B/HW Ch 5+20, 8, 9, 10, 11, 12, 13

Suppose a Federal Reserve System Chairman known to have interest in fighting inflation is appointed when the economy finds itself in the short-run equilibrium shown in the figure to the right. Given the chairman's preferences, it may be anticipated that monetary policy will be (1)____ . a. eased b. neutral c. tightened Compared to the original short-run equilibrium at point 1, the chairman's policy resulted in (2)___ inflation a. unchanged b. higher c. lower and the (3)___ of full employment. a. restoration b. abandonment

(1) c. tightened (2) c. lower (3) b. abandonment

Natural rates of unemployment are higher in France than in the United States. Suppose you are a recent college graduate and you are eager to find a job. The labor market of (1) is likely to be more promising to you. (2) is more likely to have more significant labor benefits, such as more paid vacation and health care.

(1) the United States (2) France

Calculate the consumption expenditure using the consumption function and the following estimates: Autonomous consumption: $1,390 billion Income: $15,000 billion Taxes: $2,000 billion Marginal propensity to consume: 0.6 The consumption expenditure is $ __ billion. (Enter your response as a whole number.)

9190

What has been the main cause of hyperinflation episodes? a. Rapid growth of the money supply b. Rapid growth of government spending c. Rapid growth of output d. Rapid growth of wages

a. Rapid growth of the money supply

These days many firms post their catalogs or their product prices on the internet. In addition, most retailers have adopted code bars to keep track of their inventories and change prices. Comment on the effect of these technologies on menu costs. a. Menu costs are likely to have increased. b. Menu costs are likely to have decreased. c. Menu costs are not likely to have changed. d. There is not enough information to tell.

b. Menu costs are likely to have decreased.

During recessions it becomes increasingly difficult to find a job. How do you think the number of "discouraged workers" would be affected by a recession? The labor force? a. There will be more discouraged workers and a bigger labor force. b. There will be more discouraged workers and a smaller labor force. c. There will be fewer discouraged workers and a bigger labor force. d. There will be fewer discouraged workers and a smaller labor force.

b. There will be more discouraged workers and a smaller labor force.

In its February 18, 2010, edition,the Wall Street Journal printed, "The dollar strengthened [...] and stocks [...] followed suit. The Dow industrials rose 40.43 points, or 0.4%." What is the combined effect of these two events on the IS curve? a. The IS curve does not shift. b. The IS curve shifts to the left. c. The IS curve shifts to the right. d. There is not enough information available to determine the effect on the IS curve.

d. There is not enough information available to determine the effect on the IS curve.

The Bureau of Economic Analysis valued nominal U.S. gross domestic product (i.e., actual expenditure) at $14,460 billion at the end of 2009. Suppose that the consumption expenditure was $10,190 billion, planned investment spending was $1,800 billion, and government spending was $2,790 billion. (1) Assuming the goods market is in equilibrium, calculate spending in net exports. Spending in net exports is $__ billions. (2) If U.S. imports are valued at $2,200 billion, calculate spending in U.S. exports. Spending in U.S. exports is $ ___ billions.

(1) -320 (2) 1880

Inhabitants of Pandora use stone beads as money. On average, every stone bead is used 5 times per year to carry out transactions. The total supply of beads is 20 million. (1) According to the quantity theory of money, the level of aggregate spending in Pandora must be ___ million. (2) 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 (2) a. stay the same b. decrease c. increase

(1) 100 (2) c. increase

Assume that the demand for real money balances is given by Md/P = Y/5 − 100i . Suppose that Y = 10,500 billion, so that Md/P= 10,500/5 − 100i (in billions of $). (1) If the interest rate is 6%, the demand for real money balances is $ ____ billion. (2) If the interest rate is 3%, the demand for real money balances is $ ____ billion. (3) If the interest rate is 1%, the demand for real money balances is $____ billion.

(1) 1500 (2) 1800 (3) 2000

Suppose Alex earned $2000 (nominal capital gain) from selling stock he bought ten years ago. During the last ten years prices increased significantly, which means that Alex's real capital gain is only $1200. If the tax applied to capital gains is 25%, calculate Alex's real after tax capital gain if the tax is applied to his nominal capital gain. (1) Alex's real after tax capital gain is $___. (2) Calculate Alex's real after tax capital gain if the tax is applied to his real capital gain. Alex's real after tax capital gain is $___

(1) 1500 (2) 900

Q1 Use the figure to the right to answer the following questions. (1) During the period displayed in the figure, the number of completed expansions experienced by the U.S. economy was __. (2) The first expansion had a duration of 12 months and the second lasted __ months. (3) During the period displayed in the figure, the number of completed contractions experienced by the U.S. economy was __. (4) The first contraction continued for __ months and the second lasted 7 months.

