Econ Test 4
An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level
falls, shifting aggregate supply right
When the money supply decreases
interest rate rise and so aggregate demand shifts left
The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if
the price level is higher than expected making production more profitable
When the actual change in the price level differs from its expected change, which of the following can explain why firms might change their production?
both menu costs and mistaking a price level change from a change in relative prices
In the long run inflation
is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors
An increase in the expected price level shifts short-run aggregate supply to the
left, and an increase in the actual price level does not shift short-run aggregate supply
The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will have
lower than desired prices which leads to an increase in the aggregate quantity of goods and services supplied
Refer to Figure 20-1. If the economy is at A and there is a fall in aggregate demand, in the short run the economy
moves to D
The aggregate quantity of goods and service demanded changes as the price level falls because
real wealth rises, interest rates fall and the dollar depreciates
Disinflation is defined as a
reduction in the rate of inflation
Refer to Figure 20-1. If the economy starts at A and there is a fall in aggregate demand, the economy moves
to C in the long run
Refer to Figure 22-5. Starting from C and 3, in the long run, a decrease in money supply growth moves the economy to
A and 1
Refer to Figure 22-5. Starting from C and 3, in the short run, an unexpected decrease in money supply growth moves the economy to
B and 2
Refer to Figure 20-1. An increase in the money supply would move the economy from C to
B in the short run and A in the long run
Refer to Figure 22-5. Starting from C and 3, in the short run an unexpected increase in money supply growth moves the economy to
D and 4
Refer to Figure 22-5. Starting from C and 3, in the long run, an increase in money supply growth moves the economy to
F and 5
The initial impact of an increase in an investment tax credit is to shift
aggregate demand right
Which of the following results in higher inflation and higher unemployment in the short run?
an adverse supply shock such as an increase in the price of oil
Other things the same, if the price level rises, people
decrease foreign bond purchases, so the supply of dollars in the market for foreign currency exchange decreases
According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they
decreased the money supply
If the central bank decrease the money supply, then in the short run prices
fall and unemployment rises
If policymakers decrease aggregate demand, then in the short run the price level
falls and unemployment rises
Refer to Figure 22-5. The economy would move from 3 to 5
in the long run if money supply growth increases
Refer to Figure 22-5. The economy would move from C to B
in the short run if money supply growth decreased unexpectedly
In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households
increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve.
The misrepresentation theory of the short-run aggregate supply curve says that the quantity of output supplied will increase if the price level
increases by more than expected so that firms believe the relative price of their output has increased
What if anything, did policymakers do in response to the recession of 2001?
tax cuts and expansionary monetary policy
The short-run relationship between inflation and unemployment is often called
the Phillips curve
Which of the following effects helps to explain the downward slope of the aggregate-demand curve?
the exchange-rate effect the wealth effect the interest-rate effect
During recession
workers are laid off factories are idle firms may fird they are unable to sell all they produce