eco29 third exam

A shift in tastes toward foreign goods​ ________ net exports in the U.S. and causes the quantity of aggregate output demanded to​ ________ in the​ U.S., everything else held constant. A. increases; rise B. decreases; fall C. increases; fall D. decreases; rise

B. decreases; fall

The rational expectations hypothesis implies that when macroeconomic policy​ changes, A. people will be slow to catch on to the change. B. the economy will become highly unstable. C. people will make systematic mistakes. D. the way expectations are formed will change.

D. the way expectations are formed will change.

suppose that there is a negative aggregate supply shock and the central bank commits to an inflation rate target a. credible policy produces better outcomes on both inflation and output in the short run b. if the commitment is credible, the public's expected inflation will remain unchanged c. policies that are not credible produce worse economic contractions d. all of the above

d. all of the above

suppose that there is a negative aggregate supply shock and the central bank commits to an inflation rate target. a. credible policy produces better outcomes on both inflation and output in the short run b. if the commitment is credible, the public's expected inflation will remain unchanged c. policies that are not credible produce worse economic contraction d. all of the above

d. all of the above

a negative demand shock will _________ inflation and will ________ aggregate output in the short-run

decrease, decrease

A shift in tastes toward American goods ________ net exports in the U.S. and causes the quantity of aggregate output demanded to shift ________ in the U.S., everything else held constant.

increases; right

Which of the following represents a movement along a given AD​ curve? A. Inflation​ decreases, the real interest rate​ decreases, and aggregate output increases. B. Inflation​ increases, the real interest rate​ increases, and aggregate output increases. C. Inflation​ increases, the real interest rate​ decreases, and aggregate output increases. D. Inflation​ decreases, the real interest rate​ decreases, and aggregate output decreases.

A. Inflation​ decreases, the real interest rate​ decreases, and aggregate output increases.

What relationship does the aggregate supply curve​ describe? A. It describes the relationship between the total quantity of output supplied and the inflation rate. B. It describes the relationship between the total quantity of money supplied and the inflation rate. C. It describes the relationship between the total quantity of output supplied and the unemployment rate. D. It describes the relationship between the total quantity of money supplied and the interest rate.

A. It describes the relationship between the total quantity of output supplied and the inflation rate.

Why do increases in the real interest rate lead to decreases in net​ exports, and vice​ versa? A. Rises in the real interest rate lead to a higher value of the​ dollar, which in turn leads to a decline in net exports. B. Interest rate rises lead to pessimistic expectations about the value of the​ dollar, which causes net exports to fall. C. rises in the real interest rate lead to a lower value of the​ dollar, which in turn leads to a decline in net exports. D. This situation is usually not the​ case; interest rates and net exports are positively related so net exports will rise.

A. Rises in the real interest rate lead to a higher value of the​ dollar, which in turn leads to a decline in net exports.

Describe how​ (if at​ all) the IS​ curve, MP​ curve, and AD curve are affected in the following ​situation: Firms become more optimistic about the future of the economy. A. The IS and AD curves shift to the right, and the MP curve does not shift. B. All the curves shift to the right, and there is a movement along the AD curve. C. The IS curve shifts to the right, the MP curve does not shift and there is a movement along it, and the AD curve shifts to the left. D. The IS curve is not affected, the MP curve shifts to the right comma and the slope of the AD curve becomes flatter. E. The MP and AD curves shift to the left, and there is a movement along the IS curve to lower output.

A. The IS and AD curves shift to the right and the MP curve does not shift.

Suppose that taxes are decreased and the central bank conducts an autonomous easing of monetary policy. What will be the​ result? A. The IS curve shifts​ right, the MP curve shifts​ down, and the AD curve shifts right. B. The IS curve shifts​ left, the MP curve shifts​ up, and the AD curve shifts left . C. The IS curve shifts​ left, the MP curve shifts​ down, and the AD curve shifts right. D.The IS curve shifts​ right, the MP curve shifts​ up, and there is an ambiguous effect on the AD curve.

A. The IS curve shifts​ right, the MP curve shifts​ down, and the AD curve shifts right.

How can use of macroeconometric models that do not assume expectations are rational be problematic for policy​ analysis? A. They are unreliable for evaluating policy options. B. The statement applies to all macroeconometric models. C. They are only reliable when they are used to set the policy rule. D. They are unreliable only when they use the wrong policy rule.

