If spending is very responsive to changes in interest rates, and the demand for money is interest inelastic, then monetary policy tends to be more powerful than fiscal policy

If spending is not very responsive to changes in interest rates, and the demand for money is interest elastic, then fiscal policy tends to be more powerful than monetary policy

It might sometimes make sense for a government to combine an expansionary monetary policy with an expansionary fiscal policy

It would never make sense for a government to combine an expansionary monetary policy with a contractionary fiscal policy

Both 1 and 2

1 only

2 only

Neither 1 nor 2

A rise in the price level in a country will tend to lead to a fall in the real value of exports and a rise in the real value of imports

A rise in the price level in a country will lead to lower real spending because it will lead to lower real wealth

A rise in the price level in a country will reduce the real value of firms’ profits, causing them to reduce planned investment

A rise in the price level in a country will lead to lower real spending because it will lead to a higher interest rate

A reduction in government transfers

An increase in VAT

A reduction in exports

An increase in the price level

Prices and nominal wages both increase by 10%

Prices rise by 10% while nominal wages increase by 5%

Prices rise by 5% while nominal wages increase by 10%

The real wage falls.