Econ Test #3
Other things the same, a decrease in the price level motivates people to hold
less money, so they lend more, and the interest rate falls.
A basis for the slope of the short-run Phillips curve is that when unemployment is high there are
downward pressures on prices and wages.
During a recession the economy experiences
falling employment and income.
If the sacrifice ratio is 3, then reducing the inflation rate from 5 percent to 3 percent would require sacrificing
6 percent of annual output.
If the MPC = 0.75, then the government purchases multiplier is about
4
Which of the following effects helps to explain the slope of the aggregate-demand curve?
All of the above are correct.
Which of the following is an example of crowding out?
An increase in government spending increases interest rates, causing investment to fall.
The short-run relationship between inflation and unemployment is often called
the Phillips curve.
Suppose businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. Their reaction would initially shift
aggregate demand left.
Refer to Stock Market Boom 2015. Which curve shifts and in which direction?
aggregate demand shifts right
If the central bank raises the rate at which it increases the money supply, then in the short run unemployment is
below its natural rate. The short-run Phillips curve shifts right as the economy moves back to its natural rate of unemployment.
In 2009 Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right?
both the increased funding for states and the tax cuts
Refer to Stock Market Boom 2015. In the short run what happens to the price level and real GDP?
both the price level and real GDP rise.
Suppose that the money supply increases. In the short run, this increases prices according to
both the short-run Phillips curve and the aggregate demand and aggregate supply model.
Monetary policy
can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented.
Proponents of rational expectations argued that the sacrifice ratio
could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.
Other things the same, a decrease in the price level causes the interest rate to
decrease, the dollar to depreciate, and net exports to increase.
Fiscal policy refers to the idea that aggregate demand is affected by changes in
government spending and taxes.
Keynes believed that economies experiencing high unemployment should adopt policies to
increase aggregate demand.
Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?
increase government expenditures
When the interest rate increases, the opportunity cost of holding money
increases, so the quantity of money demanded decreases.
Other things the same, a decrease in the price level makes the dollars people hold worth
more, so they can buy more.
According to classical macroeconomic theory, changes in the money supply affect
nominal variables, but not real variables.
According to Friedman and Phelps, policymakers face a tradeoff between inflation and unemployment
only in the short run.
When we say that economic fluctuations are "irregular and unpredictable," we mean that
recessions do not occur at regular intervals.
Disinflation is defined as a
reduction in the rate of inflation.
Stagflation exists when prices
rise and unemployment rises.
Other things the same, when the price level rises, interest rates
rise, so firms decrease investment.
Suppose that the MPC is 0.7, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand
shifts rightward by $100 billion.
Refer to Stock Market Boom 2015. In the long run, the change in price expectations created by the stock market boom shifts
short-run aggregate supply left.
Menu costs help explain
sticky-price theory.
The long-run aggregate supply curve shifts right if
technology improves.
Other things the same, the aggregate quantity of goods demanded in the U.S. increases if
the dollar depreciates.
Using the liquidity-preference model, when the Federal Reserve decreases the money supply,
the equilibrium interest rate increases.
Critics of stabilization policy argue that
the lag problem ends up being a cause of economic fluctuations.
Which of the following is not an automatic stabilizer?
the minimum wage
The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates
the multiplier effect.
If aggregate demand shifts left, then in the short run
the price and real GDP both fall.
The model of short-run economic fluctuations focuses on
the price level and real GDP.
Refer to Stock Market Boom 2015. How is the new long-run equilibrium different from the original one?
the price level is higher and real GDP is the same.
The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if
the price level is higher than expected making production more profitable.
Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes
the short run, but not the long run.
A change in expected inflation shifts
the short-run Phillips curve, but not the long run Phillips curve.
An increase in the expected price level shifts the
the short-run but not the long-run aggregate supply curve left.
When the Fed buys bonds
the supply of money increases and so aggregate demand shifts right.
The aggregate supply curve is
vertical in the long run and slopes upward in the short run.
Many macroeconomic variables
fluctuate together and by different amounts.
