Macroeconomics Final Study Guide

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Why does the monetary policy curve slope​ upward?

- Monetary policymakers will follow the Taylor principle and respond aggressively to an increase in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises. - When inflation​ increases, the supply of real money balances declines. This increases the equilibrium nominal interest rate in the money​ market, which also increases the real interest rate in the short run.

The Bureau of Economic Analysis valued nominal U.S. gross domestic product​ (i.e., actual​ expenditure) at ​$14460 billion at the end of 2009. Suppose that the consumption expenditure was ​$10330 ​billion, planned investment spending was ​$1760 ​billion, and government spending was ​$2900 billion.

- Spending in net exports is ​$ -530 billion. ​

What can increase the equilibrium interest rate in the liquidity preference​ framework?

- The equilibrium interest rate increases if the Fed reduces the supply of real money balances. - The equilibrium interest rate increases if real income increases. - The equilibrium interest rate increases if the price level increases.

In a steady-state economy with no population​ growth, consumption per worker is​ 45, the saving rate is 25​ percent, and the depreciation rate is 15 percent. The level of capital per worker is​

100

Output per person is 170 in an economy in which 15 percent of the population are engaged in research and​ development, where their productivity is​ 0.002, and the total population size is 100 million. If this economy is on a balanced growth​ path, then output per person in the next period will be​

177.3

If U.S. imports are valued at ​$2480 ​billion, calculate spending in U.S. exports.

1950 billion

The period referred to as the​ "Great Inflation" corresponds approximately to the decade of the

1970s

The IS curve is Y​ = 20 minus ​1.5r, and the aggregate demand curve is Y​ = 15.5 minus 0.3pi. When the interest rate is 7​ percent, the inflation rate is​

20

Assume that the output per worker production function​ is: The saving and depreciation rates are estimated at 0.3 and 0.03​, respectively.

400, 28

If productivity growth equals 3.0​ percent, the contribution from capital growth 1.2 percent and the contribution from labor growth 2.0​ percent, then output growth must equal​

6.2

If the inflation rate target is​ 2%, the current inflation rate is​ 3%, and the output gap is​ 2%, then according to the Taylor​ rule, the nominal federal funds rate should be​ ________ percent.

6.5

Calculate the consumption expenditure using the consumption function and the following​ estimates: Autonomous​ consumption: ​$1310 billion ​Income: ​$11000 billion ​Taxes: ​$2000 billion Marginal propensity to​ consume: 0.6

6710 billion

Which element in the production function cannot be measured​ directly?

A

In what situations will the divine coincidence​ prevail?

A and B only. - An aggregate demand shock. - A permanent supply shock.

The distinction that macroeconomists make between flexible and sticky prices and wages hinges on

A and C only. - the time needed for​ long-run equilibrium values to be​ re-established following demand and supply shocks. - whether the markets setting prices and wages are competitive or monopolistic

Which of the following causes an increase in desired​ saving?

A decrease in autonomous consumption

How does a decrease in financial frictions affect planned investment​ spending?

A decrease in financial frictions reduces the real interest rate for investments and hence raises investment spending and aggregate demand.

Which of the following are the three primary functions that money performs in an​ economy?

A medium of​ exchange, a unit of​ account, and a store of value.

Why does the aggregate demand curve slope​ downward?

A rise in inflation works through the increase in real interest rates to reduce the equilibrium quantity of aggregate output

Why does the aggregate demand curve slope​ downward?

A rise in inflation works through the increase in real interest rates to reduce the equilibrium quantity of aggregate output.

Compare the following factors of production in terms of their rivalry and​ excludability:

A robot that welds car frames is rivalrous and excludable and the idea of building a car in an assembly line is nonrivalrous and nonexcludable . A recipe to make pancakes is nonrivalrous and nonexcludable and the recipe to manufacture a soda drink is nonrivalrous and highly excludable .

