Macro Econ Final Exam
the IS curve shows the relationship between output and the interest rate?
true
the fed rule is an equation that shows how the interest rate behavior of the Fed depends on the State of the economy?
true
when the AD curve is vertical and a cost shock shifts the AS curve to the left, there is no change in output?
true
when the interest rate falls, the planned aggregate expenditure curve shifts ____ because planned investment is _______.
up; higher
when tariff is imposed on foreign-produced product, domestic producers receive a _____ price and domestic consumers pay a ____ price for the product
higher; higher
All else equal, a cost shock that shifts the aggregate supply curve to the left leads to a ________ price level and a ________ level of aggregate output if the aggregate demand curve is downward sloping.
higher; lower
what explains the upward slope of the short-run AS curve?
input prices- particularly wage rates- are slower to adjust to increasing aggregate demand than are output prices
when a government sets a limit in the quantity of imports is known as a
quota
how can some countries be both importers and exporters of the same products ?
Because different consumers have tastes and preferences for different types of shirts, the U.S. could have a comparative advantage in the production of specific kinds of shirts but not all shirts.
a decrease in government spending shifts the ____, and a decrease in the price level shifts the _______.
IS curve to the left; Fed rule to the right
What effects will a decrease in taxes and an increase in government spending supported by a cooperative Fed acting to keep output from rising have on GDP and the price level?
The fiscal and monetary policies have opposing effects on the AD curve, therefore GDP and the price level will be unchanged.
What effects will an increase in the money supply with the economy operating at near full capacity have on GDP and the price level?
The price level will increase significantly and GDP will increase very little.
expansionary macron policies at a time when economy is approaching full capacity will result in
a small increase in aggregate output relative to the price level increases
suppose the economy is initially operating well below capacity. in this case, an expansionary macroeconomic policy will result in
a small prices crease relative to the output increase
what is most likely to cause the cost shock that shifts the AS curve consistent with cost-much inflation?
a surge in the price if crude oil
when a government makes a payment to domestic firms to encourage exports is known as
an export subsidy
The nation of Pixley has an absolute advantage in everything it produces compared to the nation of Hooterville. These two nations
can still benefit by trading with each other since the basis of trade is based on comparative advantage
usually if taxes are increased then
disposable incomes declines, consumption falls, planned aggregate expenditure falls, and aggregate income(output) declines
With international trade, the availability of less-expensive goods is the result of
each trading country specializing in production where it has comparative advantage
the existence of trade for country that produces and sells an a large scale to a global market is best explained by
economies of scale
If the economy's policymakers seek to reverse the output loss via the implementation of expansionary policies, the result will be
even higher prices
a trade surplus occurs when exports are ______ than imports
greater
the existence of trade for country where capital is relatively abundant specializing in capital inventive goods might be best explained by
heckscher-ohlin theorem
demand-pull inflation corresponds to _____ output and cost-push inflation corresponds to _____ output.
higher; lower
according to the real wealth effect (or real balance effect), a decrease in the price level will _____
increase consumers' expenditures due to an increase in the purchasing power of household wealth
Assuming the Fed wants to maintain a stable interest rate, if there is an unexpected increase in investor confidence leading to a sharp increase in orders of new plants and equipment, then the Fed should
increase money supply
the the fed has a strong preference for stable prices relative to output, the when Fed seems a price increase, it responds with a large _____ in the interest rate, driving down planned investment and thus output. In this case, the AD curve is relatively _______.
increase; flat
decreasing a short-term interest rate when a economy is growing slowly or is in a recession hoped that planned investment would ______ and aggregate output or income would ________.
increase; increase
according to the fed rule, the fed will raise the interest rate when _______.
inflation and output are high
during a recession
investment may not respond positively to lower interest rates since low demand for goods leads to low capital utilization and low investment
when considerable overlap occurred between inflation and recession in the last half of the 70's and early 80's, the Fed responded by
keeping interest rates high
a decrease in government spending shifts the aggregate demand curve to the ________ and a decrease in the Z factors shifts the aggregate demand curve to the _______.
left; right
a sudden increase in oil prices results in a supply shock, shifting the short-run AS curve to the _____, resulting in society getting a _______ aggregate output at any price level
left; smaller
when governments impose a tax on imports is known as a
tariff
the magnitude of the inflation initiated by the change in aggregate demand depends upon
the slope of the AS curve
when the fed rule class for a negative interest rate, the aggregate demand curve is
vertical
the long-run AS curve is
vertical because all prices (both input and output prices) change at the same rate in the long run
in the long run, if wages adjust fully yo rising prices, the aggregate supply curve will be ______ and fiscal policy will have ______ on output.
vertical; no effect