ECON 520 HW 6

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: A) increases. B) decreases. C) does not change. D) may either increase or decrease.

B

(Exhibit: Shift in Aggregate Demand) Assume that the economy is initially at point A with aggregate demand given by AD2. A shift in the aggregate demand curve to AD0 could be the result of either a(n) ______ in the money supply or a(n) ______ in velocity. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

A

(Exhibit: Supply Shock) Assume that the economy is at point B. With no further shocks or policy moves, the economy in the long run will be at point: A) A. B) B. C) C. D) D.

A

A reduction in the demand for money is the equivalent of a(n) _______ in velocity and will shift the aggregate demand curve to the _____. A) increase; right B) increase; left C) decrease; right D) decrease; left

A

13. (Exhibit: Shift in Aggregate Demand) In this graph, initially the economy is at point E, with price P0 and output Y. Aggregate demand is given by curve AD0, and SRAS and LRAS represent, respectively, short-run and long-run aggregate supply. Now assume that the aggregate demand curve shifts so that it is represented by AD1. The economy moves first to point ______ and then, in the long run, to point ______. A) A; D B) D; A C) C; B D) B; C

C

A short-run aggregate supply curve shows fixed ______, and a long-run aggregate supply curve shows fixed ______. A) output; output B) prices; prices C) prices; output D) output; prices

C

Short-run fluctuations in output and employment are called: A) sectoral shifts. B) the classical dichotomy. C) business cycles. D) productivity slowdowns.

C

The version of Okun's law studied in Chapter 10 assumes that with no change in unemployment, real GDP normally grows by 3 percent over a year. If the unemployment rate rose by 2 percentage points over a year, Okun's law predicts that real GDP would: A) decrease by 1 percent. B) decrease by 2 percent. C) decrease by 3 percent. D) increase by 1 percent.

A

(Exhibit: Supply Shock) Assume that the economy starts at point A and there is a drought that severely reduces agricultural output in the economy for just one year. In this situation, point ______ represents the short-run equilibrium immediately following the drought and point ______ represents the eventual long-run equilibrium. A) B; C B) B; A C) E; D D) D; A

B

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: A) downward and to the left. B) downward and to the right. C) upward and to the left. D) upward and to the right.

A

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. A) only prices; only output B) only output; only prices C) both prices and output; only prices D) both prices and output; both prices and output

B

If the short-run aggregate supply curve is horizontal, and, if each member of the general public chooses to hold a larger fraction of his or her income as cash balances, then: A) output and employment will increase in the short run. B) output and employment will decrease in the short run. C) prices will increase in the short run. D) prices will decrease in the short run.

B

Most economists believe that prices are: A) flexible in the short run but many are sticky in the long run. B) flexible in the long run but many are sticky in the short run. C) sticky in both the short and long runs. D) flexible in both the short and long runs.

B

Which of the following is an example of a demand shock? A) a large oil-price increase B) the introduction and greater availability of credit cards C) a drought that destroys agricultural crops D) unions obtain a substantial wage increase

B

(Exhibit: Supply Shock) In this graph, assume that the economy starts at point A and there is a favorable supply shock that does not last forever. In this situation, point ______ represents short-run equilibrium and point ______ represents long-run equilibrium. A) B; C B) B; A C) E; D D) E; A

D

A 5 percent reduction in the money supply will, according to most economists, reduce prices 5 percent: A) in both the short and long runs. B) in neither the short nor long run. C) in the short run but lead to unemployment in the long run. D) in the long run but lead to unemployment in the short run.

D

Making use of Okun's law, it may be computed that if the Fed reduces the money supply 5 percent and the quantity theory of money is true, then the unemployment rate will rise about: A) 5 percent in both the short run and the long run. B) 2.5 percent in both the short run and the long run. C) 5 percent in the short run but will return to its natural rate in the long run. D) 2.5 percent in the short run but will return to its natural rate in the long run.

D

The aggregate demand curve is the ______ relationship between the quantity of output demanded and the ______. A) positive; money supply B) negative; money supply C) positive; price level D) negative; price level

D

Okun's law is the ______ relationship between real GDP and the ______. A) negative; unemployment rate B) negative; inflation rate C) positive; unemployment rate D) positive; inflation rate

A

Stabilization policy refers to policy actions aimed at: A) reducing the severity of short-run economic fluctuations. B) equalizing incomes of households in the economy. C) maintaining constant shares of output going to labor and capital. D) preventing increases in the poverty rate.

A