(1) 2 (2) 44 (3) 2 (4) 23

Assume Okun's law is given by the following: U − Un = − 0.75 * (Y-Y^p) and that the Phillips curve is given by the following: π = π^e − 0.6 * (U-Un) + ρ If expectations are adaptive, inflation was 4% last year, there is a price shock such that p = 0 , and potential output is $11 trillion, then the short-run aggregate supply curve would be written as follows: π = 4 + 0.45 * (Y - 11) + 0 Use the equation above to calculate each of the following. (1) If output is $8 trillion, then inflation is ____ %. (Round your response to one decimal place.) (2) If output is $10 trillion, then inflation is ____ %. (Round your response to one decimal place.) (3) If output is $12 trillion, then inflation is ___ %. (Round your response to one decimal place.)

(1) 2.7 (2) 3.6 (3) 4.5

Assume the monetary policy curve is given by r = 1.5 + 0.5π. Calculate the real interest rate when the inflation rate is 3%, 5%, 6% (Enter as whole number, with one decimal place) (1) When the inflation rate is 3%, the interest rate is __% (2) When the inflation rate is 5%, the interest rate is ____%. (3) When the inflation rate is 6%, the interest rate is ____%.

(1) 3 (2) 4 (3) 4.5

Assuming the demand for real money balances is given by Md/P= Y/6 − 100i. (1) Find the equilibrium interest rate if the money supply is $1,700 billion and output equals $12,600 billion. The equilibrium interest rate is ____%. (2) Find the new equilibrium interest rate if the money supply is $1,700 billion and output increases to $13,800 billion. The equilibrium interest rate is ____%.

(1) 4 (2) 6

Suppose that the expectations-augmented Phillips curve is given by the following formula: π = π^e − 0.5(U − Un) If expected inflation is 3% and the natural rate of unemployment is 6%, calculate the inflation rate according to the Phillips curve for each unemployment rate listed. (1) If unemployment is 4%, the Phillips curve would predict an inflation rate of ____ percent. (2) If unemployment is 5%, the Phillips curve would predict an inflation rate of ____ percent. (3) If unemployment is 6%, the Phillips curve would predict an inflation rate of ____ percent.

(1) 4 (2) 3.5 (3) 3

Suppose that Dell Corporation has 15000 computers in its warehouses on December 31, 2012, ready to be shipped to merchants (each computer is valued at $550 ). By December 31, 2013, Dell Corporation has 25,000 computers ready to be shipped, each valued at $350 . (1) Dell's inventory on December 31, 2012 is $__. (2) Dell's inventory investment in 2013 is $__ . (3) What happens to inventory spending during the early stages of an economic recession? a. Inventory spending will be positive for some time, but firms will quickly cut production and try to sell their already manufactured goods before increasing production again. b. Inventory spending will be negative for some time, but firms will quickly cut production and try to sell their already manufactured goods before increasing production again. c. Inventory spending will be positive for some time, and firms will run production and try to increase their production levels as much as possible. d. None of the above are correct.

(1) 8,250,000 (2) 500,000 (3) a. Inventory spending will be positive for some time, but firms will quickly cut production and try to sell their already manufactured goods before increasing production again.

(1) 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 A. an​ increase, since the fall in prices was a positive supply shock that lowered production costs. B. non-existant, since lower oil prices only impact aggregate demand. C. a​ decrease, since the decline in oil prices pushed the​ short-run aggregate supply curve downward. D. a​ decrease, since according to the law of​ supply, lower prices discourage production. -- (2) If the oil price decline is viewed as a temporary shock, the anticipated impact on the long-run aggregate supply is (1)__ . a. unchanged b. negative c. positive

(1) A. an​ increase, since the fall in prices was a positive supply shock that lowered production costs. (2) a. unchanged

