ote that there might also be here a possible hysteresis effect--i.e, a situation
ID: 1113427 • Letter: O
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ote that there might also be here a possible hysteresis effect--i.e, a situation where the short- viour of a variable may also affect its long-run level. For instance, expansionary monetary affect not only the level of Y but also that of Y*. Indeed, a decrease in the rate of interest (i.e.,it will increase both C and D and thus Y in the short run, but it will also increase ht l increase A due to the enhanced capital stock (as a result of the increase in D. ys in the long run , starting from an initial equilibrium, the short-run impacts of a monetary contraction are tion of a short-term recessionary gap (b) an increase in the rate of interest. c) a reduction in the level of desired investment expenditure. (d) an appreciation of the domestic currency in the exchange market. (e) All of the above. The long-run impacts of a monetary expansion assuming factor prices adjust are (a) an elimination of the short-run recessionary gap. (b) no change in potential real GDP. (c) higher factor prices. (d) a higher equilibrium price level. (e) All of the above. The monetary transmission mechanism will eliminate a short-run inflationary gap by (a) raising interest rates, reducing investment, and increasing aggregate expenditure. (b) lowering interest rates, increasing investment, and increasing aggregate expenditure. (c) raising interest rates, reducing investment, and moving upward along the AD curve (d) raising interest rates, reducing investment, and shifting the AD curve to the left. (e) causing an appreciation of the exchange rate 24. 25. A given change in the money supply will exert a larger effecet on real national income in the short run (a) the flatter the MD curve and the steeper the curve. (b) the flatter both the Mp and curves (c) the steeper both the Mp and curves. (d) the steeper the Mp curve and the flatter the curve. (e) if the economy operates in the steep portion of the AS curve. The short-run impact of a decrease in the money supply on real national income will be large when (a) the economy operates in the steep portion of its AS curve (b) the demand for money curve is horizontal. (c) the I curve is vertical. (d) if international capital flows are completely insensitive to interest rate changes. (e) None of the above 26.Explanation / Answer
22. All of the above.
23. All of the above
24.lowering interest rates, increasing investments,and increasing aggregate expenditure
25. C
26.A
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