Quiz (13, 16,17)
In A, the output gap is positive (an inflationary gap) and the core inflation rate is 3 percent a year. In B, the output gap is negative (a recessionary gap) and the core inflation rate is 1 percent a year. The Fed is likely to have the higher federal funds rate target in situation ______ because ______.
A; a higher federal funds rate decreases the inflationary gap and lowers core inflation
Japanese economy was below full employment: A policy to restore full employment might ______. This policy would create inflation if ______.
cut, increase government expenditures, or increase the quantity of money the demand stimulation was so strong it moved real GDP above potential GDP
When the Mexican government relaxes its environmental standards comma so that factories are no longer required relaxes its environmental standards, so that factories are no longer required to upgrade their production facilities, investment in Mexico decreases and Mexico's aggregate demand ______.
decreases. The AD curve shifts leftward.
Macroeconomic equilibrium occurs when the quantity of real GDP ______ equals the quantity of ______.
demanded; real GDP supplied
Explain the effect of the following events on India's aggregate supply or the quantity of real GDP supplied. In the short run, when U.S. firms moved their IT and data functions to India, India's aggregate supply ______. In the short run, when fuel prices rose India's aggregate supply ______. In the short run, when the price level in India increased India's aggregate supply ______.
increased decreased didn't change, but the quantity of real GDP supplied increased
Mexico trades with the United States. When the United States experiences strong (negative) economic growth, Mexico's aggregate demand ______.
increases because its exports to the United States increase. Mexico's AD curve shifts rightward (decrease; AD shifts left)
Suppose that the U.S. government increases its expenditure on highways and bridges by $100 billion. As a result of this expenditure, aggregate demand ______. If the economy is in a recession, real GDP _______.
increases by more than $100 billion because consumption expenditure increases in a multiplier process; increases
U.S. national debt ______ when the federal government's ______.
increases; outlays exceed tax revenue
If the government of Mexico cuts income taxes, Mexico's aggregate demand ______.
increases, and the aggregate demand curve shifts rightward
The United States is experiencing low inflation and real GDP is less than potential GDP. Describe the Fed's actions that will restore full employment ( high inflation and real GDP is greater than potential GDP. ) The New York Fed conducts an open market ______ to hit the new ______ federal funds rate target The supply of reserves ______. The supply of money ______. Interest rate... The supply of loanable funds ______ and the long-term interest rate ______. Investment _______, and aggregate demand ________ with a multiplier effect
purchase; lower increases; increases falls (sale; higher; decreases; decreases; rises) increases; falls increases; increases (decreases; rises; decreases; decreases)
The Fed's monetary policy instrument is ______. The level at which the Fed sets its monetary policy instrument is influenced by ______.
the federal funds rate the output gap and the inflation rate