Assessing the consequences of climate change on the economy is a popular topic in the media. With the economy initially at point 1 in the figure to the right, suppose that a series of wildfires destroys crops in the Western states at the same time a hurricane destroys refineries on the Gulf coast. According to the graph, the short-run effects of these negative supply shocks are: A. lower output and deflation. B. lower output and less inflation. C. reduced output and unchanged inflation. D. lower output and more inflation. --- Since the wildfires and hurricane are undoubtedly (1)___ in nature, a. permanent b. continuous c. temporary --- it follows that the economy's potential output is (2)___ . a. lower b. higher c. unchanged --- Because the economy experienced a negative but temporary supply shock, it finds itself with a negative output gap, unleashing its (3)____ . a. self-correcting mechanism b. tendency to crash and burn --- In the figure to the right, the economy's new long-run equilibrium position will be point (4)____ . a. 1 b. 2

(1) D. lower output and more inflation. (2) c. temporary (3) c. unchanged (4) a. self-correcting mechanism (5) a. 1

The graph to the right represents the labor market of a given country. Assume the prevailing real wage is w1. (1) At the prevailing wage, unemployment is equal to (2) Which of the following is not a likely reason preventing the labor market from clearing? a. Wages may be rigid in a downward direction due to unions. b. There may be an incentive for firms to pay more than market-clearing wages. c. Minimum wage laws might prevent moving to w2. d. All of the above are likely reasons.

(1) L3 − L2 (2) d. All of the above are likely reasons.

Using the labelling key below, indicate whether each variable is procyclical, countercyclical, or acyclical. P - A procyclical variable. C - A countercyclical variable. A - An acyclical variable. (1) Real GDP (2) Consumer spending (3) Investment (4) Unemployment (5) Inflation (6) Stock Prices (7) Interest rates on Treasury bills (8) Credit spreads (the spread between interest rates on corporate bonds and government bonds)

(1) P (2) P (3) P (4) C (5) P (6) P (7) P (8) C

The following lists several attributes of labor markets, which set a very important price in the economy. A response box is attached to each attribute. Using the labeling key bellow, indicate whether each attribute contributes flexibility (F), stickiness (S) to wages, or has no predictable effect (X). F - Contributes to wage flexibility S - Contributes to wage stickiness X - Contributes to neither flexibility nor stickiness (1) Government mandates such as minimum wages and living wages. (2) Labor management agreements (formal and informal contracts) (3) The fact that most types of labor are transacted in competitive markets (4) The decline in the power and membership of labor unions (5) Workers today are more highly skilled than in the past

(1) S (2) S (3) F (4) F (5) X

Suppose the rate setting rule (monetary policy curve) is given by r = 1 + 0.5π , and the IS curve is Y = 13 − r. (Round your responses to one decimal places. ) (1) The aggregate demand curve is (2) When the inflation rate is 3%, aggregate output is ____. (3) When the inflation rate is 4%, aggregate output is ____. (4) When the inflation rate is 5%, aggregate output is ____.

(1) Y=12-0.5pi (2) 10.5 (3) 10 (4) 9.5

The long-run equilibrium graph is below, with equilibrium at point 3. Compared to the original long-run equilibrium, the economy has, in the new long-run equilibrium at point 3, output that is (1)___, a. higher b. unchanged c. lower and inflation that is (2)___ . a. higher b. unchanged c. lower

(1) b. unchanged (2) c. lower

Assume that you are interested in earning some return on idle balances you usually keep in your checking account and decide to buy some money market mutual fund shares by writing a check. Everything else the same, M1 will (1) and M2 will (2) . a. stay the same b. increase c. decrease

(1) c. decrease (2) a. stay the same

In the movie The Count of Monte Cristo (2002) a scene shows the main character paying for an estate in France using a wagon full of silver and gold coins. During the 1800s it was not common for people to pay for a house using this method, but gold and silver pieces were quite extensively used as a mean of payment. (1) What method of payment do you think was most probably used to buy a house, even in the 1800s? a. Cash, such as gold and silver b. A bank check c. A major credit card d. Bartering of goods and services in exchange for a house (2) Why do you think we do not use silver and gold coins as the preferred mean of payment anymore? a. The value of coins would fluctuate with the value of gold and silver. b. Gold and silver are not easily portable, especially for large transactions. c. The supply of gold and silver coins is physically limited by the total supply of gold and silver. d. All of the above are reasons why silver and gold coins are not currently preferred as a mean of payment.

(1) a. Cash, such as gold and silver (2) d. All of the above are reasons why silver and gold coins are not currently preferred as a mean of payment.

