ch 10 econ quiz

Starting from long-run equilibrium, if the velocity of money increases (due to, for example, the invention of automatic teller machines), the Fed might be able to stabilize output by: A) decreasing the money supply. B) increasing the money supply. C) decreasing the price level. D) increasing the price level.

A) decreasing the money supply

Business cycles are: A) regular and predictable. B) irregular but predictable. C) regular but unpredictable. D) irregular and unpredictable.

D) irregular and unpredictable

Short-run fluctuations in output and employment are called: A) sectoral shifts. B) the classical dichotomy. C) business cycles. D) productivity slowdowns.

C) business cycles

Okun's law is the ______ relationship between real GDP and the ______. A) negative; unemployment rate B) negative; inflation rate C) positive; unemployment rate D) positive; inflation rate

A) negative; unemployment rate

If the short-run aggregate supply curve is horizontal and the Fed increases the money supply, then: A) output and employment will increase in the short run. B) output and employment will decrease in the short run. C) prices will increase in the short run. D) prices will decrease in the short run.

A) output and employment will increase in the short run

Starting from long-run equilibrium, an increase in aggregate demand increases ______ in the short run, but only increases ______ in the long run. A) output; prices B) prices; output C) short-run aggregate supply; long-run aggregate supply D) the money supply; the natural rate of output

A) output; prices

Monetary neutrality, the irrelevance of the money supply in determining values of _____ variables, is generally thought to be a property of the economy in the long run. A) real B) nominal C) real and nominal D) neither real nor nominal

A) real

Stabilization policy refers to policy actions aimed at: A) reducing the severity of short-run economic fluctuations. B) equalizing incomes of households in the economy. C) maintaining constant shares of output going to labor and capital. D) preventing increases in the poverty rate.

A) reducing the severity of short-run economic fluctuations

On two occasions in the 1970s: A) world oil prices rose rapidly, inflation was high, and the unemployment rate was high. B) world oil prices rose rapidly, inflation was moderate, and the unemployment rate was high. C) world oil prices rose rapidly, inflation was high, and the unemployment rate was moderate. D) world oil prices rose rapidly, but the Fed used monetary policy to curb inflation.

A) world oil prices rose rapidly, inflation was high, and the unemployment rate was high

The short run refers to a period: A) of several days. B) during which prices are sticky and unemployment may occur. C) during which capital and labor are fully employed. D) during which there are no fluctuations.

B) during which prices are sticky and unemployment may occur

Most economists believe that prices are: A) flexible in the short run but many are sticky in the long run. B) flexible in the long run but many are sticky in the short run. C) sticky in both the short and long runs. D) flexible in both the short and long runs.

B) flexible in the long run but many are sticky in the short run

When the Federal Reserve increases the money supply, at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______. A) greater; inward B) greater; outward C) lower; inward D) lower; outward

B) greater; outward

Most economists believe that the classical dichotomy: A) holds approximately in both the short run and the long run. B) holds approximately in the long run but not at all in the short run. C) holds approximately in the short run but not at all in the long run. D) does not hold even approximately in either the long run or the short run.

B) holds approximately in the long run but not at all in the short run

Over the business cycle, investment spending ______ consumption spending. A) is inversely correlated with B) is more volatile than C) has about the same volatility as D) is less volatile than

B) is more volatile than

Which of the following is an example of a demand shock? A) a large oil-price increase B) the introduction and greater availability of credit cards C) a drought that destroys agricultural crops D) unions obtain a substantial wage increase

B) the introduction and greater availability of credit cards

Leading economic indicators are: A) the most popular economic statistics. B) data that are used to construct the consumer price index and the unemployment rate. C) variables that tend to fluctuate in advance of the overall economy. D) standardized statistics compiled by the National Bureau of Economic Research.

C) variables that tend to fluctuate in advance of the overall economy

When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift: A) downward and to the left. B) downward and to the right. C) upward and to the left. D) upward and to the right.

A) downward and to the let

For a fixed money supply, the aggregate demand curve slopes downward because at a lower price level real money balances are ______, generating a ______ quantity of output demanded. A) higher; greater B) higher; smaller C) lower; greater D) lower; smaller

A) higher; greater

A difference between the economic long run and the short run is that: A) the classical dichotomy holds in the short run but not in the long run. B) monetary and fiscal policy affect output only in the long run. C) demand can affect output and employment in the short run, whereas supply is the ruling force in the long run. D) prices and wages are sticky in the long run only.

C) demand can affect output and employment in the short run, whereas supply is the ruling force in the long run

If the Fed reduces the money supply by 5 percent and the quantity theory of money is true, then: A) every point on the aggregate demand curve moves 5 percent to the left. B) every point on the aggregate demand curve moves up 5 percent. C) the aggregate demand curve moves down and to the left, but it is impossible to determine exactly by how much. D) the aggregate demand curve moves up and to the right, but it is impossible to determine exactly by how much.