During the late 1960s Chinese authorities imposed the precepts of the​ "Cultural Revolution" on their people. As a result almost all scholars and researchers were sent to the fields to perform manual agricultural tasks.

According to the Romer​ model, the​ "Cultural Revolution" in China created a decrease in alpha ​, resulting in a decrease in the growth rate of output per worker .

Inhabitants of Pandora use stone beads as money. On​ average, every stone bead is used 4 times per year to carry out transactions. The total supply of beads is 20 million.

According to the quantity theory of​ money, the level of aggregate spending in Pandora must be 80 million. ​(Enter your response as a whole​ number.) Suppose now that the inhabitants of Pandora use less money to conduct the same number of transactions​ (i.e., each individual carries fewer​ beads). The velocity of money will increase .

According to the​ expectations-augmented Phillips​ curve, which of the following factors determines the rate of​ inflation?

All of the above are correct. - Expected inflation. - The degree of tightness in the labor market. - The difference between the unemployment rate and the natural rate of unemployment.

How does an increase in total factor productivity affect output per​ worker?

All of the above. - The economy will experience more investment per worker. - An increase in total factor productivity will increase output per worker. - The available capital and labor will become more productive.

Why does it slope​ downward?

As the real interest rate​ rises, consumption​ expenditure, planned investment​ spending, and net exports​ fall, which in turn lowers planned expenditure. Aggregate output must be lower for it to equal planned expenditure and satisfy goods market equilibrium.​ Hence, the IS curve is​ downward-sloping.

The Bureau of Economic Analysis valued nominal U.S. gross domestic product​ (i.e., actual​ expenditure) at ​$14 comma 460 billion at the end of 2009. Suppose that the consumption expenditure was ​$10 comma 300 ​billion, planned investment spending was ​$1 comma 740 ​billion, and government spending was ​$2 comma 510 billion.

Assuming the goods market is in​ equilibrium, calculate spending in net exports. Spending in net exports is ​$ negative 90 billion. If U.S. imports are valued at ​$2 comma 480 ​billion, calculate spending in U.S. exports. Spending in U.S. exports is ​$ 2390 billion.

Compared to classical ​macroeconomists, Keynesian macroeconomists view the typical market as being

Compared to classical ​macroeconomists, Keynesian macroeconomists view the typical market as being constrained by monopolistic forces. Given their market structure​ views, Keynesian macroeconomists see prices and wages as being largely inflexible . This view of Keynesian macroeconomists regarding the responsiveness of prices and wages to changing conditions suggests​ (to them) that the economy adjusts to​ long-run equilibrium rather slowly . For Keynesian ​macroeconomists, the​ economy's sluggish adjustment to​ long-run equilibrium makes government intervention necessary .

According to the consumption​ function, what variables determine aggregate spending on consumer goods and​ services?

Consumer spending depends on disposable​ income, the real interest​ rate, and other variables such as​ consumers' optimism and wealth.

Assume that low standards of living​ (i.e., low​ capital-labor ratio, in​ Solow's model​ terms) are the reason as to why some countries exhibit high fertility rates. Which of the following statements does not represent an effect from population control policies established to reduce fertility rates in countries with low standards of​ living?

Countries that have created population control policies have then experienced rapid growth in output.

What condition is required for equilibrium in the money​ market?

Equilibrium occurs when the quantity of real money balances demanded equals the quantity of real money balances supplied

What condition is required for equilibrium in the money​ market?

Equilibrium occurs when the quantity of real money balances demanded equals the quantity of real money balances supplied.

Based on the current level of the world real interest​ rate, the real interest rate that would prevail if this were a closed economy is higher than the world real interest rate.

False

What are open market​ operations?

Federal Reserve sales or purchases of bonds to or from banks.

What is the rule firms follow to determine how much of each input to hire in order to maximize​ profits?

Firms demand a quantity of each factor of production factor up until the marginal product of that factor falls to its real factor price.

Which of the following is not equivalent to a trade​ surplus?

I > S

What is the effect of an increase in domestic saving on the trade balance and net capital​ outflows?

