Econ exam 4

The natural rate of interest is the real interest rate: A) at which the demand for goods and services equals the natural level of output. B) that most people anticipate based on their expectations of inflation. C) at which the natural rate of unemployment equals the natural rate of output. D) equal to the nominal interest rate minus the natural rate of inflation.

A) at which the demand for goods and services equals the natural level of output

Predetermined variables in a model are treated as if they are essentially: A) endogenous variables. B) exogenous variables C) parameters D) equilibrium conditions

B. exogenous variables

An increase in the central bank's target rate of inflation is represented by a: A) movement up the DAD curve. B) movement down the DAD curve. C) rightward shift in the DAD curve D) leftward shift in the DAD curve

C

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, if the central bank permanently reduces its inflation target, then in the initial period of the change, output ______ and inflation ______. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

C

Which of the following would be represented by a positive value of the random supply shock, t? A) an irrational wave of optimism among investors B) an increase in government spending C) widespread drought leading to large increases in food prices D) an increase in the central bank's inflation target

C

The dynamic aggregate supply curve shows the short-run relation between: A) the natural level of output and inflation B) the natural level of output and expected rate of inflation C) output and inflation D) output and the natural rate of interest

C) output and inflation

At long_run equilibrium in the dynamic model of aggregate demand and aggregate supply, which variables will equal the central bank's target rate of inflation? A) the current inflation rate, but not the expected inflation rate B) the expected inflation rate, but not the current inflation rate C) both the current and expected rates of inflation D) neither the current nor the expected rates of inflation

C. Both the current and expected rates of inflation

Of the five endogenous variables in the dynamic model of aggregate demand and aggregate supply, which are the nominal variables that will change in long-run equilibrium if the central bank changes its inflation target? A) Yt, rt, it B) Yt, it, and Et inflation t + 1 C) inflation t , it, Et inflation t + 1 D) rt, inflation t, and i t

C. inflation t, it, Et inflation t+1

In the dynamic model of aggregate demand and aggregate supply, holding other factors constant, increases in the natural level of output that yield long-run growth can be experienced: A) with rising inflation B) with falling inflation C) with stable inflation D) with no inflation

C.) with stable inflation

Starting from long_run equilibrium in the dynamic model of aggregate demand and aggregate supply, a one-period positive supply shock causes output to: A) remain above the natural level for only one period. B) remain above the natural level for more than one period C) remain below the natural level for only one period. D) remain below the natural level for more than one period.

D) remain below the natural level for more than one period.

Which of the following is not held constant along a dynamic aggregate demand curve? A) the inflation target B) the natural level of output C) the demand shock D) the money supply

D) the money supply

Which of the following would be represented by a negative value of the random demand shock, Et?

a decrease in government spending

Which of the following would be represented by a negative value of the random supply shock, t?

a decrease in government spending

taxes cuts stimulate by improving ________ workers incentive and expand _______ by raising households' disposable income

aggregate supply, aggregate demand

the theory of liquidity preference implies:

as interest rate rises, the demand for real balances will fall

along any given IS curve:

both government spending and tax rates are fixed

The dynamic aggregate demand curve will shift if any of the following changes except the:

current inflation rate

The dynamic aggregate demand curve is downward sloping because as inflation falls the central bank reduces the nominal interest rate by more than the fall in the inflation rate, which ______ the real interest rate and ______ the quantity of goods and services demanded.

decreases, increases

the simple investment function shows that investment _______ as _________ increases

decreases, the interest rate

starting from long-run equilibirum, if velocity of money increases (due to for example, the invention of automatic teller machines), the fed might be able to stabilize output by:

decreasing the money supply

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the first period of a four-period positive demand shock, the DAS curve ______ and the DAD curve ______.

does not shift, shifts rightward

The interest rate at which banks make loans to other banks is called the:

federal funds rate

most economists believe that prices are:

flexible in the long run but many are sticky in the short run

according to the quantity theory of money, if output is higher, ____ ral balances are required, for fixed M this smeans _________ P

higher, lower

an explanation for the slope of the LLM curve is that as:

income rises, money demand rises, and higher interest rate is required

in the keynesian-cross model, if taxes are reduced by 250, thhen the equilibrium level of income:

increases by more than 250

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the first period of a four-period positive demand shock, output ______ and inflation ______.

