Which of the following is not a determinant of the long-run level of real gdp?

1. Which of the following is not a determinant of the long-run level of real GDP? a) the price level. b) the amount of capital used by firms. c) available stock of human capital. d) available technology 2. A change in the expected price level shifts a) the aggregate-demand curve. b) the short-run aggregate-supply curve, but not the long-run aggregate-supply curve. c) the long-run aggregate-supply curve, but not the short-run aggregate-supply curve. d) both the short-run and the long-run aggregate-supply curves. 3. An increase in the aggregate demand for goods and services has a larger impact on output and a larger impact on the price level a) in the short run, in the long run b) in the long run, in the short run c) in the short run, also in the short run d) in the long run, also in the long run 4. The variables on the vertical and horizontal axes of the aggregate demand and supply graph are a) the price level and real output. b) real output and employment. c) employment and the inflation rate. d) the value of money and the price level. 5. Most economists believe that money neutrality a) does not hold in the short run. b) does not hold in the long run. c) does not hold in either the short run or long run. d) holds in the short run and the long run. 6. Other things the same, if the price level falls, people a) increase foreign bond purchases, so the dollar appreciates. b) increase foreign bond purchases, so the dollar depreciates. c) increase domestic bond purchases, so the dollar appreciates. d) increase domestic bond purchases, so the dollar depreciates. 1 
7. Which of the following would cause prices and real GDP to rise in the short run? a) an increase in the expected price level b) an increase in the money supply c) a decrease in the capital stock d) an increase in taxes. 8. If the central bank wants to expand aggregate demand, it can the interest rate. the money supply, which would a) increase, increase b) increase, decrease c) decrease, increase d) decrease, decrease 9. The Federal Reserves target rate for the federal funds rate a) is an extra policy tool for the central bank, in addition to and independent of the money supply. b) commits the Fed to set a particular money supply so that it hits the announced target c) is a goal that is rarely achieved, because the Fed can determine only the money supply. d) matters to banks that borrow and lend federal funds but does not influence aggregate demand 10. Liquidity preference theory is most relevant to the a) short run and supposes that the price level adjusts to bring money supply and money demand into balance. b) short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. c) long run and supposes that the price level adjusts to bring money supply and money demand into balance. d) long run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 11. When the interest rate increases, the opportunity cost of holding money a) increases, so the quantity of money demanded increases b) increases, so the quantity of money demanded decreases c) decreases, so the quantity of money demanded increases d) decreases, so the quantity of money demanded decreases. 12. If the Federal Reserve increases the money supply, then initially there is a a) shortage in the money market, so people will want to sell bonds b) shortage in the money market, so people will want to buy bonds c) surplus in the money market, so people will want to sell bonds. d) surplus in the money market, so people will want to buy bonds. 13. In recent years, the Fed has chosen to target interest rates rather than the money supply because a) Congress passed a law requiring them to do so. b) the President requested them to do so. c the money supply is hard to measure with sufficient precision. d) changes in the interest rate change aggregate demand, but changes in the money supply do not. 