If domestic saving​ increases, net capital outflows will rise and net exports will increase.

Why does the money market move toward​ equilibrium?

If the nominal interest rate is above its equilibrium​ value, people will purchase more bonds and bond prices will​ rise, causing the nominal interest rate to fall toward the equilibrium value. When the interest rate is below its equilibrium​ level, people will sell bonds and bond prices will​ fall, causing the interest rate to rise toward the equilibrium value.

How do the conditions required for goods market equilibrium differ in the two types of​ economies?

In a closed​ economy, goods market equilibrium occurs when saving equals​ investment; however, in an open​ economy, it can still be in equilibrium even when saving and investment are not equal.

What is the difference between a closed economy and an open​ economy?

In an open​ economy, economies are open to trade with one​ another, while in a closed​ economy, there is no trading between the different economies.

What shortcoming of the Solow growth model does the Romer model attempt to​ remedy?

In the Solow​ model, output per person eventually reaches a steady state​, from which it grows no further.

Most of the time it is quite difficult to separate the three functions of money. Money performs its three functions at all​ times, but sometimes we can stress one in particular. For each of the following​ situations, identify which function of money is emphasized. Brooke accepts money in exchange for performing her daily tasks at her​ office, since she knows she can use that money to buy goods and services.

In this​ case, money is being used as a medium of exchange . Tim wants to calculate the relative value of oranges and​ apples, and therefore checks the price per pound of each of these goods quoted in currency units. In this​ case, money is being used as a unit of account . Maria is currently pregnant. She expects her expenditures to increase in the future and decides to increase the balance in her savings account. In this​ case, money is being used as a store of value .

Which of the following justifies the assumption of adaptive expectations in Phillips curve​ analysis

Inflation expectations are sticky

A manufacturer of toys is employing 50 workers and using 15 pieces of equipment to assemble toys.​ Currently, the marginal product of labor is ​$12 and the marginal product of capital is ​$20. Assume the market prices for labor and capital are​ $12 and​ $20, respectively.

Is this firm maximizing its​ profit? Yes . What should this firm do with respect to its employees and its use of​ equipment? The firm should maintain the number of employees and maintain its use of equipment.

Why can the Fed control the real interest rate in the short run but not in the long​ run?

It adjusts for​ inflation, and prices are sticky in the short run.​ Hence, when a change in the​ Fed's monetary policy causes the nominal interest rate to​ change, the real interest rate also changes in the same direction. In the long​ run, actual and expected inflation change in response to changes in monetary​ policy, leaving the real interest rate unaffected.

What is the monetary policy​ curve?

It indicates the relationship between the inflation rate and the real interest rate.

What is the aggregate demand​ curve?

It is the relationship between the inflation rate and aggregate output when the goods market is in equilibrium

What is the aggregate demand​ curve?

It is the relationship between the inflation rate and aggregate output when the goods market is in equilibrium.

What does the IS curve​ show?

It shows equilibrium points in the goods market - the combinations of the real interest rate and equilibrium output.

What does the IS curve​ show?

It shows equilibrium points in the goods market-the combinations of the real interest rate and equilibrium output.

Would an increase in net exports affect the monetary policy​ curve?

No, the monetary policy curve does not shift.

What are open market​ operations?

Open market operations are purchases or sales of government securities.

What is​ hyperinflation?

Periods of extremely rapid price increases of more than 50 percent per month

What condition is required for equilibrium in the goods​ market?

Planned expenditure on goods and services must equal the actual amount of goods and services produced.

What has been the main cause of hyperinflation​ episodes?

Rapid growth of the money supply

What happens when policy makers respond to a temporary supply​ shock?

Shifting the aggregate demand curve to regain price stability will move the economy farther away from potential output.

Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007. Which of the following is a likely result of this increase in financial​ frictions?

The AD curve likely shifted left which caused a negative output gap

What open market operation can the Federal Reserve conduct to increase the money​ supply?