Suppose that in a given economy all goods and services produced are sold in perfectly competitive markets. In this case, the economy would be best represented using the (1) approach. This approach to an economy characterized by perfectly competitive markets is more appropriate since it assumes that prices exhibit a high degree of (2) . (1) a. Classical b. Keynesian (2) a. Stickiness b. Flexibility

(1) a. Classical (2) b. Flexibility

In its May 9, 2010, the WSJ printed, "The dollar weakened...and stocks..followed suit. The Dow industrials fell 139.89 points, or 1.3% " (1) Comment only on the effect of the weakened dollar on the IS curve. a. The IS curve shifts to the right. b. The slope of the IS curve increases. c. The IS curve shifts to the left. d. The IS curve does not shift. (2)Comment only on the effect of the decrease in stock prices on the IS curve. a. The slope of the IS curve increases. b. The IS curve shifts to the right. c. The IS curve does not shift. d. The IS curve shifts to the left.

(1) a. The IS curve shifts to the right. (2) d. The IS curve shifts to the left.

The NBER Business Cycle Dating Committee stated that the U.S. economy entered a recession in December 2007. The S&P/Case-Shiller Home Price Index (a widely used measure of home prices) shows an increase from January 2000 to April 2006. Since then, home prices decreased until May 2009. This correlation suggests that home prices might best be characterized as (1) variable. a. a procyclical b. a countercyclical c. an acyclical The turning points in home prices relative to the turning points in overall economic activity indicate that home prices are a (2) indicator. a. leading b. coincident c. lagging

(1) a. a procyclical (2) a. leading

Suppose the current administration decides to decrease government expenditures as a means to cut the existing government budget deficit. The aggregate economy is depicted in the graph below. (1) If the Federal Reserve decides to stabilize the inflation rate, it will (1)___ the real interest rate at every inflation rate. a. decrease b. increase c. not change --- (2) As a result of this policy change, in the long run, the inflation rate will move (2)___ its target level, a. closer to b. further from --- (3) output will be (3)___ potential output, a. above b. below c. at --- (4) and the real interest rate will be at a (4)____ level compared to the previous long-run equilibrium. a. permanently higher b. temporarily higher c. permanently lower d. temporarily lower

(1) a. decrease (2) a. closer to (3) c. at (4) c. permanently lower

The recent debate about healthcare reform in the United States included arguments about how the proposed reform might affect the efficiency of the U.S. economy. In general, two outcomes are possible with the reforms in the healthcare system. The involvement of the government in the healthcare industry may encourage cost reduction. On the other hand, healthcare provision is already complicated, and the government will be yet another party involved in the decisions of patients and providers. The government will add a new decision maker with its own set of priorities, goals, and constraints. It is likely that both positive and negative effects on efficiency will result from these factors. What is not known is which effect will dominate. (1) If the dominant effect from government involvement is cost reduction, then the proposed reform in health care would contribute to a (1)____ efficient economy. a. more b. less (2) If the dominant effect from government involvement is putting yet another party into the mix, then the proposed reform in health care would contribute to a (2)___ efficient economy. a. more b. less

(1) a. more (2) b. less

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." (1) How would you expect the monetary policy curve to be affected, if at all? a. The MP curve will shift upward because decreasing unemployment results in a loosening of monetary policy. b. The MP curve will shift downward because decreasing unemployment results in a loosening of monetary policy. c. The MP curve will shift upward because decreasing unemployment results in a tightening of monetary policy. d. The MP curve will shift downward because decreasing unemployment results in a tightening of monetary policy. (2) What would be the effect on the aggregate demand curve? a. The slope of the AD curve will increase. b. The AD curve will shift to the right. c. The AD curve will not change. d. The AD curve will shift to the left.

(1) b. The MP curve will shift downward because decreasing unemployment results in a loosening of monetary policy. (2) b. The AD curve will shift to the right.

According to the Reserve Bank of New Zealand Act of 1989 (section 8): "The primary function of the Bank is to formulate and implement monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices." (1) This constitutes a (1)___ mandate for the conduct of monetary policy. a. dual b. hierarchical (2) This mandate (2)___ consistent with a positive inflation rate target. a. is b. is not

(1) b. hierarchical (2) a. is

The Taylor rule suggests that the policy rate target should be increased when the output gap is (1)___ . a. negative b. positive c. zero This suggests the Taylor rule is perfectly consistent with (2) demand-pull inflation. a. avoiding b. encouraging If policy makers utilizing the Taylor rule overestimate potential output for a significant period of time, the chance of A. stagflation increases. B. cost-push inflation increases. C. demand-pull inflation increases. D. supply-side hyperinflation increases.

