ECON 202 Ch 20-23 T/F
True
Those opposed to a zero inflation target for monetary policy argue that many of the costs of inflation can be eliminated by inflation-indexed taxes and bonds
True
Traditional Keynesian analysis indicates that an increase in government purchases has a greater impact on aggregate demand that an equivalent decrease in taxes
True
Unemployment benefits are an example of an automatic stabilizer because when incomes fall, unemployment benefits rise
False
When actual inflation exceeds expected inflation, unemployment exceeds the natural rate
True
When money demand is drawn on a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the price level shifts money demand to the right
True
When unemployment is below the natural rate, the labor market is unusually tight, putting pressure on wages and prices to rise
False
A decrease in marginal tax rates increase aggregate demand and decreases aggregate supply
False
A decrease in unemployment benefits reduces the natural rate of unemployment and shifts the long-run Phillips curve to the right
True
A reduction in taxes on interest income will increase saving if the substitution effect from the increase in after-tax interest outweighs the income effect
True
A rise in price expectations that causes wages to rise causes the short-run aggregate-supply curve to shift left
True
A rise in the price of oil tends to cause stagflation
False
A sudden monetary contraction move the economy up a short-run Phillips curve, reducing unemployment and increasing inflation
True
An adverse supply shock, such as an increase in the price of imported oil, shifts the Phillips curve upward and makes the inflation-unemployment trade-off less favorable
True
An increase in aggregate demand temporarily reduces unemployment, but after people raise their expectations of inflation, unemployment returns to the natural rate
True
An increase in price expectations shifts the Phillips curve upward and makes the inflation-unemployment trade-off less favorable
False
An increase in price expectations shifts the long-run aggregate-supply curve to the left
False
An increase in the interest rate increases the quantity demanded of money because it increases the rate of return on money
False
An increase in the money supply increases inflation and permanently decreases unemployment
False
An increase in the money supply shifts the money supply curve to the right, increases the interest rate, decreases investment, and shifts the aggregate-demand curve to the left
True
Because of the multiplier effect, an increase in government spending of $40 billion will shift the aggregate-demand curve to the right by more than $40 billion (assuming there is no crowding out)
True
Crowding out occurs when an increase in government spending increases incomes , shifts money demand to the right, raises the interest rate, and reduces private investment
True
Discretionary monetary policy suffers from time inconsistency because policymakers have an incentive to engage in a policy that differs from their policy announcements
False
Economists refer to fluctuations in output as the "business cycle" because movements in output are regular and predictable
False
Government budget deficits tend to redistribute wealth from the current generation to future generations
False
If inflation is 4% and unemployment is 6%, the misery index is 2%
True
If people have rational expectations, an announced monetary contraction by the Fed that is credible could reduce inflation with little to no increase in unemployment
False
If policymakers choose to try to move the economy out of a recession, they should use their policy tools to decrease aggregate demand
False
If the Federal Reserve increases the money supply, the aggregate-demand curve shifts to the left
False
If the MPC (marginal propensity to consume) is 0.80, then the value of the multiplier is 8
True
If the classical dichotomy and monetary neutrality hold in the long run, then the long-run aggregate supply curve should be vertical
False
If the economy is in a recession, the economy will adjust to long-run equilibrium on its own as wages and price expectations rise
False
If the sacrifice ratio is 4, a reduction of inflation from 9% to 5% requires a reduction in output of 8%
False
In the long run, an increase in government spending tends to increase output and prices
True
In the long run, the unemployment rate is independent of inflation, and the Phillips curve is vertical at the natural rate of unemployment
True
In the short run, a decision by the Fed to increase the money supply is essentially the same as a decision to decrease the interest rate target
True
In the short run, an increase in aggregate demand increases prices and output and decreases unemployment
True
In the short run, if the government cuts back spending to balance its budget, it will likely cause a recession
False
In the short run, the interest rate is determined by the loanable-funds market, while in the long run, the interest rate is determined by money demand and supply
True
Investment is a particularly volatile component of spending across the business cycle
True
Keyne's theory of liquidity preference suggests that the interest rate is determined by the supply and demand for money
True
Many economists prefer automatice stabilizers because they affect the economy with a shorter lag than activist stabilization policies
False
Monetary policy affects the economy with a lag, but fiscal policy has no lag
True
One reason aggregate demand slopes downward is the wealth effect: A decrease in the price level increase the value of money holdings and consumer spending rises
True
Opponents of a monetary policy rule argue that a rule would make it more difficult for the Fed to respond to an unusual crisis
False
Over the last 50 years, real GDP has grown at about 5% per year
True
Replacing the income tax with a consumption tax may increase saving, but it will tend to benefit the rich more than the poor
True
Supporters of a zero inflation target for monetary policy argue that the cost of reducing inflation is temporary while the benefits of reducing inflation are permanent
False
Suppose investors and consumers become pessimistic about the future and cut back on expenditures. If fiscal policymakers engage in activist stabilization policy, the policy response should be to decrease government spending and increase taxes
False
Suppose investors and consumers become pessimistic about the future and cut back on expenditures. If the Fed engages in activist stabilization policy, the policy response should be to decrease the money supply
False
Suppose the government increases its expenditures by $10 billion. If the crowding-out effect exceeds the multiplier effect, then the aggregate-demand curve shifts to the rightly more than $10 billion
False
The Phillips curve illustrates the positive relationship between inflation and unemployment
False
The US has only incurred government budget deficits during wars and recessions
True
The interest rate effect suggests that aggregate demand slopes downward because an increase in the price level shifts money demand to the right, increases the interest rate, and reduces investment
False
The misperceptions theory explains why the long-run aggregate-supply curve is downward sloping
True
The natural-rate hypothesis suggests that, in the long run, unemployment returns to its natural rate, regardless of inflation
False
The political business cycle refers to a situation where corporate executives also hold political office
True
The short-run effect of an increase in aggregate demand is an increase in output and an increase in the price level