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Suppose that the RBA raises the current interest rate by reducing the money supply, with no other policy change implemented or anticipated.

1. Suppose that the RBA raises the current interest rate by reducing the money supply, with no other policy change implemented or anticipated. Which of the following shifts in the IS and/or LM curves will take place in the current period?

Select one:

a. IS left; LM upb. no shift in IS; LM upc. IS left; LM downd. IS right; LM upe. IS right; LM down


2. Assume that the saving rate decreases. We know that this reduction in the saving rate will cause which of the following?

Select one: 

a. a temporary increase in the rate of growth of output per capitab. a reduction in the capital-labour ratioc. a temporary reduction in the level of output per capitad. No permanent change in the level of output per capita.e. a permanently lower rate of growth of output per capita


3. A consol bond promises to pay $1000 each year, forever, starting next year. If the nominal interest rate is 5%, the present discounted value of this consol is:

Select one: 

a. $25000.00.b. $18454.00.c. $14490.00.d. $25100.00.e. $20000.00.


4. Which of the following will cause aggregate private spending to increase?

Select one: 

a. an increase in expected future taxesb. a decrease in expected future interest ratesc. an increase in government spendingd. All of the above.e. None of the above.


5. The market interest rate is defined as:

Select one: 

a. iM =  i +  x.b. iM = x -  i.c. iM =  i -  x.d. None of the above.



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