The Federal Reserve can purchase bonds from banks.

What is the significance of the Fisher​ effect?

The Fisher effect explains the relationship between expected inflation rates and nominal interest rates.

Suppose that a new Fed chair is​ appointed, and his or her approach to monetary policy can be summarized by the following​ statement: "I care only about increasing​ employment; inflation has been at very low levels for quite some​ time; my priority is to ease monetary policy to promote​ employment." How would you expect the monetary policy curve to be​ affected, if at​ all?

The MP curve will shift downward because decreasing unemployment results in a loosening of monetary policy.

What is the effect on the marginal product of​ capital?

The MPK curve shifts upward.

How do changes in planned expenditures affect the aggregate demand​ curve?

The aggregate demand curve shifts to the right if autonomous​ consumption, autonomous​ investment, autonomous net​ exports, or government purchases​ increase, or if taxes decrease.

What would be the effect of an increase in U.S. net exports on the aggregate demand​ curve?

The aggregate demand curve shifts to the right.

How does the demand for real money balances respond to changes in each of these​ variables?

The demand for money is inversely related to the nominal interest rate and positively related to real income.

In​ Keynes's liquidity preference​ theory, what variables determine the demand for real money​ balances?

The demand for real money balances depends on the nominal interest rate and real income.

According to this​ theory, what determines the inflation​ rate?

The growth rate of the money supply

Does the new monetary policy curve represent an autonomous tightening or loosening of monetary​ policy?

The new monetary policy curve represents a tightening of monetary policy.

If desired saving​ increases, what happens to the real interest rate and desired​ investment?

The real interest rate​ decreases, which causes desired investment to increase.

The new graph to the right shows a leftward shift to the SRAS curve. Given what we know about activity in this​ economy, which of the following is likely true about this​ curve?

The shift depicts the supply shock itself.

Implementing stabilization policy is made more difficult by the presence of various time lags. Fill in the blanks below to match each description with the time lag it describes.

The time it takes to collect and process the data that indicate how well the economy is faring is known as the data lag . The time that policymakers may wait for data that support their initial impression of the current state of the economy is known as the recognition lag . The time required for policymakers to put a policy into action once approved is known as the implementation lag . The time to decide on the appropriate policy for the current economic situation is known as the legislative lag . The time it takes for a policy to have an effect on the economy is known as the effectiveness lag .

What do the legislative and implementation lags have in​ common?

They are both more important for fiscal than monetary policy

Why does the​ self-correcting mechanism stop working when the policy rate hits the zero lower​ bound?

The​ self-correcting mechanism stops working because the falling inflation produced by a negative output gap produces higher rather than lower real interest rates when the policy rate hits the zero lower​ bound, and this increase depresses planned spending and further widens the output gap.

Which of the following statements is​ correct?

Through autonomous monetary policy adjustments the Federal Reserve can target any inflation rate in the long run

How does a tightening or easing of monetary policy by the Fed affect the aggregate demand​ curve?

Tightening of monetary policy shifts the aggregate demand curve to the​ left, while easing of monetary policy shifts the aggregate demand curve to the right.

How is consumption related to each of these​ variables?

Upper C equals Upper C overbar plus mpc left parenthesis Upper Y minus Upper T right parenthesis minus cr​, where Upper C overbar is the autonomous consumption​ expenditure, Y is aggregate​ output, T is​ taxes, mpc is the marginal propensity to​ consume, r is the real interest​ rate, and c is a parameter that reflects how responsive consumption expenditure is to the real interest rate.

What is the Fisher​ effect?

When expected inflation​ rises, nominal interest rates will rise.

In the Romer​ model, how does an increase in the fraction of the population engaged in​ R&D, alpha​, affect the growth rate of​ per-capita output over​ time?

When more resources are devoted to research and​ development, the level of​ per-capita output at first​ falls, but the growth rate of​ per-capita output will rise permanently.

How does the Fed use these to increase or decrease the money​ supply?