increases, increases

The monetary policy rule specified in the dynamic model of aggregate demand and aggregate supply indicates that the central bank adjusts interest rates in response to fluctuations in A) inflation expectations. B) money supply and money demand. C) inflation and output. D) nominal and real exchange rates

inflation and output

In the dynamic model of aggregate demand and aggregate supply, one period in time is connected to the next period through

inflation expectations

An IS curve shows combinations of:

interest rates and income that bring equilibriym in the market for goods and services

business cycles are:

irregular and unpredicatable

When firms experience unplanned inventory accumulation, they typically:

lay off workers and reduce production

if short run aggregate supply curve is horizontal, then changes in aggregate demand affect:

level of output but not prices

John maynard keynes wrote that responsibility for low income and high unemployment in economic downturns should be placed on:

low aggregate demand

the theory of liquidity preference, other things equal, an increase in the real money supply will:

lower the interest rate

when the federal reserve reduces the money supply, at a given price level the amount of output demanded is __________ aggregate demand curve shifts ____________

lower, inward

According to the Taylor rule, when real GDP is above its natural level, the nominal federal funds rate should be ______, and when inflation is below 2 percent, the nominal Federal funds rate should be ______. A) raised; raised B) raised; lowered C) lowered; raised D) lowered; lowered

lower, raised

That output, Yt, and the real interest rate, rt, do not depend on the central bank's inflation target in long-run equilibrium in the dynamic model of aggregate demand and aggregate supply demonstrates:

monetary neutrality

The dynamic aggregate demand curve is drawn for a given: A) money supply. B) real interest rate. C) monetary policy rule. D) inflation rate.

monetary policy rule

Increases in the natural level of output allow the economy to produce ________ goods and services, and makes people want to buy ________ goods and services>

more; more

Starting from long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, a five-period positive demand shock causes output to ______ the natural level of output until returning to the natural level in the long run.

move above and then below

The dynamic aggregate demand curve illustrates the ______ relationship between the quantity of output demanded in the short run and _____

negative; inflation

Okun's law is the __________ relationship between real GDP and the __________

negative; unemployment rate

when paul volcker tightened the money supply

nominal interest rates fell in the long run

alan blinder's survey of firms found that the typical firm adjusts its prices:

once or twice a year

if the short-run aggregate supply is horizontal, then a change in the money supply will change __________ in the short run and change ________ in thein the long run

only output, only prices

if the short-run aggregate supply curve is horiztonal and the fed increases the money supply, then:

output and employment will increase in the short run

At long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, which variables will be at their natural levels?

output and the real interest rate

assume the economy begins in the long run equilibrium. then the fed reduces the money supply in the short-run, whereas the long run prices ________ and output returrns to tits original level.

output decreases and prices are unchanged; fall

At long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, the nominal interest rate, it, equals all of the following except:

p + rt

For the purposes of the Keynesian cross, planned expenditure consists of:

planned investment, government spending, and consumption expenditures

aggregate supply is the relationship between the quantity of goods and services supplied and he:

price level

for any given interest rate and price level, an increase in the money supply:

raises income

an adverse supply shock ______ the long run aggregate supply curve ________ the natural level of output

raises, and may also be lower

A higher real interest rate reduces the demand for goods and services by:

reducing investment and consumption spending

With planned expenditure and the equilibrium condition Y = PE drawn on a graph with income along the horizontal axis, if income exceeds expenditure, then income is to the ______ of equilibrium income and there is unplanned inventory ______.

right, accumulation

the index of leading indicators complied by the conference board includes 10 data series that are used to forecast economic activity about _____________ in advance

six to nine months

which of the following is an example of a demand shock?

the introduction and greater availablility of credit cards

The dynamic aggregate supply curve is derived from which of the five equations of the model of aggregate demand and aggregate supply?

the phillips curve and adaptive expectations