ch 20 econ

Take a look at the IS-MP-PC model shown here. The equilibrium real interest rate is:

3%

The Fed model links the IS, MP, and Phillips curves. In the IS-MP analysis, an increase in exports will shift the:

IS Curve to the right

The Fed model combines the _____ curve, the _____ curve, and the ____ curve to link interest rates, the output gap, and inflation.

IS; MP; Philips

In the IS-MP analysis in the Fed model, a decrease in the risk-free rate shifts the:

MP curve down

If you see a newspaper headline that says "Steel prices rise sharply," this is an example of _____ shock.

a supply

When using the Fed model, the first step is to:

identify the shock and shift the curve

A supply shock is any change in:

production costs that leads suppliers to change the prices they charge at any given level of output

If a spending shock increases aggregate expenditure by $35 billion and the multiplier is 2.5, then the IS curve will shift:

right by 87.5 billion (multiply)

Tariffs on inputs lead to a _____ shock.

supply

Which of the following graphs correctly represents the effect on the Phillips curve in Ethiopia of the Ethiopian birr appreciate

Arrow pointing down to falling costs

If the US dollar appreciate, which of the following graphs correctly represents the effect on the IS curve

Arrow pointing to the left to decreased spending

Which of the following graphs correctly represents the effect of increase consumer confidence and spending on the IS curve

Arrow pointing to the right at increased spending

In the IS-MP analysis in the Fed model, contractionary fiscal policy will shift the:

IS curve to the left

When using the Fed model to diagnose the economy, if a shock causes the real interest rate to rise, then the economy has been hit by _____ shock.

a financial

You are an economic adviser using the Fed model to analyze the economy. Now suppose that manufacturers in China face rising costs of rubber as an input. What is the effect on the economy?

an unchanged real interest rate, an unchanged output gap, and unexpected inflation

A financial shock is any change in:

borrowing conditions that charges the real interest rate at which people can borrow

When a spending shock occurs, the IS curve shifts by the:

change in spending times the multiplier

In the IS-MP analysis in the Fed model, the MP curve shows you the:

current real interest rate

In the IS-MP analysis in the Fed model, a fall in the interest rate causes a:

movement to the right along the IS curve

Once you have identified the point of equilibrium in the IS-MP graph in the Fed model, the horizontal axis will show you the:

output gap

Once you have connected the output gaps from the IS-MP model and the Phillips curve, the next step is to identify the:

unexpected inflation from the Philips curve

The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:

unexpected inflation of 1%