Question $1($Mandatory$)(10$ points$)$

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The view that "only money matters" is accurate when

Question $1$ options:

money demand is completely interest inelastic

investment is completely interest sensitive

investment is completely interest insensitive

money demand is completely interest elastic

both C and D

Question $2($Mandatory$)(10$ points$)$

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The crowding out effect is zero if

Question $2$ options:

the LM curve is vertical

the central bank conducts open market sales following fiscal expansion

the LM curve is horizontal

income is stimulated via a tax cut rather than an increase in government spending

none of the above

Question $3($Mandatory$)(10$ points$)$

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Fiscal policy is weakest and monetary policy is strongest when

Question $3$ options:

we are in the classical case

investment is very interest inelastic

we are in the liquidity trap

the IS curve is very steep and the LM curve is very flat

money demand is very interest elastic

Question $4($Mandatory$)(10$ points$)$

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Assume you would like to stimulate investment but leave the level of GDP roughly the same. What policy mix would you propose?

Question $4$ options:

an income tax cut combined with monetary expansion

a cut in government spending combined with monetary restriction

a tax cut combined with monetary restriction

an investment subsidy combined with monetary expansion

a cut in government spending combined with monetary expansion

Question $5($Mandatory$)(10$ points$)$

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Crowding out occurs when

Question $5$ options:

tax increases result in a drop in consumption

expansionary monetary policy fails to stimulate economic growth

a policy designed to increase the budget surplus causes the economy to enter a recession

an increase in defense spending causes a decrease in consumption

expansionary fiscal policy causes interest rates to rise, thereby reducing private spending

Question $6($Mandatory$)(10$ points$)$

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The liquidity trap exists when

Question $6$ options:

an increase in government spending is always fully crowded out

money demand is completely insensitive to changes in the interest rate

the LM curve is vertical

the IS curve is vertical

the LM curve is horizontal

Question $7($Mandatory$)(10$ points$)$

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In which country did nominal interest rates drop slightly below zero percent in $2012$ and $2013?$

Question $7$ options:

Denmark

Ireland

The United States

Germany

Japan

Question $8($Mandatory$)(10$ points$)$

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Monetary policy is said to be accommodating when

Question $8$ options:

the central bank responds to fiscal expansion by undertaking open market sales

in the course of fiscal expansion, the central bank increases money supply to prevent interest rates from rising

the central bank responds to a tax increase by increasing money supply

the central bank does not interfere in any way when the government undertakes fiscal policy

the central bank undertakes open market sales to fight inflation

Question $9($Mandatory$)(10$ points$)$

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If we have a downward$-$sloping IS curve but a horizontal LM curve

Question $9$ options:

fiscal policy is not effective in reducing unemployment

monetary policy is the most effective way to reduce unemployment

monetary policy can aid fiscal policy in reducing unemployment

fiscal policy is the most effective way to reduce unemployment

neither fiscal nor monetary policy is effective in reducing unemployment

Question $10($Mandatory$)(10$ points$)$

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If the Fed undertakes open market sales, then

Question $10$ options:

the LM curve will shift to the right

bond prices will increase

interest rates will decrease and income will increase

the LM curve will shift to the left

both A and C