A. They are unreliable for evaluating policy options.

How does an autonomous tightening or easing of monetary policy by the Fed affect the MP​ curve? A. When the Fed decides to raise the real interest rate at any given inflation​ rate, the MP curve shifts upward. Monetary policy​ easing, a decision to lower the real interest rate at any given inflation​ rate, shifts the MP curve downward. B. When the Fed decides to raise the real interest rate at any given inflation​ rate, the MP curve shifts downward. Monetary policy​ easing, a decision to lower the real interest rate at any given inflation​ rate, shifts the MP curve upward. C. When the Fed decides to lower the real interest rate at any given inflation​ rate, the MP curve shifts upward. Monetary policy​ easing, a decision to raise the real interest rate at any given inflation​ rate, shifts the MP curve downward. D. None of the above are correct.

A. When the Fed decides to raise the real interest rate at any given inflation​ rate, the MP curve shifts upward. Monetary policy​ easing, a decision to lower the real interest rate at any given inflation​ rate, shifts the MP curve downward.

Which of the following causes the MP curve to shift​ down? A. an autonomous easing of monetary policy B. an increase in inflation C. a decrease in inflation D. an autonomous tightening of monetary policy

A. an autonomous easing of monetary policy

The Lucas critique is an attack on the usefulness of A. conventional econometric models as indicators of the potential impacts on the economy of particular policies. B. conventional econometric models as forecasting tools. C. rational expectations models of macroeconomic activity. D. the relationship between the quantity theory of money and aggregate demand

A. conventional econometric models as indicators of the potential impacts on the economy of particular policies.

If autonomous consumption declines​, and there is a sharp increase in energy​ prices, you would expect A. inflation to have an ambiguous effect, but output to decrease. B. inflation and output to decrease in the short run. C. an ambiguous effect on both inflation and output in the short run. D. inflation to increase, and output to have an ambiguous effect.

A. inflation to have an ambiguous effect, but output to decrease.

If taxes increase and autonomous consumption expenditure increase​, the IS curve A. may shift right, left, or not shift at all. B. will shift right. C. will not shift. D. will shift left.

A. may shift right, left, or not shift at all.

Everything else held​ constant, changes in the interest rate affect planned investment spending and hence the equilibrium level of​ output, but this change in investment spending​ ________. A. merely causes a movement along the IS curve and not a shift B. is crowded out by higher taxes C. is crowded out by higher government spending D. is crowded out by lower consumer expenditures

A. merely causes a movement along the IS curve and not a shift

A decrease in the availability of raw materials that increases the price level is called a​ ________ shock A. negative supply B. negative demand C. positive demand D. positive supply

A. negative supply

Arguments for discretionary policies include A. policy rules can be too rigid because they cannot foresee every contingency. B. discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run. C. the time-inconsistency problem can lead to poor economic outcomes. D. all of the above.

A. policy rules can be too rigid because they cannot foresee every contingency.

If the interest rate​ falls, other things being​ equal, investment spending will​ ________. A. rise B. either​ rise, fall, or remain unchanged C. not be affected D. fall

A. rise

The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as A. the Lucas critique. B. public choice theory. C. the monetarist revolution. D. new Keynesian theory.

A. the Lucas critique.

Everything else held​ constant, if aggregate output is to the right of the IS​ curve, then there is an excess​ ________ of goods which will cause aggregate output to​ ________. A. ​supply; fall B. ​supply; rise C. demand; rise D. demand; fall

A. ​supply; fall

What is the significance of the Lucas critique of econometric policy​ evaluation? A. It confirms an econometric model based on past data is highly accurate for evaluating policy options. B. It points out an econometric model based on past data may prove to be unreliable for evaluating policy options. C. It proves equations used in econometric models incorporate expectations correctly and may furnish valuable predictions with which to evaluate the effects of proposed policies. D. It states the​ public's expectations about a policy have no impact on the success of the policy.

