note_9 - Econ 102 Spring 2011 TA Note for Week 9 Sangyup...

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Econ 102 Spring 2011 TA Note for Week 9 Sangyup Choi([email protected]) Money Market and Classical Macroeconomic Model 1. According to classical theory, a decrease in the nominal money supply would lead to which of the following changes d) b/c neutrality of money in the classical model (a) a decrease in equilibrium real output(real income) (b) a decrease in the level of employment (c) a decrease in equilibrium real wage rate (d) a decrease in equilibrium nominal wage rate (e) all of the above (f) none of the above 2. Agents in U.S. economy observed a huge drop in M but no change in P. This outcome can be explained if b) if there is a decrease in M but no change in Y, then there must be increase in interest rate, expected in°ation, or decrease in Y(for drop in money demand curve) (a) a velocity of circulation of money and real income were both constant (b) the real rate of interest increased at the same time as the decrease in M (c) the expected in°ation rate decreased at the same time as the decrease in M (d)
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