and rise to the LR level along the AD

6. Which of the following affects the SRAS

a. Loss in competition in output market

b. Natural disaster

c. Cost raising regulations

d. All of the above

7. Suppose that a shock lowers the SRAS curve. What kind of stabilization policy can be taken to return the economy to the long run level of Y?

a. Raise money supply

b. Lower money supply

c. Keep money supply unchanged

d. None of the above

8. Statement 1: In the Keynesian view, C+I+G is the planned expenditure which matches actual expenditure only at the equilibrium.

Statement 2: In the Keynesian view, C+I+G is the actual expenditure which matches planned expenditure always at all levels of Y.

a. Statement 1 is true, Statement 2 is true.

b. Statement 1 is true, Statement 2 is false.

c. Statement 1 is false, Statement 2 is true.

d. Statement 1 is false, Statement 2 is false.

9. Actual Expenditure < Planned Expenditure means that firms will

a. Raise production

b. Lower production

c. Keep production unchanged

d. None of the above

10. Statement 1: The multiplier for autonomous consumption, I and G are different given a specific value of MPC.

Statement 2: The lumpsum tax multiplier is always the G multiplier times the MPC.

a. Statement 1 is true, Statement 2 is true.

b. Statement 1 is true, Statement 2 is false.

c. Statement 1 is false, Statement 2 is true.

d. Statement 1 is false, Statement 2 is false.

11. A positive shock to G

a. Shifts the planned expenditure curve down

b. Twists the planned expenditure curve upwards

c. Shifts the planned expenditure curve up

d. Twists the planned expenditure curve downwards

12. Pick the correct statement

a. r affects I positively

b. r affects I negatively

c. r has no effect on I

d. None of the above

13. Pick the correct statement

a. Every point on the IS curve corresponds to an equilibrium value of Y, for a given value of r.

b. Every point on the IS curve corresponds to an equilibrium in the commodity market.

c. Both (a) and (b)

d. None of the above

14. The concept of money market in Keynesian Theory uses

a. Liquidity preference

b. The idea that people hold money for transaction and to speculate

c. Real money demand is affected by both output (or income) and real rate of interest

d. All of the above

15. The IS curve is drawn with

a. G and T as fixed

b. Y as fixed

c. r as fixed

d. None of the above

16. The LM curve is drawn with

a. Real money supply as fixed

b. Y as fixed

c. r as fixed

d. None of the above

17. When the real rate of interest rises,

a. Agents wish to hold less money and more assets

b. Agents wish to hold more money and less assets

c. Agents do not change their money demand

d. None of the above

18. The Keynesian theory and the IS-LM theory is

a. Short run with prices flexible

b. Long run with prices flexible

c. Long run with prices fixed

d. Short run with prices fixed

19. Increase in real money supply

a. Shifts the IS curve to the right

b. Shifts the LM curve to the right

c. Both (a) and (b)

d. None of the above

20. A rise in Y

a. Raises r keeping real money demand unchanged and gives us a new point on the LM curve

b. Lowers r keeping real money demand unchanged and gives us a new point on the LM curve

c. Raises r and real money demand and gives us a new point on the LM curve

d. Lowers r and real money demand and gives us a new point on the LM curve

21. Together the IS-LM model shows an equilibrium. This equilibrium denotes

a. An equilibrium in the commodity market

b. An equilibrium in the money market

c. An equilibrium in the market for loanable funds

d. All of the above

22. Expansive (or positive) fiscal policy

a. Shifts the IS curve out and raises r and Y

b. Shifts the IS curve out and lowers r and Y

c. Shifts the LM curve out and raises Y but lowers r

d. Shifts both IS and LM curves out and raise Y, with ambiguous effects on r

25. When P rises, AD falls. This in the money market means,

a. Raising real money supply by keeping nominal money supply unchanged

b. Lowering real money supply by keeping nominal money supply unchanged

c. Raising real money supply by raising nominal money supply but keeping prices same

d. Lowering real money supply by lowering nominal money supply but keeping prices same.