B. It points out an econometric model based on past data may prove to be unreliable for evaluating policy options.

​________ flexible wages and prices imply that the short-run aggregate supply curve is​ ________. A. ​Less; steeper B. More; steeper C. More; flatter D. less; vertical

B. More; steeper

How do changes in planned expenditures affect the aggregate demand​ curve? A. The aggregate demand curve shifts to the left if autonomous​ consumption, autonomous​ investment, autonomous net​ exports, or government purchases​ increase, or if taxes decrease. B. The aggregate demand curve shifts to the right if autonomous​ consumption, autonomous​ investment, autonomous net​ exports, or government purchases​ increase, or if taxes decrease. C. The aggregate demand curve shifts to the right if autonomous​ consumption, autonomous​ investment, autonomous net​ exports, government​ purchases, or taxes decrease. D. The aggregate demand curve shifts to the right if autonomous​ consumption, autonomous​ investment, autonomous net​ exports, government​ purchases, or taxes increase.

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

How is an autonomous tightening or easing of monetary policy different than a change in the real interest rate due to a change in the current inflation​ rate? A. Tightening or easing of monetary policy is reflected as a movement along the monetary curve rather than an upward or downward shift of the curve. B. With a tightening or easing of monetary​ policy, some projected changes in monetary policy independent of the current inflation rate may occur. C. Tightening or easing of monetary policy may cause a change in the responsiveness of the real interest rate to the inflation​ rate, not in its autonomous component. D. Autonomous tightening or easing of monetary policy is based on a change in the nominal interest​ rate, not the real interest rate.

B. With a tightening or easing of monetary​ policy, some projected changes in monetary policy independent of the current inflation rate may occur.

In the long​ run, a permanent negative supply shock leads to A. no change in output and a rise in inflation. B. a decline in output and a rise in inflation. C. an increase in output and a decline in inflation. D. a decline in both output and in inflation.

B. a decline in output and a rise in inflation.

Everything else held​ constant, when output is​ ________ the natural rate​ level, wages will begin to​ ________, decreasing short-run aggregate supply. A. below; fall B. above; rise C. above; fall D. below; rise

B. above; rise

A negative supply shock that raises production costs will cause the A. aggregate demand curve to shift right. B. aggregate supply curve to shift up/left. C. aggregate supply curve to shift down. D. aggregate demand curve to shift left.

B. aggregate supply curve to shift up

Suppose the economy is producing at the natural rate of output. An increase in consumer and business confidence will cause​ ________ in real GDP in the short run and​ ________ in inflation in the short​ run, everything else held constant. A. no​ change; a decrease B. an​ increase; an increase C. a​ decrease; a decrease D. no​ change; an increase

B. an​ increase; an increase

Everything else held​ constant, if aggregate output is to the left of the IS​ curve, then there is an excess​ ________ of goods which will cause aggregate output to​ ________. A. demand; fall B. demand; rise C. supply; rise D. supply; fall

B. demand; rise

Arguments for adopting a policy rule include A. discretion enables policy makers to change policy settings when an economy undergoes structural changes. B. discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run. C. discretion avoids the straightjacket that would lock in the wrong policy if the model that was used to derive the policy rule proved to be incorrect. D. all of the above.

B. discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run.

the Taylor principle A.implies the IS curve is downward sloping. B. holds when lambda greater than 0. C. leads to higher real interest rates when inflation decreases. D. leads a raise of the nominal interest rate equal to the rise in inflation.

B. holds when lambda greater than 0.

A movement to the right along a given MP curve means A. an autonomous policy tightening has occurred. B. inflation is increasing. C. expected future inflation has increased. D. the federal funds rate is held constant.

B. inflation is increasing.

Aggregate output is​ ________ related to autonomous consumer​ expenditure, and is​ ________ related to planned investment spending. A. negatively; negatively B. positively; positively C. negatively; positively D. positively; negatively

B. positively; positively

The MP curve gives the relationship between the A. nominal interest rate and the inflation rate. B. real interest rate and the inflation rate. C. real interest rate and aggregate output. D. nominal interest rate and aggregate output.

B. real interest rate and the inflation rate.

An increase in government spending causes the equilibrium level of aggregate output to​ ________ at any given interest rate and shifts the​ ________ curve to the​ ________, everything else held constant. A. fall; IS; left B. rise; IS; right C. fall; LM; left D. rise; LM; right

B. rise; IS; right

An upward shift in aggregate supply ultimately causes A. the inflation rate to fall and output to rise. B. the inflation rate to remain unchanged and output to remain unchanged. C. the inflation rate to rise and output to rise. D. the inflation rate to rise and output to remain unchanged.

