Econ 202 exam 4
classical dichotomy
a change in the money supply charges only nominal variables in the long run
Increased uncertainty and pessimism about the future of the economy leads firms to desire less investment spending which shifts the aggregate-demand curve to the left
True
According to the long-run Phillips curve, in the long run monetary policy influences:
the inflation rate but not the unemployment rate
The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for:
the slope of the aggregate-demand curve
"According to classical dichtonomy, a change in the money supply changes only nominal variables in the long run"
true
Which of the following shifts the long-run aggregate supply curve to the left?
An increase in the price of imported natural resources and an increase in trade restrictions
When looking at a graph of aggregate demand, which of the following is correct?
The variable on the vertical axis is nominal; the variable on the horizontal axis is real.
"An increase in the money supply causes long-run output to rise (LRAS)"
false
An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right.
false
Just as the aggregate-demand curve slopes downward only in the short run, the trade-off between inflation and unemployment holds only in the long run
false
The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percentage point
false
Which of the following would cause stagflation?
Aggregate supply shifts left
Which of the following would shift the long-run aggregate supply curve right?
An increase in the capital stock, but not an increase in money supply
Other things constant, which of the following would reduce unemployment and raise inflation?
Businesses become more optimistic about the future of the economy
Suppose Americans become concerned about saving for retirement and, as a result, reduce their current consumption expenditures. Which of the following would you expect to occur as a result of this change?
In the short run, unemployment will increase and inflation will fall
In 2009, Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate supply rightwards?
Neither the increased funding for states nor the tax cuts
Suppose expected inflation and actual inflation are both low, and unemployment is at its natural rate. If the Fed then pursues an expansionary monetary policy, which of the following results would be expected in the short run?
The economy would move up and to the left along a given short-run Phillips curve
The exchange-rate effect is the idea that a higher U.S. price level causes the value of the dollar to increase in foreign exchange markets, and this effect contributes to the downward slope of the aggregate-demand curve
True
Unexpectedly high inflation reduces unemployment in the short run, but as inflation expectations adjust the unemployment rate returns to its natural rate
True
A policy that raised the natural rate of unemployment would shift
both the short-run and the long-run Phillips curves to the right
Stagflation
inflation is high and the economic growth slows and unemployment stays high
According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they
decreased the money supply
From 2001 to 2005 there was a dramatic rise in the value of houses. If this rise made homeowners feel wealthier, then it would have shifted aggregate:
demand rightwards
The initial impact of an increase in an investment tax credit is to shift aggregate
demand rightwards
If U.S. speculators gained greater confidence in foreign economies so that they wanted to move more of their wealth into foreign countries, the dollar would
depreciate which would cause aggregate demand to shift right
increase in money supply=
increase in inflation
If the Fed wants to reverse the effects of an adverse supply shock on unemployment, it should
increase the money supply growth rate, which raises the inflation rate
Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be default. This would lead to U.S. net exports
increasing which would increase aggregate demand.
monetary policy
long term changes in money do not effect real GDP or production
The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, production is
more profitable and output rises
In the long run, policy that changes aggregate demand changes:
only the price level
From 2008-2009 the Federal Reserve created a very large increase in the money supply. According to the short-run Phillips curve this policy should have
raised inflation and reduced unemployment
The theory by which people optimally use all available information when forecasting the future is known as
rational expectations
An increase in the natural rate of unemployment shifts the short-run Phillips curve to the _____. If the central bank sees the increase in the unemployment rate, but thinks the natural rate has remained the same and so wants to reduce unemployment, it would ________ the money supply growth rate. If it maintains this money supply growth rate, eventually the short run Phillips curve will shift _____ and unemployment will be _____.
right, increase, right, higher
If inflation expectations rise, the short-run Phillips curve shifts:
right, so that at any inflation rate output is lower in the short run than before
An adverse supply shock causes inflation to
rise and the short-run Phillips curve to shift right
The short-run relationship between inflation and unemployment is often called:
the Phillips curve
"The aggregate demand and aggregate supply model helps us to understand both short-run economic fluctuations and how the economy moves from the short to the long run. "
true
Although monetary policy cannot reduce the natural rate of unemployment, other types of government policies can
true
Just as the aggregate-supply curve slopes upward only in the short run, the trade-off between inflation and unemployment holds only in the short run
true
If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve, then:
unemployment equals the natural rate and expected inflation equals actual inflation