(1) b. positive (2) a. avoiding (3) C. demand-pull inflation increases.

Consider the information given in the table below to answer the following questions. Assume the business cycle is entirely determined by changes in real GDP: Given the behavior of inflation and stock prices relative to the movements of real GDP, the former is best classified as a ____ variable while the latter meets the criteria of a ____ variable. (1) During this six-month phase of the business cycle the economy reached a peak in the month of (1) and a trough in the month of (2) . (1) a. lagging; coincident b. coincident; leading c. lagging; leading d. leading; lagging During this six-month phase of the business cycle the economy reached a peak in the month of (2) and a trough in the month of (3) . (2) a. June b. March (3) a. April b. May

(1) c. lagging; leading (2) b. March (3) b. May

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. a. unit of account b. store of value c. medium of exchange -- 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 (1) . -- 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 (2) . -- 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 (3) .

(1) c. medium of exchange (2) a. unit of account (3) b. store of value

The Wall Street Journal , in a January 9, 2010 article, noted that "inflation-adjusted wages have slumped during 2009." An evaluation of the consistency of this statement with the aggregate demand and supply analysis of the recent U.S. economic crisis requires, obviously, that this analysis be undertaken. In the figure below, point 1 represents the approximate condition of the U.S. economy in late 2007 (December 2007 has been identified by the NBER as the peak of the most recent business cycle). --- Consider : While multiple factors can be cited for the origins of the recent U.S. economic crisis, the proximate cause was a collapse of residential construction (investment) and concomitant implosions in consumer confidence and household wealth (consumption). Put more succinctly, the crisis was precipitated by a (1)____ . a. temporary supply shock b. positive demand shock c. negative demand shock --- In its short-run equilibrium at point 2, the U.S. economy experienced a substantial negative (2)____ gap. a. inflation b. output --- Corresponding to this gap was a labor market into which excessive (3)____ emerged. a. tightness b. slack --- A labor market typified by excess supply will likely see (4) ___pressure on wages. a. upward b. downward -- It can thus be claimed that the Wall Street Journal observation that "inflation-adjusted wages have slumped during 2009" is (5)___ with aggregate demand and supply analysis of the recent U.S. economic crisis. a. consistent b. not consistent

(1) c. negative demand shock (2) b. output (3) b. slack (4) b. downward (5) a. consistent

For each of the following situations, explain how the labor force and the unemployment rate change. If If an individual quits his job and does not look for a job anymore, the labor force (1) and the unemployment rate (2). If an unemployed individual that was not looking for a job decides now to look for a job, the labor force (3) and the unemployment rate (4) . Answer incr/decr for all.

(1) decreases (2) increases (3) increases (4) increases

Suppose that a country is rapidly making the transition from an agricultural based economy to an economy in which most of GDP comes from the production of manufactures. Structural unemployment will likely (1)__ . (incr/decr) The government could help with this problem by (2) a. assessing penalties for those who do not update their skills. b. increasing taxes to make up for lost wages. c. creating a training program that encourages or facilitates the acquisition of new skills. d. doing all of the above.

(1) increase (2) c. creating a training program that encourages or facilitates the acquisition of new skills.

Assume that autonomous consumption is $1,760 billion and disposable income is $12,000 billion. Using the consumption function, calculate consumption expenditure if an increase of $1,000 in disposable income leads to an increase of $670 in consumption expenditure. Consumption expenditure is $ __ billion. (Enter your response as a whole number.)

9800

Let the economy initially be in long-run equilibrium at point 1 in the figure to the right. Now suppose that in an effort to reduce the current federal government budget deficit, the White House decides to sharply decrease government spending. According to the graph, the short-run effect of the White House policy is: A. lower​ output, lower​ inflation, and unemployment above the natural rate. B.lower​ output, higher​ inflation, and unemployment above the natural rate. C.higher​ output, higher​ inflation, and unemployment below the natural rate. D.higher​ output, lower​ inflation, and unemployment at the natural rate.

A. lower​ output, lower​ inflation, and unemployment above the natural rate.

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 A. positive, increasing AD at any given inflation rate. B. negative, decreasing AD at any given inflation rate. C. positive, causing movement up along the AD curve. D. negligible, since business decisions to spend are not

A. positive, increasing AD at any given inflation rate.

"The depreciation of the dollar from December 2008 to December 2009 had a positive effect on aggregate demand in the U.S." Is this statement true, false, or uncertain? Explain your answer. A. False, since a dollar depreciation harms U.S. competitiveness in world markets. B. True, since a cheaper dollar increases net exports, a component of aggregate demand. C. False, since the dollar's value in foreign exchange markets has no bearing upon aggregate demand. D. Uncertain, since many other variables were changing at the same time.