B. the inflation rate to remain unchanged and output to remain unchanged.

The aggregate demand curve slopes downward because a rise in inflation​ leads: A. consumers and businesses to increase autonomous expenditures. B. the monetary policy authorities to raise real interest rates. C. the monetary policy authorities to impose credit controls. D. the fiscal policy authorities to impose contractionary fiscal measures.

B. the monetary policy authorities to raise real interest rates.

When inflation and inflation expectations adjust to move output to​ potential, this is an example of A. autonomous monetary policy. B. the​ self-correcting mechanism. C. the real business cycle theory. D. stabilization policy.

B. the​ self-correcting mechanism.

The​ long-run aggregate supply curve​ is: A. upward-sloping because the output an economy can produce increases as does the inflation rate in the long run. B. vertical because changes in​ labor, capital, and technology​ (not the inflation​ rate) change the output an economy can produce over the long run. C. vertical because the output an economy can produce increases as does the inflation rate in the long run. D. upward-sloping because changes in​ labor, capital, and technology​ (not the inflation​ rate) change the output an economy can produce over the long run.

B. vertical because changes in​ labor, capital, and technology​ (not the inflation​ rate) change the output an economy can produce over the long run.

When r decreases​, this causes a movement along​ the________ curve, and shifts the ​_________ curve. A. MP; AD B. ​IS; AD C. MP; IS D. ​AD; MP

B. ​IS; AD

What causes the IS curve to​ shift? A. A shift in the IS curve occurs when the real interest rate changes at each given level of equilibrium output. B. A shift in the IS curve occurs when equilibrium output changes at each given real interest rate. The factors of shifting are autonomous​ consumption, autonomous​ investment, and the real interest rate. C. A shift in the IS curve occurs when equilibrium output changes at each given real interest rate. The factors of shifting are autonomous​ consumption, autonomous​ investment, autonomous net​ exports, taxes, and government purchases. D. None of the above are correct.

C. A shift in the IS curve occurs when equilibrium output changes at each given real interest rate. The factors of shifting are autonomous​ consumption, autonomous​ investment, autonomous net​ exports, taxes, and government purchases.

Why is it necessary for the MP curve to have an upward​ slope? A. An​ upward-sloping MP curve encourages consumer and business spending. B. If the MP curve has an upward​ slope, then more liquidity will occur in the banking system. C. An​ upward-sloping MP curve keeps inflation from spinning out of control. D. If the MP curve has an upward​ slope, it indicates an increase in output and a decrease in unemployment.

C. An​ upward-sloping MP curve keeps inflation from spinning out of control.

why does the IS curve slope downwards? 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​ 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. C. 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. D. None of the above are correct.

C. 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 marginal propensity to consume​ (mpc) can be defined as the fraction of A. income that is spent. B. income that is saved. C.a change in income that is spent. D. a change in income that is saved.

C. a change in income that is spent.

Suppose the economy is producing at the natural rate of output and the government passes legislation that severely restricts a​ company's ability to reduce production costs via outsourcing. Everything else held​ constant, this policy action will cause​ ________ in the unemployment rate in the short run and​ ________ in inflation in the short run. A. a​ decrease; an increase B. no​ change; no change C. an​ increase; an increase D. a​ decrease; a decrease

C. an​ increase; an increase

When the natural rate of unemployment increases​, A. inflation is lower, and output is higher in the long run. B. inflation and output are higher in the long run. C. inflation is higher, and output is lower in the long run. D. inflation and output are lower in the long run.

C. inflation is higher, and output is lower in the long run.

An increase in the interest rate will cause A. investment spending to fall and net exports to rise. B. investment spending to rise and net exports to fall. ​` C. investment spending to fall and net exports to fall. D. investment spending to rise and net exports to rise.

