Quiz #5 Answers 1. A - As the AS shifts to the right (due to productivity improvements) and AD is stable, there is fall in the inflation rate (or in our diagram with ?levels? of GDP deflator, there is fall in the GDP deflator). 2. D - The Fed increases the Ms and hence interest rates fall. Given the ROI on various investment projects, many more of such projects become viable. Hence AD goes up. 3. C - prevent the contagious effects of the Asian currency crisis from reaching the U.S., the Fed successfully conduced expansionary monetary policy. 4. D - M% = K(i)% + Q% + P%. Using the numbers given in the question, Q% = 5% -3% = 2%. 5. C - Using the Fisher Hypothesis: the nominal rate = 2% + 3%. 6. A - From our analysis, in the short run, the AD shifted to the right. 7.
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This note was uploaded on 04/07/2008 for the course ECON 201 taught by Professor Salehie during the Winter '08 term at University of Washington.