B. True, since a cheaper dollar increases net exports, a component of aggregate demand.

Aggregate demand-aggregate supply analysis suggests that if the Federal Reserve wants to increase its inflation rate target in the long run: A. it should increase the real interest rate. B. it should cause the monetary policy curve to shift downward. C. it can increase the target in the long run only by tolerating a permanent output gap. D. the Taylor rule is the only information needed to determine the appropriate federal funds rate when doing so.

B. it should cause the monetary policy curve to shift downward.

Would it be a good idea to have monetary policy makers set the federal funds rate solely using the Taylor rule? A. Yes, it should be the Federal Reserve's only consideration in setting the federal funds rate because this would increase the Fed's efficiency. B. No, it should not be the Federal Reserve's only consideration in setting the federal funds rate because the Taylor rule coefficients are treated as constants and and this does not fit in with observations of the real world economy. C. No, it should not be the Federal Reserve's only consideration in setting the federal funds rate because the Fed looks at information besides the current inflation rate and the output gap in making policy. D. Yes, it should be the Federal Reserve's only consideration in setting the federal funds rate because this would free the Fed to concentrate on its higher priority goal of price stability.

C. No, it should not be the Federal Reserve's only consideration in setting the federal funds rate because the Fed looks at information besides the current inflation rate and the output gap in making policy.

The following table shows unemployment and inflation rates for Canada, during the 1972?1982 period: Considering the graph, how would you describe Canada's inflationary policy during the 1972 1982 period? A. The period from 1972 to 1976 can be described as cost-push inflation, while from 1977 to 1982, inflation can be described as demand-pull inflation. B. The entire period from 1972 to 1982 can be described as cost-push inflation. C. The entire period from 1972 to 1982 can be described as demand-pull inflation. D. The period from 1972 to 1976 can be described as demand-pull inflation, while from 1977 to 1982, inflation can be described as cost-push inflation.

D. The period from 1972 to 1976 can be described as demand-pull inflation, while from 1977 to 1982, inflation can be described as cost-push inflation.

The following graphs describe two different short-run aggregate supply curves. In which situation is the case for nonactivist policy stronger? Explain why. A. graph (b) because in that graph prices and wages are less flexible, necessitating bigger changes in policy for the same change in output. B. graph (b) because in that graph prices and wages are more flexible, necessitating bigger changes in policy for the same change in output. C. graph (a) because in that graph prices and wages are less flexible, necessitating bigger changes in policy for the same change in output. D. graph (a) because in that graph prices and wages are more flexible, necessitating bigger changes in policy for the same change in output.

D. graph (a) because in that graph prices and wages are more flexible, necessitating bigger changes in policy for the same change in output.

Suppose that financial frictions f​, denoted by ​, are determined by two​ factors: financial panic and asset purchases. Of the four figures shown​ above, the one that shows how a sufficiently large financial panic can pull the economy below the zero lower bound into a destabilizing deflationary spiral is Figure A Figure B Figure C Figure D

Figure B

Considering the graphic representation of the labor market, analyze the effect of technological advances that have increased workers' productivity in the last few decades (e.g., the Internet). What would be the effect on the real wage and employment if the supply curve does not shift? a. Both the real wage and the equilibrium quantity of labor have likely risen. b. The real wage has likely risen, and the equilibrium quantity of labor has likely fallen. c. The real wage has likely fallen, and the equilibrium quantity of labor has likely risen. d. Both the real wage and the equilibrium quantity of labor have likely fallen.

a. Both the real wage and the equilibrium quantity of labor have likely risen.

It is not unusual to find a business that displays a sign saying "no personal checks, please." Based on this observation, a checking account must be (1) than currency. a. of the same degree of liquidity b. more liquid c. less liquid

c. less liquid

Would a decrease in net exports affect the monetary policy curve? a. No, the monetary policy curve does not shift. b. Yes, the monetary policy curve shifts to the left. c. Yes, the monetary policy curve shifts to the right. d. Yes, the slope of the monetary policy curve decreases.

a. No, the monetary policy curve does not shift.