C. investment spending to fall and net exports to fall.

Everything else held​ constant, a decrease in autonomous consumer spending will cause the IS curve to shift to the​ ________ and aggregate demand will​ ________. A. right; decrease B. right; increase C. left; decrease D. left; increase

C. left; decrease

An autonomous appreciation of the U.S. dollar makes American goods​ ________ expensive relative to foreign goods which​ ________ net exports in the U.S. A. more; increases B. less; increases C. more; decreases D. less; decreases

C. more; decreases

An increase in autonomous consumer expenditure causes the equilibrium level of aggregate output to​ ________ at any given interest rate and shifts the​ ________ curve to the​ ________, everything else held constant. A. fall; LM; left B. fall; IS; left C. rise; IS; right D. rise; LM; right

C. rise; IS; right

If workers demand and receive higher real wages​ (a successful wage​ push), the cost of production​ ________ and the short-run aggregate supply curve shifts​ ________. A. rises; rightward B. falls; rightward C. rises; leftward D. falls; leftward

C. rises; leftward

If autonomous consumption increases​, then the AD curve A. shifts to the left. B. does not shift or move along the curve. C. shifts to the right. D. does not​ change, but does move along the curve.

C. shifts to the right.

Everything else held​ constant, if workers expect an increase in the price​ level, ________ aggregate supply​ ________. A. short-​run; increases B. long-​run; decreases C. short-​run; decreases D. long-​run; increases

C. short-​run; decreases

The IS curve shows the combinations of interest rates and aggregate output for which A. the financial market is in equilibrium. B. the labor market is in equilibrium. C. the goods market is in equilibrium. D. the money market is in equilibrium.

C. the goods market is in equilibrium.

According to​ Lucas, the​ public's expectations about a policy A. change the political business cycle. B. change the monetary rule. C. will influence the response to that policy. D. will not influence the response to that policy.

C. will influence the response to that policy.

Any factor that shifts the​ __________ curve shifts the​ __________ curve in the​ __________ direction. A. MP; IS; opposite B. ​MP; IS; same C. IS; AD; opposite D. IS; AD; same

D. IS; AD; same

What condition is required for equilibrium in the goods​ market? A. Consumption expenditure must equal planned investment spending. B. Planned expenditure on goods and services must equal net exports. C. Planned expenditure on goods and services must equal the sum of net exports and planned investment spending. D. Planned expenditure on goods and services must equal the actual amount of goods and services produced.

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

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? A. The MP curve will shift upward because decreasing unemployment results in a loosening of monetary policy. B. The MP curve will shift upward because decreasing unemployment results in a tightening of monetary policy. C. The MP curve will shift downward because decreasing unemployment results in a tightening of monetary policy. D. The MP curve will shift downward because decreasing unemployment results in a loosening of monetary policy. What would be the effect on the aggregate demand​ curve? A. The AD curve will shift to the right. B. The AD curve will shift to the left. C. The slope of the AD curve will increase. D. The AD curve will not change.

D. The MP curve will shift downward because decreasing unemployment results in a loosening of monetary policy. A. The AD curve will shift to the right.

The​ short-run aggregate supply curve​ has: A. a negative slope because as the inflation rate​ increases, the quantity of output supplied decreases. B. a negative slope because as the inflation rate​ increases, so does the quantity of output supplied. C. a positive slope because as the inflation rate​ increases, the quantity of output supplied decreases. D. a positive slope because as the inflation rate​ increases, so does the quantity of output supplied.

D. a positive slope because as the inflation rate​ increases, so does the quantity of output supplied.

Everything else held​ constant, an increase in government spending will cause​ ________. A. the quantity of aggregate demand to increase B. aggregate demand to decrease C. the quantity of aggregate demand to decrease D. aggregate demand to increase

D. aggregate demand to increase

Suppose the U.S. economy is producing at the natural rate of output. A depreciation of the U.S. dollar will cause​ ________ in real GDP in the short run and​ ________ in inflation in the short​ run, everything else held constant.​ (Assume the depreciation causes no effects in the supply side of the​ economy.) A. a​ decrease; a decrease B. no​ change; a decrease C. no​ change; an increase D. an​ increase; an increase

D. an​ increase; an increase

The​ short-run aggregate supply curve slopes upward because an increase in output relative to potential​ output: A. causes markets to have excess​ supplies, putting upward pressure on inflation. B. induces aggregate demand to​ increase, increasing inflation. C. leads to unstable markets and higher inflation. D. creates tight labor and product markets that cause inflation to rise.

