Econ 510 Final

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

In the IS-LM model when taxation increases, in short-run equilibrium, the interest rate ____ and output ___

falls; falls

In the IS-LM model when M rises but P remains constant, in short-run equilibrium, in the usual case the interest rate ____ and output ___

falls; rises

The government purchases multiplier indicates how much ___ change in response to a $1 change in government purchases

income

If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will ___ and output will ___

increase; decrease

According to the theory of liquidity preference, the supply of real money balances

is fixed

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

Planned expenditure is a function of

national income and planned investment, government spending, and taxes

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

negative; price level

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

output and employment will increase in the short run

Assume that the economy starts from long-run equilibrium. If the Federal Reserve increases the money supply, then ____ increases in the short run and ____ increases in the long run

output; prices

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

price level

In the short run an adverse supply shock causes

prices to rise and output to fall

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

prices; output

The intersection of the IS and LM curve determines the values of

r and Y, given G, T, M, and P

In the IS-LM model when government spending rises, in short-run equilibrium, in the usual case the interest rate __ and output___

rises; rises

The LM curve, in the usual case

slopes up to the right

The interaction of the IS curve and the LM curve together determine

the equilibrium level of interest rate and output

The LM curve shows combinations of ____ that are consistent with equilibrium in the market for real money balances

the interest rate and the level of income

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

the money supply and velocity

A decrease in the real money supply, other things being equal, will shift the LM curve

upward and to the left

An increase in government spending generally shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis

upward and to the right

If consumption is given by C=200+0.75(Y-T) and investment is given by I=200-25r, then the formula for the IS curve is

Y=1,600 - 3T - 100r- 4G

In the aggregate demand-aggregate supply model, short-run equilibrium occurs at the combination of output and prices where

aggregate demand equals short-run aggregate supply

In the aggregate demand-aggregate supply model, long-run equilibrium occurs at the combination of output and prices where

aggregate demand equals short-run and long-run aggregate supply

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

amounts of capital and labor and the available technology

Along any given IS curve

both government spending and tax rates are fixed

In the Keynesian cross model, if the MPC equals 0.75, then a $1 billion increase in government spending increases planned expenditures by ___ and increases the equilibrium level of income by ____

$1 Billion; more than $1 billion

Changes in monetary policy shift the

LM curve

If the money supply increases, then in the IS-LM analysis the ___ curve shifts to the ____

LM; right

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