14. If the stock market crashes, then a) aggregate demand decreases, which the Fed could offset by purchasing bonds. b) aggregate demand decreases, which the Fed could offset by selling bonds c) aggregate demand increases, which the Fed could offset by selling bonds. d) aggregate demand increases, which the Fed could offset by purchasing the money supply. 15. The classical dichotomy refers to the separation of a) prices and nominal interest rates. b) taxes and government spending. c) decisions made by the public and decisions made by the government d) real and nominal variables. 16. The aggregate-demand curve shows the a) quantity of labor and other inputs that firms want to buy at each price level. b) quantity of labor and other inputs that firms want to buy at each inflation rate. c) quantity of domestically produced goods and services that households want to buy at each price level. d) quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level. 17. Which of the following effects helps to explain the slope of the aggregate-demand curve? a) the exchange-rate effect b) the wealth effect c) the interest-rate effect d) All of the above are correct. 18. The multiplier for changes in government spending is calculated as a) 1/(1+MPC). b) (1-МPСУ/MPC. c) 1/MPC d) 1/(1-MPC). 19. In a certain economy, when income is $500, consumer spending is $375. The value of the multiplier for this economy is 5. It follows that, when income is $510, consumer spending is a) $381.67. b) $378. c) $383. d) $383.33. 20. Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase? a) the crowding-out effect b) the multiplier effect c) the exchange-rate effect d) the interest-rate effect 
21. An increase in government spending a) increases the interest rate and so investment spending increases b) increases the interest rate and so investment spending decreases. c) decreases the interest rate and so increases investment spending increases. d) decreases the interest rate and so investment spending decreases 22. The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected, a) relative to prices wages are higher and employment rise b) relative to prices wages are higher and employment falls c relative to prices wages are lower and employment rises d) relative to prices wages are lower and employment falls. I 23. The wealth effect stems from the idea that a higher price level a) increases the real value of households money holdings b) decreases the real value of households money holdings c) increases the real value of the domestic currency in foreign-exchange markets d) decreases the real value of the domestic currency in foreign-exchange markets 24. The discovery of a large amount of previously-undiscovered oil in the U.S. would shift a) the long-run aggregate-supply curve to the right. b) the long run aggregate-supply curve to the left. c the aggregate-demand curve to the left. d) None of the above is correct. 25. Other things the same, if the long-run aggregate supply curve shifts left, prices a) and output both increase. b) and output both decrease. c) increase and output decreases d) decrease and output increases 26. According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in a) the price level. b) the interest rate. c) the exchange rate. d) real wealth 27. If the MPC 0.75, then the government purchases multiplier is about a) 1.33 b) 7 c) 4 d) 3 
28. Which of the following Fed actions would both decrease the money supply? a) buy bonds and raise the reserve requirement b) buy bonds and lower the reserve requirement c) sell bonds and raise the reserve requirement d) sell bonds and lower the reserve requirement 29. Fiscal policy refers to the idea that aggregate demand is affected by changes in a) the money supply. b) government spending and taxes. c) trade policy. d) All of the above are correct. 30. On the graph that depicts the theory of liquidity preference, a) the demand-for-money curve is vertical. b) the supply-of-money curve is vertical. c) the interest rate is measured along the horizontal axis. d) the price level is measured along the vertical axis.

1. Which of the following is not a determinant of the long-run level of real GDP? a) the price level. b) the amount of capital used by firms. c) available stock of human capital. d) available technology 2. A change in the expected price level shifts a) the aggregate-demand curve. b) the short-run aggregate-supply curve, but not the long-run aggregate-supply curve. c) the long-run aggregate-supply curve, but not the short-run aggregate-supply curve. d) both the short-run and the long-run aggregate-supply curves. 3. An increase in the aggregate demand for goods and services has a larger impact on output and a larger impact on the price level a) in the short run, in the long run b) in the long run, in the short run c) in the short run, also in the short run d) in the long run, also in the long run 4. The variables on the vertical and horizontal axes of the aggregate demand and supply graph are a) the price level and real output. b) real output and employment. c) employment and the inflation rate. d) the value of money and the price level. 5. Most economists believe that money neutrality a) does not hold in the short run. b) does not hold in the long run. c) does not hold in either the short run or long run. d) holds in the short run and the long run. 6. Other things the same, if the price level falls, people a) increase foreign bond purchases, so the dollar appreciates. b) increase foreign bond purchases, so the dollar depreciates. c) increase domestic bond purchases, so the dollar appreciates. d) increase domestic bond purchases, so the dollar depreciates. 1 
7. Which of the following would cause prices and real GDP to rise in the short run? a) an increase in the expected price level b) an increase in the money supply c) a decrease in the capital stock d) an increase in taxes. 8. If the central bank wants to expand aggregate demand, it can the interest rate. the money supply, which would a) increase, increase b) increase, decrease c) decrease, increase d) decrease, decrease 9. The Federal Reserves target rate for the federal funds rate a) is an extra policy tool for the central bank, in addition to and independent of the money supply. b) commits the Fed to set a particular money supply so that it hits the announced target c) is a goal that is rarely achieved, because the Fed can determine only the money supply. d) matters to banks that borrow and lend federal funds but does not influence aggregate demand 10. Liquidity preference theory is most relevant to the a) short run and supposes that the price level adjusts to bring money supply and money demand into balance. b) short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. c) long run and supposes that the price level adjusts to bring money supply and money demand into balance. d) long run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 11. When the interest rate increases, the opportunity cost of holding money a) increases, so the quantity of money demanded increases b) increases, so the quantity of money demanded decreases c) decreases, so the quantity of money demanded increases d) decreases, so the quantity of money demanded decreases. 12. If the Federal Reserve increases the money supply, then initially there is a a) shortage in the money market, so people will want to sell bonds b) shortage in the money market, so people will want to buy bonds c) surplus in the money market, so people will want to sell bonds. d) surplus in the money market, so people will want to buy bonds. 13. In recent years, the Fed has chosen to target interest rates rather than the money supply because a) Congress passed a law requiring them to do so. b) the President requested them to do so. c the money supply is hard to measure with sufficient precision. d) changes in the interest rate change aggregate demand, but changes in the money supply do not. 