Currently many banks offer online services that save customers a trip to the bank. In addition, ATMs and debit cards allow depositors 24-hour access to their balances. How have online banking and ATMs changed shoe-leather costs? a. Online banking and ATMs have decreased shoe-leather costs. b. Online banking and ATMS have not changed shoe-leather costs. c. Online banking and ATMs have increased shoe-leather costs. d. There is not enough information to tell.

a. Online banking and ATMs have decreased shoe-leather costs.

What would be the effect of a decrease in U.S. net exports on the aggregate demand curve? a. The aggregate demand curve shifts to the left. b. The slope of the aggregate demand curve decreases. c. The aggregate demand curve shifts to the right. d. The aggregate demand curve does not shift.

a. The aggregate demand curve shifts to the left.

Assume that the central banks changes its nominal policy rate setting rule (its monetary policy curve) of r = 1 + 0.75π to: r = 2.25 + 0.75π. Does the new rate setting rule represent an autonomous tightening or loosening of monetary policy? a. The new monetary policy curve represents a tightening of monetary policy. b. The new monetary policy curve represents a loosening of monetary policy. c. Monetary policy does not change. d. It is not possible to determine the answer without additional information.

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

Consider the effects of the Internet on frictional unemployment. How do you think websites that allow employees to search for job opportunities more efficiently have affected the job search? a. They have likely lowered transaction costs of the job search and decreased frictional unemployment. b. They have likely raised transaction costs of the job search and decreased frictional unemployment. c. They have likely raised transaction costs of the job search and increased frictional unemployment. d. They have likely lowered transaction costs of the job search and increased frictional unemployment.

a. They have likely lowered transaction costs of the job search and decreased frictional unemployment.

During 2007 the U.S. economy was hit by a price shock, when the price of oil increased from around $60 per barrel to around $130 by June 2008. Whereas inflation increased during fall 2007 (from around 2.5% to 4.0%), unemployment did not change significantly (it even slightly increased during 2007). The modern Phillips curve concept would explain this phenomenon as a. an upward shift in the Phillips curve from a negative price shock (an increase in oil prices). b. a downward shift in the Phillips curve from a negative price shock (an increase in oil prices). c. an upward shift in the Phillips curve from a positive price shock (an increase in oil prices). d. a downward shift in the Phillips curve from a positive price shock (an increase in oil prices).

a. an upward shift in the Phillips curve from a negative price shock (an increase in oil prices).

Suppose that the White House decides to sharply decrease military spending without increasing government spending in other areas. This measure would, all else constant, cause aggregate demand to (1)____ . a. decrease b. increase c. not change

a. decrease

Suppose one could measure the welfare gains derived from eliminating output (and unemployment) fluctuations in the economy. If these gains are found to be relatively small for the average individual, this would provide support for the (1)___ case in the policy debate. a. non-activist b. activist

a. non-activist

What condition is required for equilibrium in the goods market? a.Planned expenditure on goods and services must equal the actual amount of goods and services produced. b. Planned expenditure on goods and services must equal net exports. c. Consumption expenditure must equal planned investment spending. d. Planned expenditure on goods and services must equal the sum of net exports and planned investment spending.

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

Why does the IS curve slope downward? a. As the real interest rate falls, consumption expenditure, planned investment spending, and net exports rise, 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. b. 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. c. As the real interest rate rises, consumption expenditure, planned investment spending, and net exports rise, which in turn increases planned expenditure. Aggregate output must be higher for it to equal planned expenditure and satisfy goods market equilibrium. Hence, the IS curve is downward-sloping. d. None of the above are correct.

b. 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.

What is hyperinflation? a. Any extended period of positive inflation b. Periods of extremely rapid price increases of more than 50 percent per month c. Periods of extremely rapid price decreases d. Any extended period of high inflation

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

What is the significance of the Fisher effect? a. The Fisher effect explains the relationship between expected inflation and output. b. The Fisher effect explains the relationship between expected inflation rates and nominal interest rates. c. The Fisher effect explains the relationship between the money supply and the price level. d. The Fisher effect explains the relationship between the money supply and expected inflation.

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

In fall 2009, the Obama administration decided to impose tariffs on car tires manufactured in China. As a result, imports of car tires decreased. a. The IS curve shifts to the left. b. The IS curve shifts to the right. c. The IS curve does not shift. d. The slope of the IS curve increases.

b. The IS curve shifts to the right.

