Favorable supply shocks should produce rapid economic growth with falling inflation

Along an LM curve at higher income levels the transactions demand for money is __________, so the interest rate must be __________ to equate the demand to the fixed supply of money

A) higher; higher B) higher; lower C) lower; higher D) lower; lower

Which of the following is true of a small open economy, but not of a large open economy?

A) Net exports are unlikely to be close to zero. B) The domestic real interest rate is equal to the world real interest rate. C) Changes in desired investment result in changes in the trade balance. D) Changes in desired investment result in changes in actual investment. E) none of the above