Econ Exam 5 (Homework 9 and 10)

A consumption tax that replaces an income tax

only taxes a household on the money it spends

other things the same, if technology increases, then in the long run

output is higher and prices are lower

eliminating double-taxation would likely

raise saving but primarily benefit people with higher incomes

An increase in government expenditures may lead people to expect that in the future taxes will rise and create greater distortions. By themselves these changes lead people to

reduce both consumption and investment

f the central bank keeps the money supply growth rate constant, but people raise their inflation expectations by 1 percentage point, then the short-run Phillips curve shifts

right and the unemployment rate rises

If inflation expectations rise, the short-run Phillips curve shifts

right, so that at any inflation rate unemployment is higher in the short run than before

what is one of the primary reasons behind the upward-sloping shape of the SRAS curve?

sticky prices and wages

which of the following is not a determinant of the long-run level of real GDP?

the price level

When monetary and fiscal policymakers expand aggregate demand, which of the following costs to the economy is incurred in the short run?

the price level increases

Refer to scenario. How is the new long-run equilibrium different from the original one

the price level is higher and real GDP is the same

Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise the price level?

the shift of aggregate demand, but not the shift of aggregate supply

A change in expected inflation shifts

the short-run Phillips curve, but not the long run Phillips curve

an increase in the expected price level shifts

the short-run aggregate supply curve to the left but does not affect the long-run aggregate supply curve

the wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

the slope of the aggregate-demand curve

what is the primary difference between the SRAS and the LRAS curves?

SRAS represents short-term economic fluctuations, while LRAS represents long-term equilibrium

The short-run Phillips curve shows the combinations of

unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve,

unemployment equals the natural rate and expected inflation equals actual inflation

A favorable supply shock will cause

unemployment to fall and the short-run Phillips curve to shift left

Milton Friedman and Edmund Phelps argued in the late 1960s that in the long run the Phillips curve is

vertical, which implies that monetary and fiscal policies cannot influence the level of unemployment in the long run

what does a leftward shift of the SRAS curve indicate?

a decrease in real GDP

The classical dichotomy and monetary neutrality are represented graphically by

a vertical long-run aggregate-supply curve

Imagine that in the current year the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Which curve shifts and in which direction?

aggregate demand shifts right

Suppose that in the first half of June 2022, the effects of a housing and financial crisis and an increase inworld prices of oil and foodstuffs were affecting the economy. Refer to Scenario 36-1. The effects of the housing and financial crises could be shown by shifting

aggregate demand to the left

If a country's currency weakens in the foreign exchange market, what is the likely impact on its net exports and aggregate demand?

an increase in net exports and a rightward shift in aggregate demand

which of the following would shift the long-run aggregate supply curve right?

an increase in the capital stock, but not an increase in the price level

Proponents of tax-law changes to encourage saving would

argue that corporate tax rates should be decreased

a budget deficit is likely to

boost aggregate demand

other things the same, as the price level decreases it induces greater spending on

both net exports and investment

A vertical long-run Phillips curve is consistent with

both the conclusion of Friedman and Phelps and the classical idea of monetary neutrality

Refer to scenario. In the short run what happens to the price level and real GDP?

both the price level and real GDP rise

President Barack Obama and Congress cut taxes and raised government expenditures during the 2008 financial crisis. According to the aggregate supply and aggregate demand model, which of these policies would tend to reduce unemployment?

both the tax cut and the increase in government expenditures

If U.S. speculators gained greater confidence in foreign economies so that they wanted to move more of their wealth into foreign countries, the dollar would

depreciate which would cause aggregate demand to shift right

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

downward pressures on prices and wages

A movement to the left along a given short-run Phillips curve could be caused by

expansionary monetary policy, but not a reduction in the natural rate of unemployment

an increase in household saving causes consumption to

fall and aggregate demand to decrease

If the central bank decreases the money supply, in the short run, output

falls so unemployent rises

which of the following would not be directly included in aggregate demand?

government's tax collections

A reduction in the tax rate on income earned from past saving would

increase incomes over time

The Fed lowered interest rates in 2001 and 2002. This implies, other things the same, that the Fed

increased the money supply because it was concerned about unemployment

when the fed buys bonds, the supply of money

increases and so aggregate demand shifts right

According to traditional Keynesian analysis, if the economy is in a recession,

increases in government purchases are more effective than decreases in taxes

what is one of the primary reasons the LRAS curve is vertical?

it represents the economy's potential output

Which of the following events could explain the shift of the aggregate supply curve from right to left?

An increase in the world price of oil

Suppose Americans become concerned about saving for retirement and, as a result, reduce their currentconsumption expenditures. Which of the following would you expect to occur as a result of this change?

In the short run, unemployment will increase and inflation will fall

what happens when the aggregate demand curve shifts to the right in the short run?

Real GDP (Y) increases, and the price level (P) rises

Suppose the Fed decreased the growth rate of the money supply. Which of the following would be lower in the long run?

The inflation rate, but not the natural rate of unemployment

suppose workers notice a fall in their nominal wage but are slow to notice that the price of things they consume have fallen by the same percentage. They may infer that the reward to working is temporarily

low and so supply a smaller quantity of labor

suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S. assets. Refer to the scenario. What would the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the United States?

make it fall, which by itself would decrease U.S. aggregate demand

the effect of an increase in the price level on the aggregate-demand curve is represented by a

movement to the left along a given aggregate-demand curve

The short-run effects of the housing and financial crisis are shown by

moving to the right along the short-run Phillips curve