1. Because expected inflation is typically positive, we know that Select one: a.
ID: 1219710 • Letter: 1
Question
1. Because expected inflation is typically positive, we know that
Select one:
a. the nominal interest rate is generally less than the real interest rate.
b. the real interest rate is generally less than the nominal interest rate.
c. the real interest rate is approximately equal to zero.
2. An expected tax cut will tend to cause
Select one:
a. an increase in stock prices.
b. a reduction in stock prices.
c. no change in stock prices.
3.Using the IS-LM model, graphically illustrate and explain what effect a reduction in money growth will have on output, the nominal interest rate, and the real interest rate in the short run.
4. Explain whether it is possible for the nominal interest rate to decrease while the real interest rate simultaneously increases.
5. An expected increase in the money supply will tend to cause
Explanation / Answer
5) option A. Increase in money supply will shift the LM curve down and reduces interest rate. There is an inverse relation between price and interest rate.
2) Tax cut will shift the IS curve outwards. This will increase interest rate and lowers stock price. Option b.
1) Option 2. Real int. rate = nominal rate - inflation
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