chapter 33 mankiw/taylor

t/f: An increase in price expectations shifts the long-run aggregate supply curve to the left.

F

t/f: Economists refer to fluctuations in output as the "business cycle" because movements in output are regular and predictable.

F

t/f: If policy makers choose to try to move the economy out of a recession, they should use their policy tools to decrease aggregate demand.

F

t/f: If the economy is in a recession, the economy will adjust to long-run equilibrium on its own as wages and price expectations rise.

F

t/f: In the long run, an increase in government spending tends to increase output and prices.

F

t/f: Over the last 50 years, UK real GDP has grown at about 5 percent per year.

F

t/f: The misperceptions theory explains why the long-run aggregate supply curve is downward sloping.

F

t/f: A rise in price expectations that causes wages to rise causes the short-run aggregate supply curve to shift left.

T

t/f: A rise in the price of oil tends to cause stagflation.

T

t/f: If the classical dichotomy and monetary neutrality hold in the long run, then the long-run aggregate supply curve should be vertical.

T

t/f: In the short run, if the government cuts back spending to balance its budget, it will probably cause a recession.

T

t/f: Investment is a particularly volatile component of spending across the business cycle.

T

t/f: One reason aggregate demand slopes downward is the wealth effect: a decrease in the price level increases the value of money holdings and consumer spending rises.

T

t/f: The short-run effect of an increase in aggregate demand is an increase in output and an increase in the price level.

T

t/f: If a country's central bank increases the money supply, the aggregate demand curve shifts to the left.

F

According to the wealth effect, aggregate demand slopes downward (negatively) because a. lower prices increase the value of money holdings and consumer spending increases. b. lower prices decrease the value of money holdings and consumer spending decreases. c. lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases. d. lower prices increase money holdings, decrease lending, interest rates rise, and investment spending falls.

a

Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run? a. Prices rise; output falls. b. Prices fall; output rises. c. Prices rise; output rises. d. Prices fall; output falls.

a

Suppose the price level falls but because of fixed nominal wage contracts, the real wage rises and firms cut back on production. This is a demonstration of the a. sticky-wage theory of the short-run aggregate supply curve. b. classical dichotomy theory of the short-run aggregate supply curve. c. misperceptions theory of the short-run aggregate supply curve. d. sticky-price theory of the short-run aggregate supply curve.

a

Suppose the price level falls but suppliers only notice that the price of their particular product has fallen. Thinking there has been a fall in the relative price of their product, they cut back on production. This is a demonstration of the a. misperceptions theory of the short-run aggregate supply curve. b. classical dichotomy theory of the short-run aggregate supply curve. c. sticky-price theory of the short-run aggregate supply curve. d. sticky-wage theory of the short-run aggregate supply curve.

a

The natural rate of output is the amount of real GDP produced a. when the economy is at the natural rate of unemployment. b. when the economy is at the natural rate of investment. c. when the economy is at the natural rate of aggregate demand. d. when there is no unemployment.

a

Which of the following statements is true regarding the long-run aggregate supply curve? The long-run aggregate supply curve a. is vertical because an equal change in all prices and wages leaves output unaffected. b. is positively sloped because price expectations and wages tend to be fixed in the long run. c. shifts right when the government raises the minimum wage. d. shifts left when the natural rate of unemployment falls.

a

In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to a. shift the short-run aggregate supply curve to the left. b. shift the aggregate demand curve to the right. c. shift the short-run aggregate supply curve to the right. d. shift the aggregate demand curve to the left. e. shift the long-run aggregate supply curve to the left.

b

Stagflation occurs when the economy experiences a. rising prices and rising output. b. rising prices and falling output. c. falling prices and falling output. d. falling prices and rising output.

b

Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. If policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run? a. Output rises; prices are unchanged from the initial value. b. Output and the price level are unchanged from their initial values. c. Output falls; prices are unchanged from the initial value. d. Prices fall; output is unchanged from its initial value. e. Prices rise; output is unchanged from its initial value.

b

Which of the following events shifts the short-run aggregate supply curve to the right? a. a decrease in the money supply b. a drop in oil prices c. an increase in government spending on military equipment d. none of these answers e. an increase in price expectations

b

Which of the following is not a reason why the aggregate demand curve slopes downward? a. The exchange-rate effect b. The wealth effect. c. The classical dichotomy/monetary neutrality effects. d. The interest-rate effect e. All of these answers are reasons why the aggregate-demand curve slopes downward.

c

Which of the following statements about economic fluctuations is true? a. None of these answers b. A depression is a mild recession. c. A variety of spending, income, and output measures can be used to measure economic fluctuations because most macroeconomic quantities tend to fluctuate together. d. A recession is when output rises above the natural rate of output. e. Economic fluctuations have been termed the "business cycle" because the movements in output are regular and predictable.

c

According to the interest rate effect, aggregate demand slopes downward (negatively) because a. lower prices increase money holdings, decrease lending, interest rates rise, and investment spending falls. b. lower prices increase the value of money holdings and consumer spending increases. c. lower prices decrease the value of money holdings and consumer spending decreases. d. lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases.

d

According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause a. prices to rise and output to rise. b. prices to fall and output to remain unchanged. c. prices to fall and output to fall. d. prices to rise and output to remain unchanged.

d

Policy makers are said to "accommodate" an adverse supply shock if they a. fail to respond to the adverse supply shock and allow the economy to adjust on its own. b. respond to the adverse supply shock by decreasing aggregate demand, which lowers prices. c. respond to the adverse supply shock by decreasing short-run aggregate supply. d. respond to the adverse supply shock by increasing aggregate demand, which further raises prices.

d

Suppose the economy is initially in long-run equilibrium. Then suppose there is a increase in military spending due to rising international tensions. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run? a. Output falls; prices are unchanged from the initial value. b. Prices fall; output is unchanged from its initial value. c. Output and the price level are unchanged from their initial values. d. Prices rise; output is unchanged from its initial value. e. Output rises; prices are unchanged from the initial value.

d

Suppose the economy is initially in long-run equilibrium. Then suppose there is a increase in military spending due to rising international tensions. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run? a. Prices fall; output rises. b. Prices fall; output falls. c. Prices rise; output falls. d. Prices rise; output rises.

d

Which of the following would not cause a shift in the long-run aggregate supply curve? a. All of these answers shift the long-run aggregate supply curve. b. An increase in the available capital c. An increase in the available labour d. An increase in the available technology e. An increase in price expectations

e