When the Fed purchases government​ securities, the money supply increases. When the Fed sells government​ securities, the money supply decreases.

How and why do changes in the real interest rate affect planned investment​ spending?

When the real interest rate is very low ​, the cost of funds is very low and the return on many of the​ firm's planned investments will exceed it. As the real interest rate​ rises, the return on fewer and fewer planned investments will exceed the cost of funds.​ Thus, planned investment spending falls as the real interest rate rises

How and why do changes in the real interest rate affect net​ exports?

When the real interest rate​ increases, the expected return on domestic assets rises relative to foreign assets. The domestic export becomes more expensive for foreigners and imported goods cheaper for domestic purchasers. The resulting decrease in exports and increase in imports will cause net exports to decline when the real interest rate rises.

The top portion of the following table lists several supply shocks along with several exogenous events that do not affect the position of the aggregate supply curve. A response box is attached to each event

X,N,P,X,P,N,P,X,N

The top portion of the following table lists a variety of factors that shift some component of the aggregate demand and supply model. A response box is attached to each factor. The​ table's bottom portion contains a labeling key. Label any factor that shifts the​ short-run aggregate supply curve with an S. Use an X to label any factor that does not shift the​ short-run aggregate supply curve. ​(Note​: Each label is used multiple​ times.)

X,S,S,X,S,X

Let alpha ​= 0.3. How is the productivity variable​ measured?

Y/K0.3L0.7

The​ "Great Moderation" is perhaps best noted for

a heightened degree of stability in most macroeconomic variables.

The information below describes the inflation and unemployment rates for Canada between 1960 and 1969. Numbers have been rounded to the nearest 0.25 of a percentage point and plotted on the graph to the right.The graph shows evidence of

a negative relationship between inflation and​ unemployment, as the Phillips curve predicts.

A negative shock in aggregate demand will likely result in​

a permanently lower equilibrium inflation​ rate, unless the central bank responds by lowering interest rates

Which of the following statements is​ correct?

all of the above - Ultimately, autonomous monetary policy adjustments by the Federal Reserve cannot determine long run aggregate output - Through autonomous monetary policy adjustments the Federal Reserve can target any inflation rate in the long run - Ultimately, autonomous monetary policy adjustments by the Federal Reserve cannot determine the equilibrium real interest rate in the long run

When a temporary negative supply shock hits the​ economy, then in the short-run

all of the above - if the central bank focuses on stabilizing​ inflation, it cannot stabilize output - the divine coincidence does not hold - if the central bank focuses on stabilizing​ output, it cannot stabilize inflation

What is the equilibrium real interest​ rate?

all of the above - it is the real interest rate that keeps the quantity of aggregate output demanded equal to potential output. - it is the real interest rate that keeps the unemployment gap equal to zero - it is the real interest rate that keeps the output gap equal to zero.

The IS curve​

all of the above - shows the relationship between aggregate output and the real interest rate when the goods market is in equilibrium - tells us that a decrease in taxes or in financial frictions leads to an increase in output for any given real interest rate - tells us that increases in autonomous​ consumption, investment, government​ purchases, or net exports raise output for any real interest rate

Factors that shift the AD Curve include​

all of the above - taxes, government purchases, autonomous investment

Which of the following is a correct representation of national​ saving?

all of the above - Y-C-G - NX+I -Sg+Sp

The shifts in the​ short-run aggregate supply curve continue​ until

all of the above are correct - the AS curve intersects AD1 and LRAS2 - a new long run equilibrium is attained - the output gap falls to zero

If we were to take the MP curve from the graph and shift it​ leftward, this would most likely illustrate

an increase in the real interest rate from autonomous monetary policy tightening.

Supply shocks that are positive are events that​ induce, at any given inflation​ rate, _________ in​ supply, thus shifting the AS curve __________

an increase, rightward

Oil prices declined in the summer of​ 2008, following months of increases since the winter of 2007. Considering only this fall in oil​ prices, the impact on the​ short-run aggregate supply was

an​ increase, since the fall in prices was a positive supply shock that lowered production costs.