D. creates tight labor and product markets that cause inflation to rise.

Everything else held​ constant, an increase in the cost of production​ ________ aggregate​ ________. A. decreases; demand B. increases; supply C. increases; demand D. decreases; supply

D. decreases; supply

The Lucas critique indicates that A. expectations are not important in determining the outcome of a discretionary policy. B. advocates of discretionary​ policies' criticisms of rational expectations models are well-founded. C. advocates of discretionary​ policies' criticisms of rational expectations models are not-founded. D. expectations are important in determining the outcome of a discretionary policy.

D. expectations are important in determining the outcome of a discretionary policy.

If American college students decide that drinking Mexican-brewed beer helps one get​ noticed, net exports will tend to​ fall, causing aggregate demand to​ ________ and the​ ________ curve to shift to the​ left, everything else held constant. A. fall; LM B. rise; IS C. ​rise; LM D. fall; IS

D. fall; IS

During financial​ crises, financial frictions​ __________, leading to a​ __________ shift of the IS curve. A. decrease; rightward B. ​increase; rightward C. decrease; leftward D. increase; leftward

D. increase; leftward

A tax cut initially A. reduces consumption expenditure by an amount that is less than the value of the tax cut. B. has no effect on consumption expenditure. C. increases consumption expenditure by an amount equal to the tax cut. D. increases consumption expenditure by an amount that is less than the value of the tax cut. E. increases consumption expenditure by an amount greater than the tax cut.

D. increases consumption expenditure by an amount that is less than the value of the tax cut.

Everything else held​ constant, an appreciation of the domestic currency will cause the IS curve to shift to the​ ________ and aggregate demand will​ ________. A. left; increase B. right; increase C. right; decrease D. left; decrease

D. left; decrease

The​ self-correcting mechanism describes how the economy eventually returns to the​ _______ regardless of where output is initially. A. real level of consumption B. natural rate level of consumption C. real level of output D. natural rate level of output

D. natural rate level of output

An upward shift in aggregate supply initially causes A. the inflation rate to fall and output to rise. B. the inflation rate to rise and output to rise. C. the inflation rate to fall and output to fall. D. the inflation rate to rise and output to fall.

D. the inflation rate to rise and output to fall.

When the financial crisis started in August​ 2007, inflation was rising and the Fed began an aggressive easing lowering of the federal funds​ rate, which indicated that A. there was a downward movement along the monetary policy curve. B. the monetary policy curve shifted upward. C. there was an upward movement along the monetary policy curve. D. the monetary policy curve shifted downward.

D. the monetary policy curve shifted downward.

When the interest rate is​ ________, ________ investments in physical capital will earn more than the cost of borrowed​ funds, so planned investment spending is​ ________. A. high; many; high B. high; few; high C.low; few; high D. low; many; low E. high; few; low

E. high; few; low

A tax cut initially __________ consumption expenditure by an amount that is ________ to the tax cut a) increases, less than b) increases, greater than c) increases, equal to d) reduces, less than

a) increases, less than

the IS curve shifts downward because higher __________ lead to lower _________ and ____________ a) interest rates; investment spending; net exports b) government spending; money demand; net exports c) interest rates; money demand; investment spending d) government spending; consumption; investment spending

a) interest rates; investment spending; net exports

the MP curve gives the relationship between the a) real interest rate and inflation rate b) real interest rate and aggregate demand c) nominal interest rate and inflation rate d) nominal interest rate and aggregate output

a) real interest rate and inflation rate

if the interest rate falls, other things being equal, investment spending will a) rise b) not be affected c) fall d) uncertain

a) rise

when interest rates fall in the United States (with the price level fixed), the value of the dollar __________, domestic goods become____________ expensive, and net exports _____________ a) falls; more; fall b) falls; less; rise c) rises; less; fall d) falls; less; fall

b) falls; less; rise

suppose that there is a positive aggregate demand shock and the central bank commits to an inflation rate target. But if the commitment is not credible, then a. the public's expected inflation will remain unchanged b. the short-run aggregate supply curve will rise c. over time, inflation will fall back down to the inflation target d. all of the above

