A1. Consider a closed economy

. When C

=

c0 + c1YD, a decrease in c1 will cause which of the

following to decrease?

(a) equilibrium income

(b) equilibrium disposable income

(c) the multiplier

*

(d) all of the above

A2. In the IS

–

LM model, when the nominal interest rate approaches zero, which of the following

is false?

(a) monetary policy can be ineffffective

*

(b) people are indifffferent between money and bonds

(c) the LM curve is flflat

(d) fifiscal policy can be effffective

A3. Which of the following does not belong to unconventional monetary policy?

(a) forward guidance

(b) central bank

’

s purchases of long

–

term government bonds

*

(c) central bank

’

s purchases of short

–

term government bonds

(d) central bank

’

s purchases of asset

–

backed securities

A4. Suppose the Phillips curve equation is given by πt π

e

t

=

0.2 5ut

. A γ fraction of the

workers have indexed labor contracts such that π

e

t

=

γπt + (1 γ)πt 1

. Which of the

following is true when the value of γ increases?

*

(a) inflflation is more sensitive to changes in unemployment

(b) the natural rate of unemployment is higher

(c) the natural rate of unemployment is lower

(d) inflation is less sensitive to changes in unemployment