Econ 102 Final

The Interest-Rate Effect

A lower price level reduces the interest rate, which stimulates spending on investment

Which of the following events would shift money demand to the left? a. a decrease in the interest rate b. an increase in the price level c. a decrease in the price level d. an increase in the interest rate

a decrease in the price level

The Exchange-Rate Effect

a lower price level causes the real exchange rate to depreciate, which stimulates spending on net exports

Which of the following is not one of the 10 components of the Leading Economic Index? a. Unemployment rate b. Manufactures new orders for capital goods c. Building permits for new private homes d. ISM Index for new orders

a. Unemployment rate

Which of the following shifts aggregate demand to the left? a. Stock prices fall for some reason other than a change in the price level. b. The price level rises. c. The dollar depreciates for some reason other than a change in the price level. d. Interest rates fall.

a. Stock prices fall for some reason other than a change in the price level.

If speculators gained greater confidence in foreign economies so that they wanted to buy more assets of foreign countries and fewer U.S. bonds,

the dollar would depreciate which would cause aggregate demand to shift right.

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

the interest rate to fall, so aggregate demand shifts right.

aggregate demand shifts left

(a) prices fall, output falls (b) prices fall, output returns to the natural level (c) shift aggregate demand to the right

aggregate demand shifts right

(a) prices rise, output rises (b) prices rise, output returns to the natural level (c) shift aggregate demand to the left

Why might the aggregate demand curve shift?

1. Shifts arising from changes in consumption 2. Shifts arising from changes in investment 3. Shifts arising from changes in government purchases 4. Shifts arising from changes in net exports

SR Phillips Curve slopes down due to

Discrepancy between expected and actual inflation

Equation for Quantity of output supplied (SR aggregate supply curve)

Natural level of output + a*(Actual level - Expected level)

unemployment rate equation

Natural rate of unemployment - a(actual inflation - expected inflation)

Factory new orders fell -3.5% over the last year due to all the following factors except

Past depreciation of the dollar

short-run aggregate supply shifts right

Prices fall; output rises. Price level returns to original value; output returns to the natural level. Shift aggregate demand to the left.

short-run aggregate supply shifts left

Prices rise; output falls. Price level returns to original value; output returns to the natural level. Shift aggregate demand to the right.

When an adverse supply shock shifts the short-run aggregate supply curve to the left, it also

Shifts the short-run Philips curve rightward, (SRAS shifts to the left -> prices increase -> expected inflation increases -> SR Philips curve shifts to the right.)

How is the misery index calculated?

Sum of the inflation rate and unemployment rate

Which of the following would not be included in aggregate demand? a. an increase in firms' inventories. b. firms' purchases of newly produced machinery. c. government's tax collections. d. purchases of goods by households.

c. government's tax collections.

Classical Macroeconomics theory

changes in the money supply affect nominal variables but not real variables

When looking at a graph of aggregate demand, which of the following is correct? a. The variable on the vertical axis is real; the variable on the horizontal axis is nominal b. There are nominal variables on both the vertical and the horizontal axes. c. There are real variables on both the vertical and horizontal axes. d. The variable on the vertical axis is nominal; the variable on the horizontal axis is real

d. The variable on the vertical axis is nominal; the variable on the horizontal axis is real

The aggregate-demand curve shows that a decrease in the price level

increases the real value of goods and services demanded in the economy

The aggregate demand and aggregate supply model implies monetary neutrality

only in the long run.

The Classical model is the appropriate model for analysis of the economy in the,

short run, because money is neutral in the short run

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. The debt created by these continuing deficits is

sustainable, and the future burden on your children can be offset if you save for them.

What is the sacrifice ratio?

the number of percentage points of annual output lost in the process of reducing inflation by 1 percentage point.

nominal variables

variables measured in monetary units

real variables

variables measured in physical units