Consider the money market. Suppose that the U.S. economy finally recovers from the 2007 crisis and aggregate output increases. Describe the effect on the interest rate if the Federal Reserve decides to increase the money supply at the same time that aggregate output increases. a. The interest rate will decrease because the money demand curve will shift to the left. b. The interest rate will probably increase because the money supply curve will probably have a relatively small shift. c. The interest rate will increase because the money demand curve will shift to the right. d. The interest rate will probably decrease because the money supply curve will probably have a relatively large shift.

b. The interest rate will probably increase because the money supply curve will probably have a relatively small shift.

What is the Fisher effect? a. When the money supply rises, expected inflation will rise. b. When expected inflation rises, nominal interest rates will rise. c. When real interest rates rise, expected inflation will rise. d. When expected inflation rises, real interest rates will rise. e. When nominal interest rates rise, expected inflation will rise.

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

Internet sites that allow people to post their resumes on line reduce the cost of job search and create opportunities for individuals looking for jobs to be matched with potential employers more quickly. Assume that these uses of the Internet reduce the average amount of time people are unemployed. Assuming the above information is true, we can infer that the natural rate of unemployment has (1)____ . a. not affected b. decreased c. increased

b. decreased

The graph below shows combinations of inflation and unemployment rates for Canada during the period between 1970 and 2009. The graph _ evidence in favor of the Phillips curve for Canada for this period. a. provides b. does not provide

b. does not provide

Suppose the economy experiences an increase in aggregate output. How would this event affect the demand curve for real money balances? a. The MD curve does not shift. b. The slope of the MD curve increases. c. The MD curve shifts to the right. d. The MD curve shifts to the right.

c. The MD curve shifts to the right.

Anthony currently earns $25 an hour and works 40 hours a week. When his boss offers to pay him $29 per hour, Anthony decides to accept the offer, but decides to keep working 40 hours. What is the effect of Anthony's decision on the labor supply curve? a. The income effect is larger than the substitution effect. b. The substitution effect is larger than the income effect. c. The substitution and income effects offset each other completely. d. There is not enough information provided to answer the question.

c. The substitution and income effects offset each other completely.

Consider the following: "When Keynes stated that 'in the long run, we are all dead' he meant that we should only focus on the short run and not pay attention to any long-run consequence of our actions, since we will be dead by then and we therefore should not care." How should this statement be interpreted? a. This statement distorts Keynes' view of the long run because he believed that the long run mattered more than the short run. b. This statement accurately portrays Keynes' view that the long run is irrelevant. c. This statement distorts Keynes' view of the long run as his exaggeration was only meant to highlight the "slowness" of the economy's self-correcting mechanism. d. This statement accurately portrays Keynes' view that the long run comes quite quickly and the short run should be enjoyed while it lasts.

c. This statement distorts Keynes' view of the long run as his exaggeration was only meant to highlight the "slowness" of the economy's self-correcting mechanism.

Let the economy initially be in long-run equilibrium at point 1 in the figure to the right. Now suppose that in an effort to reduce the current federal government budget deficit, the White House decides to sharply decrease government spending. This suggests that the economy's self-correcting mechanism will "kick-in" to propel it toward (2)___ a. a positive output gap b. zero inflation c. full employment

c. full employment

Let the economy initially be in long-run equilibrium at point 1 in the figure to the right. Now suppose that in an effort to reduce the current federal government budget deficit, the White House decides to sharply decrease government spending. At the short-run equilibrium shown in your graph, the economy has an output gap that is (1)__ a. positive b. zero c. negative

c. negative

Discuss the following statement: "Real GDP has decreased for two quarters in a row; we definitely are living through a contraction." a. The statement is correct because changes in real GDP precisely mirror changes in other variables that reflect overall economic activity. b. The statement is correct since two consecutive quarters is more than enough time to determine an economy's trend. c. The statement is correct since this measurement standard has been mandated by the U.S. Congress. d. The statement is incorrect since the official arbiter of business cycle dates (the NBER) looks at multiple indicators of economic activity before declaring the onset of a contraction.

d. The statement is incorrect since the official arbiter of business cycle dates (the NBER) looks at multiple indicators of economic activity before declaring the onset of a contraction.

Although Okun's law holds for different countries, more flexible labor markets result in a higher response of unemployment to changes in GDP. During the recent crisis real GDP decreased in the United States, Germany, and France. Considering that the U.S. labor market is more flexible than European labor markets it seems most likely that the change in unemployment would be largest in (1)____ .

the United States