14. If the stock market crashes, then a) aggregate demand decreases, which the Fed could offset by purchasing bonds. b) aggregate demand decreases, which the Fed could offset by selling bonds c) aggregate demand increases, which the Fed could offset by selling bonds. d) aggregate demand increases, which the Fed could offset by purchasing the money supply. 15. The classical dichotomy refers to the separation of a) prices and nominal interest rates. b) taxes and government spending. c) decisions made by the public and decisions made by the government d) real and nominal variables. 16. The aggregate-demand curve shows the a) quantity of labor and other inputs that firms want to buy at each price level. b) quantity of labor and other inputs that firms want to buy at each inflation rate. c) quantity of domestically produced goods and services that households want to buy at each price level. d) quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level. 17. Which of the following effects helps to explain the slope of the aggregate-demand curve? a) the exchange-rate effect b) the wealth effect c) the interest-rate effect d) All of the above are correct. 18. The multiplier for changes in government spending is calculated as a) 1/(1+MPC). b) (1-МPСУ/MPC. c) 1/MPC d) 1/(1-MPC). 19. In a certain economy, when income is $500, consumer spending is $375. The value of the multiplier for this economy is 5. It follows that, when income is $510, consumer spending is a) $381.67. b) $378. c) $383. d) $383.33. 20. Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase? a) the crowding-out effect b) the multiplier effect c) the exchange-rate effect d) the interest-rate effect 
21. An increase in government spending a) increases the interest rate and so investment spending increases b) increases the interest rate and so investment spending decreases. c) decreases the interest rate and so increases investment spending increases. d) decreases the interest rate and so investment spending decreases 22. The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected, a) relative to prices wages are higher and employment rise b) relative to prices wages are higher and employment falls c relative to prices wages are lower and employment rises d) relative to prices wages are lower and employment falls. I 23. The wealth effect stems from the idea that a higher price level a) increases the real value of households money holdings b) decreases the real value of households money holdings c) increases the real value of the domestic currency in foreign-exchange markets d) decreases the real value of the domestic currency in foreign-exchange markets 24. The discovery of a large amount of previously-undiscovered oil in the U.S. would shift a) the long-run aggregate-supply curve to the right. b) the long run aggregate-supply curve to the left. c the aggregate-demand curve to the left. d) None of the above is correct. 25. Other things the same, if the long-run aggregate supply curve shifts left, prices a) and output both increase. b) and output both decrease. c) increase and output decreases d) decrease and output increases 26. According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in a) the price level. b) the interest rate. c) the exchange rate. d) real wealth 27. If the MPC 0.75, then the government purchases multiplier is about a) 1.33 b) 7 c) 4 d) 3 
28. Which of the following Fed actions would both decrease the money supply? a) buy bonds and raise the reserve requirement b) buy bonds and lower the reserve requirement c) sell bonds and raise the reserve requirement d) sell bonds and lower the reserve requirement 29. Fiscal policy refers to the idea that aggregate demand is affected by changes in a) the money supply. b) government spending and taxes. c) trade policy. d) All of the above are correct. 30. On the graph that depicts the theory of liquidity preference, a) the demand-for-money curve is vertical. b) the supply-of-money curve is vertical. c) the interest rate is measured along the horizontal axis. d) the price level is measured along the vertical axis. 1. Which of the following is not a determinant of the long-run level of real GDP? a) the price level. b) the amount of capital used by firms. c) available stock of human capital. d) available technology 2. A change in the expected price level shifts a) the aggregate-demand curve. b) the short-run aggregate-supply curve, but not the long-run aggregate-supply curve. c) the long-run aggregate-supply curve, but not the short-run aggregate-supply curve. d) both the short-run and the long-run aggregate-supply curves. 3. An increase in the aggregate demand for goods and services has a larger impact on output and a larger impact on the price level a) in the short run, in the long run b) in the long run, in the short run c) in the short run, also in the short run d) in the long run, also in the long run 4. The variables on the vertical and horizontal axes of the aggregate demand and supply graph are a) the price level and real output. b) real output and employment. c) employment and the inflation rate. d) the value of money and the price level. 5. Most economists believe that money neutrality a) does not hold in the short run. b) does not hold in the long run. c) does not hold in either the short run or long run. d) holds in the short run and the long run. 6. Other things the same, if the price level falls, people a) increase foreign bond purchases, so the dollar appreciates. b) increase foreign bond purchases, so the dollar depreciates. c) increase domestic bond purchases, so the dollar appreciates. d) increase domestic bond purchases, so the dollar depreciates. 1 