The aggregate demand curve is Y​ = 15 minus 0.2pi when the inflation rate falls from 6 percent to 5 percent.​ Then, output increases from 13.8 to 17. The response of monetary policy to the inflation decline has been

autonomous easing

Assume that autonomous consumption is ​$1 comma 735 billion and disposable income is ​$10 comma 200 billion. Using the consumption​ function, calculate consumption expenditure if an increase of​ $1,000 in disposable income leads to an increase of ​$660 in consumption expenditure.

consumption expenditure is 8467 billion

The​ short-run aggregate supply curve slopes upward because an increase in output relative to potential​ output:

creates tight labor and product markets that cause inflation to rise

Suppose the world real interest rate decreases. In a small open​ economy, this would

decrease net capital outflows

According to modern Phillips curve​ analysis, an increase in the unemployment gap​ would:

decrease the inflation rate by moving downward and to the right along the Phillips curve.

A _________ mandate best describes the policy making environment in the United States.

dual

When macroeconomic stabilization policy gives equal priority to price stability and stabilizing overall economic​ activity, it is referred to as a

dual mandate

Population growth is similar to​ depreciation, in that​

each lowers the capital-labor ratio

Both​ short-run and​ long-run equilibria require that the quantity of aggregate output demanded and the quantity supplied are

equal

Suppose the economy is starting from a situation of​ long-run equilibrium. In this​ case, we know that its equilibrium output ​(Upper Y star​) is __________ its potential output ​(Upper Y Superscript Upper P​).

equal to

Beyond this​ equality, the attainment of a​ long-run equilibrium also requires that actual output potential output.

equals

In the per worker production​ function, A​, technology is considered to be

exogenous

If the inflation rate target is​ 2%, the current inflation rate is also​ 2%, and the output gap is​ zero, then according to the Taylor​ rule, the nominal federal funds rate should be​ ________ percent.

four

When macroeconomic stabilization policy requires stable prices as a condition of pursuing other​ goals, it is referred to as a

hierarchical mandate

During this​ period, the U.S. economy experienced

higher inflation, slower growth

When a permanent negative supply shock hits the economy​

in the long-​run, output is permanently lowered whether the central bank reacts or not

Which of the following describes a reason why the​ long-run Phillips curve relationship differs from the​ short-run relationship?

in the long​ run, expected inflation is taken into account when making work and hiring decisions.

According to modern Phillips curve​ analysis, a price shocklong dashlike a significant increase in oil priceslong dash​would:

increase the inflation rate by shifting the Phillips curve upward.

According to modern Phillips curve​ analysis, an increase in expected inflation​ would:

increase the inflation rate by shifting the Phillips curve upward.

Spending on education is likely to raise output per person by​

increasing the productiveness of​ R&D

The equilibrium real interest rate

is discussed by the Federal Open Market Committee at its meetings

What basic relationship does the​ long-run Phillips curve​ describe?

it indicates unemployment will move toward its natural rate regardless of the inflation rate.

An increase in the saving rate results in a higher steady state

level of capital per worker

Autonomous easing of monetary policy involves​

lowering interest rates and shifting the MP curve to the right

Business cycles are best defined as fluctuations in aggregate economic activity in which

many economic activities expand and contract together in a recurringlong dashbut not periodiclong dashfashion.

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise​ it,

monetary policy would ultimately lead to higher inflation but real interest rates and potential output would be unaffected in the long run

​Okun's law describes​ the:

negative relationship between the unemployment gap and the output gap.

