Match the choices below with their appropriate counterparts.

1. 

1. When a government decrease government spending, in the short run,
2. When a government decrease government spending, in the medium run,
3. Interest rate is lower.
4. IS curve shifts inward to the left.
5. output returns to potential.
6. none of these
7. output increases.

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2. Suppose we wish to examine the determinants of the equilibrium real wage and equilibrium level of employment (N). In a graph with the real wage on the vertical axis, and the level of employment on the horizontal axis.

1. The price-setting relation will now be
2. The wage-setting relation will now be 
3. vertical line.
4. none of these
5. a downward sloping line.
6. horizontal line.
7. a curve that first slopes upward, then downward.
8. an upward sloping line.
9. kinked at the natural rate of unemployment.

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3. 

1. The money demand curve will shift to the left when
2. The money demand curve will shift to the right when 
3. none of these
4. an open market purchase of bonds by the central bank occurs.
5. an increase in income occurs.
6. all of these
7. an open market sale of bonds by the central bank occurs.

1 - -   abcde2 - -   abcde

 4. An permanent increase in the price of oil 

1.  will cause which of the following in the short run?
2.  will cause which of the following in the medium run?
3. an increase in the price level.
4. a reduction in the price level.
5. an decrease in output
6. an increase in output.
7. none of these
8. a reduction in the interest rate

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5. 

1. Okun's law shows that when the unemployment rate is above the natural rate, 
2. The Phillips curve shows that when the unemployment rate is lower than the natural rate, 
3. inflation is higher than expected.
4. policy rate is higher than expected.
5. policy rate is lower than expected.
6. output is above potential.
7. inflation is lower than expected.
8. output is below potential.

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6. 

1. Based on wage setting behavior, we know that a reduction in the unemployment rate will cause
2. Based on price setting behavior, we know that a reduction in the unemployment rate will cause
3. none of these
4. an upward shift of the WS curve.
5. an increase in the real wage.
6. a reduction in the real wage.
7. an upward shift of the PS curve.
8. no change in the real wage.

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7.

1. The LM curve represents
2. The IS curve represents
3. the combinations of output and the interest rate where the goods market is in equilibrium.
4. the single level of output where financial markets are in equilibrium.
5. none of these
6. the combinations of output and the interest rate where the money market is in equilibrium.
7. the single level of output where the goods market is in equilibrium.

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8.In the medium run, 

1.  as the government increase tax, the central bank should 
2.  if the output is too high, to achieve the medium run equilibrium, the central bank will
3. none of these
4. keep money supply constant
5. increase inflation rate.
6. all of these
7. increase the policy rate.

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