7. Which of the following would cause prices and real GDP to rise in the short run? a) an increase in the expected price level b) an increase in the money supply c) a decrease in the capital stock d) an increase in taxes. 8. If the central bank wants to expand aggregate demand, it can the interest rate. the money supply, which would a) increase, increase b) increase, decrease c) decrease, increase d) decrease, decrease 9. The Federal Reserves target rate for the federal funds rate a) is an extra policy tool for the central bank, in addition to and independent of the money supply. b) commits the Fed to set a particular money supply so that it hits the announced target c) is a goal that is rarely achieved, because the Fed can determine only the money supply. d) matters to banks that borrow and lend federal funds but does not influence aggregate demand 10. Liquidity preference theory is most relevant to the a) short run and supposes that the price level adjusts to bring money supply and money demand into balance. b) short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. c) long run and supposes that the price level adjusts to bring money supply and money demand into balance. d) long run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 11. When the interest rate increases, the opportunity cost of holding money a) increases, so the quantity of money demanded increases b) increases, so the quantity of money demanded decreases c) decreases, so the quantity of money demanded increases d) decreases, so the quantity of money demanded decreases. 12. If the Federal Reserve increases the money supply, then initially there is a a) shortage in the money market, so people will want to sell bonds b) shortage in the money market, so people will want to buy bonds c) surplus in the money market, so people will want to sell bonds. d) surplus in the money market, so people will want to buy bonds. 13. In recent years, the Fed has chosen to target interest rates rather than the money supply because a) Congress passed a law requiring them to do so. b) the President requested them to do so. c the money supply is hard to measure with sufficient precision. d) changes in the interest rate change aggregate demand, but changes in the money supply do not. 
14. If the stock market crashes, then a) aggregate demand decreases, which the Fed could offset by purchasing bonds. b) aggregate demand decreases, which the Fed could offset by selling bonds c) aggregate demand increases, which the Fed could offset by selling bonds. d) aggregate demand increases, which the Fed could offset by purchasing the money supply. 15. The classical dichotomy refers to the separation of a) prices and nominal interest rates. b) taxes and government spending. c) decisions made by the public and decisions made by the government d) real and nominal variables. 16. The aggregate-demand curve shows the a) quantity of labor and other inputs that firms want to buy at each price level. b) quantity of labor and other inputs that firms want to buy at each inflation rate. c) quantity of domestically produced goods and services that households want to buy at each price level. d) quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level. 17. Which of the following effects helps to explain the slope of the aggregate-demand curve? a) the exchange-rate effect b) the wealth effect c) the interest-rate effect d) All of the above are correct. 18. The multiplier for changes in government spending is calculated as a) 1/(1+MPC). b) (1-МPСУ/MPC. c) 1/MPC d) 1/(1-MPC). 19. In a certain economy, when income is $500, consumer spending is $375. The value of the multiplier for this economy is 5. It follows that, when income is $510, consumer spending is a) $381.67. b) $378. c) $383. d) $383.33. 20. Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase? a) the crowding-out effect b) the multiplier effect c) the exchange-rate effect d) the interest-rate effect 
21. An increase in government spending a) increases the interest rate and so investment spending increases b) increases the interest rate and so investment spending decreases. c) decreases the interest rate and so increases investment spending increases. d) decreases the interest rate and so investment spending decreases 22. The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected, a) relative to prices wages are higher and employment rise b) relative to prices wages are higher and employment falls c relative to prices wages are lower and employment rises d) relative to prices wages are lower and employment falls. I 23. The wealth effect stems from the idea that a higher price level a) increases the real value of households money holdings b) decreases the real value of households money holdings c) increases the real value of the domestic currency in foreign-exchange markets d) decreases the real value of the domestic currency in foreign-exchange markets 24. The discovery of a large amount of previously-undiscovered oil in the U.S. would shift a) the long-run aggregate-supply curve to the right. b) the long run aggregate-supply curve to the left. c the aggregate-demand curve to the left. d) None of the above is correct. 25. Other things the same, if the long-run aggregate supply curve shifts left, prices a) and output both increase. b) and output both decrease. c) increase and output decreases d) decrease and output increases 26. According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in a) the price level. b) the interest rate. c) the exchange rate. d) real wealth 27. If the MPC 0.75, then the government purchases multiplier is about a) 1.33 b) 7 c) 4 d) 3 