Shifts of the​ ________ curves result from autonomous monetary policy.

none of the above - MP, IS,​ & AD - MP​ & IS, but not AD - MP, but not IS nor AD - IS​ & AD, but not MP

Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007. Which of the following is a likely result of this increase in financial​ frictions?

none of the above - The AD curve likely did not shift - The AD curve likely shifted right which caused a positive inflation gap - The AD curve likely shifted left which caused an upward movement along the MP curve to a higher general equilibrium interest rate - The AD curve likely shifted left which caused a positive inflation gap

Compared to positive supply​ shocks, negative supply shocks have ___________ effect on aggregate supply

opposite

Adaptive expectations are based​ on:

past values

Whether positive or​ negative, supply shocks that ultimately make output and inflation different are

permanent

In the figure to the​ right, a​ long-run equilibrium exists at _________ while a​ short-run equilibrium occurs at ___________

point 1, point 1 and 2

In his first State of the Union speech in January​ 2010, President Obama proposed a tax credit for small businesses and tax incentives for all businesses that invest in new plant and equipment. The anticipated effect of these proposals on aggregate demand is

positive, increasing AD at any given inflation rate

Of the factors identified above that shift the​ short-run aggregate supply​ curve, the only factor that possibly also shifts the​ long-run aggregate supply curve is __________ but only if this factor is

price shocks, permanent

A leading countercyclical variable​

reaches a trough before the peak of the business cycle

The divine coincidence

refers to policies that accomplish both goals of stabilization policy.

In the preceding​ table, the permanent supply shocks are associated with

regulations and technology

The​ "Great Moderation" period has been assigned to the time period

running from 1984-2007

Supply shocks are exogenous events that cause ________ the aggregate supply curve.

shifts in

The AD Curve

shows how changes in equilibrium output affect the inflation rate

In the per worker production​ function, which of the following does not determine the level of output per​ worker?

taxes

Milton Friedman and Edmund Phelps contributed which​ insight(s) to Phillips curve​ analysis?

that, in the long​ run, the level of unemployment is independent of inflation

What would be the effect on the aggregate demand​ curve?

the AD curve will shift to the right.

If the economy is at point 1 in Figure 13.1 and there is no policy​ intervention, what happens​ next?

the AS curve shifts down, causing both output and inflation to decline

If the Federal Reserve raises interest rates in an autonomous tightening​

the MP curve shifts​ up, there is an upward movement along the IS​ curve, and the AD curve shifts to the left to a lower level of equilibrium output

Combining​ Okun's law with the Phillips curve helps derive the​ short-run aggregate supply curve in​ that:

the Phillips curve describes the​ short-run negative relationship between the unemployment rate and the inflation​ rate, while the​ short-run aggregate supply curve describes the positive relationship between output and inflation.

Variables are classified as​ leading, lagging, or coincident depending on where their turning points are relative to the turning points of

the business cycle

The time it takes for policymakers to obtain and to understand the data and to change the policy instrument based on that information is known as​ ________, respectively.

the data, recognition, and implementation lags

The aggregate demand curve slopes downward because a rise in inflation​ leads:

the monetary policy authorities to raise real interest rates.

What is the real interest​ rate?

the nominal interest rate minus expected inflation.

Assume that an economy is in equilibrium when technological progress causes an increase in total factor productivity. Once the economy has adjusted to its new​ equilibrium, and assuming that the supplies of capital and labor remain​ unchanged, which of the following has increased​?

the real wage

When a permanent negative supply shock hits the economy

there is no permanent effect on inflation if the central bank raises interest rates

The figure to the right displays hypothetical cyclical fluctuations in aggregate economic activity. The highlighted points in time​ (i.e., t1 through​ t5) represent the cyclical

turning points

If the oil price decline is viewed as a temporary​ shock, the anticipated impact on the​ long-run aggregate supply is

unchanged

Strong evidence of convergence exists for​

wealthy nations that belong to the Organization for Economic Cooperation and Development.

The idea behind the Phillips curve is that

when the unemployment rate is low wages will increase

Suppose Japan has a GDP of ​$2 ​trillion, and that its national saving rate is 16​%.

​Japan's national saving is ​$ 320 billion. If private saving is ​$224 ​billion, Japan's government saving is ​$ 96 billion.


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