A) every point on the aggregate demand curve moves 5 percent to the left

According to the quantity theory of money, if output is higher, ______ real balances are required, and for fixed M this means ______ P. A) higher; lower B) lower; higher C) higher; higher D) lower; lower

A) higher; lower

If the Fed accommodates an adverse supply shock, output falls ______ and prices rise ______. A) less; more B) less; less C) more; less D) more; more

A) less; more

The relationship between the quantity of goods and services supplied and the price level is called: A) aggregate demand. B) aggregate supply. C) aggregate investment. D) aggregate production.

B) aggregate supply

If the short-run aggregate supply curve is horizontal and the long-run aggregate supply curve is vertical, then a change in the money supply will change ______ in the short run and change ______ in the long run. A) only prices; only output B) only output; only prices C) both prices and output; only prices D) both prices and output; both prices and output

B) only output; only prices

Assume that the economy starts from long-run equilibrium. If the Federal Reserve increases the money supply, then ______ increase(s) in the short run and ______ increase(s) in the long run. A) prices; output B) output; prices C) output; output D) prices; prices

B) output; prices

In the short run an adverse supply shock causes: A) both prices and output to rise. B) prices to rise and output to fall. C) prices to fall and output to rise. D) both prices and output to fall.

B) prices to rise and output to fall

Long-run growth in real GDP is determined primarily by ______, while short-run movements in real GDP are associated with ______. A) variations in labor-market utilization; technological progress B) technological progress; variations in labor-market utilization C) money supply growth rates; changes in velocity D) changes in velocity; money supply growth rates

B) technological progress; variations in labor-market utilization

In the long run, the level of output is determined by the: A) interaction of supply and demand. B) money supply and the levels of government spending and taxation. C) amounts of capital and labor and the available technology. D) preferences of the public.

C) amounts of capital and labor and the available technology

The long run refers to a period: A) of decades. B) during which capital and labor are sometimes not fully employed. C) during which prices are flexible. D) during which output deviates from the full-employment level.

C) during which prices are flexible

In the short run, a favorable supply shock causes: A) both prices and output to rise. B) prices to rise and output to fall. C) prices to fall and output to rise. D) both prices and output to fall.

C) prices to fall and output to rise

If the Fed reduces the money supply by 5 percent and the quantity theory of money is true, then output will fall 5 percent in the short run and: A) prices will remain unchanged in the long run. B) output will fall 5 percent in the long run. C) prices will fall 5 percent in the long run. D) output will remain unchanged in the long run.

C) prices will fall 5 percent in the long run

A short-run aggregate supply curve shows fixed ______, and a long-run aggregate supply curve shows fixed ______. A) output; output B) prices; prices C) prices; output D) output; prices

C) prices; output

Stagflation occurs when prices ______ and output ______. A) fall; falls B) fall; increases C) rise; falls D) rise; increases

C) rise; fall

A supply shock does not occur when: A) a drought destroys crops. B) unions push wages up. C) the Fed increases the money supply. D) an oil cartel increases world oil prices.

C) the Fed increases the money supply

The natural level of output is: A) affected by aggregate demand. B) the level of output at which the unemployment rate is zero. C) the level of output at which the unemployment rate is at its natural level. D) permanent and unchangeable.

C) the level of output at which the unemployment rate is at its natural level

The vertical long-run aggregate supply curve satisfies the classical dichotomy because the natural rate of output does not depend on: A) the labor supply. B) the supply of capital. C) the money supply. D) technology.

C) the money supply

A favorable supply shock occurs when: A) environmental protection laws raise costs of production. B) the Fed increases the money supply. C) unions push wages up. D) an oil cartel breaks up and oil prices fall.

D) an oil cartel breaks up and oil prices fall

A 5 percent reduction in the money supply will, according to most economists, reduce prices 5 percent: A) in both the short and long runs. B) in neither the short nor long run. C) in the short run but lead to unemployment in the long run. D) in the long run but lead to unemployment in the short run.

D) in the long run but lead to unemployment in the short run

When a long-term aggregate supply curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, this curve: A) slopes upward and to the right. B) slopes downward and to the right. C) is horizontal. D) is vertical.

D) is vertical

The aggregate demand curve is the ______ relationship between the quantity of output demanded and the ______. A) positive; money supply B) negative; money supply C) positive; price level D) negative; price level

D) negative; price level

Aggregate supply is the relationship between the quantity of goods and services supplied and the: A) money supply. B) unemployment rate. C) interest rate. D) price level.

D) price level

Along an aggregate demand curve, which of the following are held constant? A) real output and prices B) nominal output and velocity C) the money supply and real output D) the money supply and velocity

D) the money supply and velocity

Monetary policy can be either a stabilizing influence on the economy or a source of instability. Give an explanation for both possibilities.

If monetary policy is used to offset changes in aggregate demand that move an economy away from the natural rate, then monetary policy actions are stabilizing. If monetary policy actions move an economy away from the natural rate, either by increasing or decreasing the money supply when the economy is in long-run equilibrium, then monetary policy is destabilizing