28. Which of the following Fed actions would both decrease the money supply? a) buy bonds and raise the reserve requirement b) buy bonds and lower the reserve requirement c) sell bonds and raise the reserve requirement d) sell bonds and lower the reserve requirement 29. Fiscal policy refers to the idea that aggregate demand is affected by changes in a) the money supply. b) government spending and taxes. c) trade policy. d) All of the above are correct. 30. On the graph that depicts the theory of liquidity preference, a) the demand-for-money curve is vertical. b) the supply-of-money curve is vertical. c) the interest rate is measured along the horizontal axis. d) the price level is measured along the vertical axis. 1. Which of the following is not a determinant of the long-run level of real GDP? a) the price level. b) the amount of capital used by firms. c) available stock of human capital. d) available technology 2. A change in the expected price level shifts a) the aggregate-demand curve. b) the short-run aggregate-supply curve, but not the long-run aggregate-supply curve. c) the long-run aggregate-supply curve, but not the short-run aggregate-supply curve. d) both the short-run and the long-run aggregate-supply curves. 3. An increase in the aggregate demand for goods and services has a larger impact on output and a larger impact on the price level a) in the short run, in the long run b) in the long run, in the short run c) in the short run, also in the short run d) in the long run, also in the long run 4. The variables on the vertical and horizontal axes of the aggregate demand and supply graph are a) the price level and real output. b) real output and employment. c) employment and the inflation rate. d) the value of money and the price level. 5. Most economists believe that money neutrality a) does not hold in the short run. b) does not hold in the long run. c) does not hold in either the short run or long run. d) holds in the short run and the long run. 6. Other things the same, if the price level falls, people a) increase foreign bond purchases, so the dollar appreciates. b) increase foreign bond purchases, so the dollar depreciates. c) increase domestic bond purchases, so the dollar appreciates. d) increase domestic bond purchases, so the dollar depreciates. 1 
7. Which of the following would cause prices and real GDP to rise in the short run? a) an increase in the expected price level b) an increase in the money supply c) a decrease in the capital stock d) an increase in taxes. 8. If the central bank wants to expand aggregate demand, it can the interest rate. the money supply, which would a) increase, increase b) increase, decrease c) decrease, increase d) decrease, decrease 9. The Federal Reserves target rate for the federal funds rate a) is an extra policy tool for the central bank, in addition to and independent of the money supply. b) commits the Fed to set a particular money supply so that it hits the announced target c) is a goal that is rarely achieved, because the Fed can determine only the money supply. d) matters to banks that borrow and lend federal funds but does not influence aggregate demand 10. Liquidity preference theory is most relevant to the a) short run and supposes that the price level adjusts to bring money supply and money demand into balance. b) short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. c) long run and supposes that the price level adjusts to bring money supply and money demand into balance. d) long run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 11. When the interest rate increases, the opportunity cost of holding money a) increases, so the quantity of money demanded increases b) increases, so the quantity of money demanded decreases c) decreases, so the quantity of money demanded increases d) decreases, so the quantity of money demanded decreases. 12. If the Federal Reserve increases the money supply, then initially there is a a) shortage in the money market, so people will want to sell bonds b) shortage in the money market, so people will want to buy bonds c) surplus in the money market, so people will want to sell bonds. d) surplus in the money market, so people will want to buy bonds. 13. In recent years, the Fed has chosen to target interest rates rather than the money supply because a) Congress passed a law requiring them to do so. b) the President requested them to do so. c the money supply is hard to measure with sufficient precision. d) changes in the interest rate change aggregate demand, but changes in the money supply do not. 
