Economics final 3

If inflation is higher than what was expected,

creditors receive a lower real interest rate than they had anticipated.

Other things the same, when the price level falls, interest rates: rise, so firms increase investment. rise, so firms decrease investment. fall, so firms increase investment. fall, so firms decrease investment.

fall, so firms increase investment

The Federal Reserve controls _____ and influences ______ with the intention of influencing ____ .

money supply / interest rates / investment

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 employment rises.

Relative-price variability

rises with inflation, leading to a misallocation of resources.

In order to understand how the economy works in the short run, we need to

study a model in which real and nominal variables interact.

Which of the following policy actions shifts the aggregate-demand curve? an increase in government spending All of the above are correct. an increase in taxes an increase in the money supply

All of the above

In the long-run,

an increase in the price level has no effect on the aggregate quantity of GDP supplied.

Which of the following would be classified as fiscal policy? The federal government cuts taxes to stimulate the economy. The federal government passes laws restricting the use of dangerous chemical in food production. all of these A state government passes laws regarding voting access. The Federal Reserve cuts interest rates to stimulate the economy.

The federal government cuts taxes to stimulate the economy

Money neutrality suggests that an increase in the money supply leads to _____ in price level and inflation and _____ in real GDP.

an increase / no change

Which of the following would not lead to a decrease in aggregate demand and a leftward shift in the AD curve? all of the above would increase aggregate demand and shift the AD curve leftward. a decrease in housing prices. an in increase in interest rate. an appreciation of the domestic currency. an increase in domestic price level.

an increase in domestic price level.

Which of the following shifts both the short-run and long-run aggregate supply right? an increase in the capital stock an increase in the expected price level None of the above is correct. an increase in the actual price level

an increase in the capital stock

The Phillips curve suggests that in the short-run,

unemployment and inflation are negatively/inversely related.

Which of the following would lead to a shift in the short-run aggregate supply curve but no change in the long-run aggregate supply curve? An increase in the population. An increase in the general level of technology. An increase in the level of capital stock. All would shift both the long-run aggregate supply and short-run aggregate supply curves. A decrease in the expected price level.

A decrease in the expected price level.

Which of the following would lead to a decrease in the multiplier effect of fiscal policy? The income tax rate decreases. Households save a higher fraction of income. Household save a lower fraction of income. Households borrow more to finance spending.

Households save a higher fraction of income.

In the short-run, an increase in aggregate supply leads to _____ price level and _____ in unemployment.

a decrease / a decrease

An earthquake destroys capital stock in an economy. The result is

a leftward shift in the long-run aggregate supply curve.

If the economy is producing below the natural rate of output in the short-run, wages and input prices will eventually ____ and ____ will increase, returning the economy to long-run equilibrium.

fall / short-run aggregate supply

Examples of automatic stabilizers include government expenditures that ____ when national income decreases and help explain why deficits are ____ during recessions.

increase / larger

Suppose an economy is experiencing a period of high inflation. The government and central bank announce a contractionary policy to reduce the rate of inflation. The Phillips curve predicts a(n) ____ in unemployment. If households and firms believe the policy to be credible and revise their expectations to expect lower inflation, the change in unemployment would be _____ than if households and firms maintain their previous expectations.

increase / less

Suppose the Federal Reserve announces an expansion in the money supply. Households and firms act rationally by revising expectations to anticipate an increase in the inflation rate. As a result, Correct Answer

inflation rises and the unemployment rate does not change very much

The inflation tax

is like a tax on everyone who holds money. is the revenue created when the government prints money. is an alternative to income taxes and government borrowing.

Which of the following accounts for about two-thirds of the decline in output during a recession?

the decline in investment spending.

Suppose the expected inflation rate increases from 5% to 8%. According to the Fisher effect

the nominal interest rate increases by 3 percentage points.

A favorable supply shock, like a decrease in the price of oil, would cause

the short-run Phillips curve to shift to the left and a more favorable trade-off between unemployment and inflation.