b. the short-run aggregate supply curve will rise

suppose that there is a positive aggregate demand shock and the central bank commits to an inflation rate target. But if the commitment is not credible, then a. the public's expected inflation will remain unchanged b. the short-run aggregate supply curve will rise c. over time inflation will fall back down to the inflation target. d. all of the above

b. the short-run aggregate supply curve will rise

Greater central bank independence can make the​ time-inconsistency problem worse​ because: A. policymakers may abandon a policy of discretion and instead adopt a​ rules-based policy objective. B. there is less formal accountability by central banks to pursue stable inflation policies. C. central banks are more​ transparent, and thus unable to pursue overly inflationary policies. D. central bankers are not willing to deviate from​ long-run plans to accommodate a​ short-run objective, thereby raising expectations of future inflation.

b. there is less formal accountability by central banks to pursue stable inflation policies.

Lucas argues that when policies change, expectations will change thereby a. forcing the Fed to keep its deliberations secret b. causing the government to abandon its discretionary stance c. changing the relationships in econometric models d. making it easier to predict the effects os policy change

c. changing the relationships in econometric models

in general, how does a central bank's lack of credibility as an inflation fighter affect the aggregate supply curve a. the central bank will not be able to stabilize inflation and output by shifting the aggregate supply curve because of higher inflation expectations by the public b. the public will have higher inflation expectations, which will result in movement down along the aggregate supply curve; thus, reducing output. c. the public will have higher inflation expectations, which will shift the aggregate supply curve up and to the left; thus, reducing output d. because of the higher inflation expectations, the central bank will have to stabilize inflation by shifting the aggregate supply curve up which reduces output

c. the public will have higher inflation expectations, which will shift the aggregate supply curve up and to the left; thus, reducing output

in general, how does a central bank's lack of credibility as an inflation fighter affect the aggregate supply curve? a. the central bank will not be able to stabilize inflation and output by shifting the aggregate supply curve because of higher inflation expectations by the public b. the public will have higher inflation expectations, which will result in movement down along the aggregate supply curve; thus, reducing output. c. the public will have higher inflation expectations, which will shift the aggregate supply curve up and to the left; thus, reducing output. d. because of the higher inflation expectations, the central bank will have to stabilize inflation by shifting the aggregate supply curve up which reduces output.

c. the public will have higher inflation expectations, which will shift the aggregate supply curve up and to the left; thus, reducing output.

(credible/not credible), the public will lower their inflation expectations. Hence, the AS ___________ (shifts up, down, stays the same). New SR equilibrium at _________(lower/higher) inflation rate and _________(lower/higher) output compared to the initial level.

credible, down, lower, higher

arguments for adopting a policy rule include a. policy makers and politicians cannot be trusted b. the time-inconsistency problem can lead to poor economic outcomes c. discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run d. all of the above

d. all of the above

having a credible nominal anchor helps a. control inflation expectations b. to solve the time-inconsistency problems c. policy makers to achieve price stability. d. all of the above are correct

d. all of the above are correct

a temporary positive supply shock will _______ inflation and will ________ aggregate output in the short-run

decrease, increase

a negative demand shock will _________ inflation and will ________ aggregate output in the long-run

decrease, not change

a rise in real interest rate will cause exports to ___________ and imports to ___________

exports decrease and imports increase

Will aggregate output rise or fall if an increase in autonomous consumer expenditure is matched by an equal increase in​ taxes?

it will rise

Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess demand of goods which will cause aggregate output to ________.

left; rise

A decrease in how responsive investment is to the real cost of borrowing or how net exports respond to the real interest rate makes the IS curve ________ steep.

more

An open market sale of bonds by the fed will cause __________ in real GDP in the long run and __________ in inflation in the long run.

no change, decrease

a temporary positive supply shock will _____ inflation and will ______ aggregate output in the long run

not change, not change

if the central bank is __________(credible/not credible), the public will not revise their inflation expectations. Hence, the AS ___________ (shifts up, down, stays the same). New SR equilibrium at _________(lower/higher) inflation rate and _________(lower/higher) output compared to the initial level.

not credible, stays the same, lower, lower

An autonomous tightening of monetary policy

shifts the monetary policy curve upward

The MP curve is _________ sloping due to the Taylor Principle

upward