Ch 13/32 Reading Quiz 1

If we have an aggregate demand curve with M→ = 7% and v→ = 0%, what will inflation plus real growth equal? If we find out that real growth is 0%, what is inflation?

Inflation + Real growth = 7% Inflation when real growth is 0% = 7%

During the 1990s, the Internet revolution shifted the _____ curve __________.

LRAS; to the right.

Since money is neutral in the long run, the Solow growth rate ________ on the rate of inflation. Thus, when we put the inflation rate on the vertical axis of a graph and real growth (the growth rate of real GDP) on the horizontal axis, the long-run aggregate supply curve is a ________ line at the Solow growth rate.

does not depend; vertical.

The Solow growth rate is an economy's potential growth rate, the rate of economic growth that would occur given ____ and the existing ____.

flexible prices; real factors of production.

In the 1970s, a sudden, sharp decrease in the relative supply of oil ________ inflation and ________ the growth rate of real GDP.

increased; decreased.

If spending growth increases, either because of an increase in money supply growth or an increase in velocity growth, then the AD curve shifts up and to the right. The intuition is that increased spending must flow into either a higher ____ or a higher ____ rate.

inflation rate; real GDP growth rate.

The aggregate demand curve tells us all the combinations of ____ and ____ that are consistent with a specified rate of ____.

inflation; real GDP growth; spending.

A large and sudden increase in a tax on energy would shift the LRAS curve to the _______, especially in the short run.

left.

In India, shocks to the weather are becoming _____ economically important over time as the percentage of agriculture's contribution to the Indian economy has ________.

less; decreased.

In an economy with a large _________ sector, a reduction in the oil supply is like a reduction in rainfall in an agricultural economy.

manufacturing.

Figure 13.9 (or 32.9) on page 282 (or 660)shows that sharp increases in the price of ___ just prior to or coincident with the onset of each of the past five recessions in the United States.

oil.

The first oil shock came in 1973, when many of the oil-producing nations under the guise of OPEC (Organization of the Petroleum Exporting Countries) reduced the global oil supply to protest America's support of Israel in the Middle East. It _______ the price of gasoline, _______ the demand for larger cars and _______ the demand for smaller cars.

raised; decreased; increased.

To understand booms and recessions, we will focus on how an economy responds to two types of shocks, ____ shocks (also called aggregate supply shocks) and ____ shocks.

real; aggregate demand.

The ubiquity of cell phones throughout the world shifted the LRAS curve to the ______ because it improved communications in all countries, more dramatically in ________ countries.

right; less-developed.

Real shocks to an economy, besides oil and railfall shocks, do NOT include:

wars and terrorist attacks major new regulations and tax rate changes mass strikes new technologies =All of the above are real shocks to the economy.

Due to the oil shocks, over time, the city of Houston (which serves much of the American oil industry) became populated with many former residents of Detroit (which made large American cars) though the transition was costly and disruptive.

Houston; Detroit.