ECON 510-Chapter 10

If the short-run aggregate supply curve is horizontal, then the:

money supply cannot affect prices in the short run.

The aggregate demand curve is the ______ relationship between the quantity of output demanded and the ______.

negative; price level

Okun's law is the ______ relationship between real GDP and the ______.

negative; unemployment rate

If the short-run aggregate supply curve is horizontal and the long-run aggregate supply curve is vertical, then a change in the money supply will change ______ in the short run and change ______ in the long run.

only output; only prices

If the Fed reduces the money supply by 5 percent and the quantity theory of money is true, then output will fall 5 percent in the short run and:

prices will fall 5 percent in the long run.

A short-run aggregate supply curve shows fixed ______, and a long-run aggregate supply curve shows fixed ______.

prices; output

An adverse supply shock ______ the short-run aggregate supply curve ______ the natural level of output.

raises; and may also lower

If the Fed reduces the money supply by 5 percent, then the real interest rate will:

rise in the short run but return to its original equilibrium level in the long run

Short-run fluctuations in output and employment are called:

business cycles

The aggregate demand curve tells us possible:

combinations of P and Y for a given value of M.

When GDP growth declines, investment spending typically ______ and consumption spending typically ______.

decreases; decreases

A difference between the economic long run and the short run is that:

demand can affect output and employment in the short run, whereas supply is the ruling force in the long run.

When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift:

downward and to the left

The long run refers to a period:

during which prices are flexible.

The short run refers to a period:

during which prices are sticky and unemployment may occur.

If the demand for money increases, but the Fed keeps the money supply the same, then in the short run output will:

fall and in the long run prices will fall.

Most economists believe that prices are:

flexible in the long run but many are sticky in the short run.

When the Federal Reserve increases the money supply, at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______.

greater; outward

For a fixed money supply, the aggregate demand curve slopes downward because at a lower price level real money balances are ______, generating a ______ quantity of output demanded.

higher; greater

A 5 percent reduction in the money supply will, according to most economists, reduce prices 5 percent:

in the long run but lead to unemployment in the short run.

When the Federal Reserve reduces the money supply, at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______.

lower; inward

If the short-run aggregate supply curve is horizontal and the Fed increases the money supply, then:

output and employment will increase in the short run

Aggregate supply is the relationship between the quantity of goods and services supplied and the:

price level

The relationship between the quantity of goods and services supplied and the price level is called:

aggregate supply

In the long run, the level of output is determined by the:

amounts of capital and labor and the available technology.

A favorable supply shock occurs when:

an oil cartel breaks up and oil prices fall

According to the quantity equation, if the velocity of money and the supply of money are fixed, and the price level increases, then the quantity of goods and services purchased:

decreases

Business cycles are:

irregular and unpredictable

Over the business cycle, investment spending ______ consumption spending.

is more volatile than

When a long-term aggregate supply curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, this curve:

is vertical

If the short-run aggregate supply curve is horizontal, then changes in aggregate demand affect:

level of output but not prices.

The natural level of output is:

the level of output at which the unemployment rate is at its natural level.

Along an aggregate demand curve, which of the following are held constant?

the money supply and velocity