Chapter 33 Econ
Which of the following statements about economic fluctuations is true?
A variety of spending, income, and output measures can be used to measure economic fluctuations because most macroeconomic quantities tend to fluctuate together.
Which of the following would not cause a shift in the long-run aggregate supply curve?
An increase in price expectations
An increase in price expectations shifts the long-run aggregate supply curve to the left.
False
Economists refer to fluctuations in output as the "business cycle" because movements in output are regular and predictable.
False
If a country's central bank increases the money supply, the aggregate demand curve shifts to the left.
False
If the economy is in a recession, the economy will adjust to long-run equilibrium on its own as wages and price expectations rise.
False
In the long run, an increase in government spending tends to increase output and prices.
False
Over the last 50 years, UK real GDP has grown at about 5 percent per year.
False
The misperceptions theory explains why the long-run aggregate supply curve is downward sloping.
False
Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. If policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?
Output and the price level are unchanged from their initial values.
respond to the adverse supply shock by increasing aggregate demand, which further raises prices.
Policy makers are said to "accommodate" an adverse supply shock if they
Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?
Prices rise; output falls.
Suppose the economy is initially in long-run equilibrium. Then suppose there is a increase in military spending due to rising international tensions. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run?
Prices rise; output is unchanged from its initial value.
Which of the following is not a reason why the aggregate demand curve slopes downward?
The classical dichotomy/monetary neutrality effects.
A rise in price expectations that causes wages to rise causes the short-run aggregate supply curve to shift left.
True
A rise in the price of oil tends to cause stagflation.
True
If the classical dichotomy and monetary neutrality hold in the long run, then the long-run aggregate supply curve should be vertical.
True
In the short run, if the government cuts back spending to balance its budget, it will probably cause a recession.
True
Investment is a particularly volatile component of spending across the business cycle.
True
One reason aggregate demand slopes downward is the wealth effect: a decrease in the price level increases the value of money holdings and consumer spending rises.
True
The short-run effect of an increase in aggregate demand is an increase in output and an increase in the price level.
True
Which of the following events shifts the short-run aggregate supply curve to the right?
a drop in oil prices
If policy makers choose to try to move the economy out of a recession, they should use their policy tools to decrease aggregate demand.
false
Which of the following statements is true regarding the long-run aggregate supply curve? The long-run aggregate supply curve
is vertical because an equal change in all prices and wages leaves output unaffected.
According to the wealth effect, aggregate demand slopes downward (negatively) because
lower prices increase the value of money holdings and consumer spending increases.
According to the interest rate effect, aggregate demand slopes downward (negatively) because
lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases.
Suppose the price level falls but suppliers only notice that the price of their particular product has fallen. Thinking there has been a fall in the relative price of their product, they cut back on production. This is a demonstration of the
misperceptions theory of the short-run aggregate supply curve.
Suppose the economy is initially in long-run equilibrium. Then suppose there is a increase in military spending due to rising international tensions. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?
price and outputs rise
According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause
prices to rise and output to remain unchanged.
Stagflation occurs when the economy experiences
rising prices and falling outputs
In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to
shift the aggregate demand curve to the right.
Suppose the price level falls but because of fixed nominal wage contracts, the real wage rises and firms cut back on production. This is a demonstration of the
sticky-wage theory of the short-run aggregate supply curve.
The natural rate of output is the amount of real GDP produced
when the economy is at the natural rate of unemployment.