14. If the stock market crashes, then a) aggregate demand decreases, which the Fed could offset by purchasing bonds. b) aggregate demand decreases, which the Fed could offset by selling bonds c) aggregate demand increases, which the Fed could offset by selling bonds. d) aggregate demand increases, which the Fed could offset by purchasing the money supply. 15. The classical dichotomy refers to the separation of a) prices and nominal interest rates. b) taxes and government spending. c) decisions made by the public and decisions made by the government d) real and nominal variables. 16. The aggregate-demand curve shows the a) quantity of labor and other inputs that firms want to buy at each price level. b) quantity of labor and other inputs that firms want to buy at each inflation rate. c) quantity of domestically produced goods and services that households want to buy at each price level. d) quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level. 17. Which of the following effects helps to explain the slope of the aggregate-demand curve? a) the exchange-rate effect b) the wealth effect c) the interest-rate effect d) All of the above are correct. 18. The multiplier for changes in government spending is calculated as a) 1/(1+MPC). b) (1-МPСУ/MPC. c) 1/MPC d) 1/(1-MPC). 19. In a certain economy, when income is $500, consumer spending is $375. The value of the multiplier for this economy is 5. It follows that, when income is $510, consumer spending is a) $381.67. b) $378. c) $383. d) $383.33. 20. Which of the following tends to make aggregate demand shift further to the right than the amount by which government expenditures increase? a) the crowding-out effect b) the multiplier effect c) the exchange-rate effect d) the interest-rate effect 
21. An increase in government spending a) increases the interest rate and so investment spending increases b) increases the interest rate and so investment spending decreases. c) decreases the interest rate and so increases investment spending increases. d) decreases the interest rate and so investment spending decreases 22. The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected, a) relative to prices wages are higher and employment rise b) relative to prices wages are higher and employment falls c relative to prices wages are lower and employment rises d) relative to prices wages are lower and employment falls. I 23. The wealth effect stems from the idea that a higher price level a) increases the real value of households money holdings b) decreases the real value of households money holdings c) increases the real value of the domestic currency in foreign-exchange markets d) decreases the real value of the domestic currency in foreign-exchange markets 24. The discovery of a large amount of previously-undiscovered oil in the U.S. would shift a) the long-run aggregate-supply curve to the right. b) the long run aggregate-supply curve to the left. c the aggregate-demand curve to the left. d) None of the above is correct. 25. Other things the same, if the long-run aggregate supply curve shifts left, prices a) and output both increase. b) and output both decrease. c) increase and output decreases d) decrease and output increases 26. According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in a) the price level. b) the interest rate. c) t


</p>
<p>(1) (a)<br />
Price level does not determine GDP in long run.<br />
(2) (b)<br />
Expected price level changes only short run aggregate supply but<br />
not the long run aggregate supply.<br />
(3) (a)<br />
An increase (decrease) in aggregate demand increases (decreases)<br />
both price level and output in short run. But in long run, price<br />
level further increases (decreases), restoring output to initial<br />
equilibrium level.<br />
(4) (a)<br />
Vertical axis depicts price level and horizontal axis depicts<br />
real GDP (output).<br />
(5) (a)<br />
As per most economists, money neutrality holds only in long<br />
run.<br />
(6) (b)<br />
Lower price level decreases domestic interest rate. As domestic<br />
interest rate falls, people buy more foreign assets, increasing the<br />
demand for foreign currency, which appreciates foreign currency and<br />
depreciates domestic currency.<br />
NOTE: As per Chegg Answering Policy, 1st 6 questions are<br />
answered.</p>
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<label for="email" class="screen-reader-text">Email</label><input placeholder="Email *" id="email" name="email" type="email" value="" size="30" required />
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<p class="comment-form-cookies-consent"><input id="wp-comment-cookies-consent" name="wp-comment-cookies-consent" type="checkbox" value="yes" /> <label for="wp-comment-cookies-consent">Save my name, email, and website in this browser for the next time I comment.</label></p>
<p class="form-submit"><input name="submit" type="submit" id="submit" class="submit" value="Post Comment" /> <input type=