exam 3
Assume that the economy is at a long run equilibrium and oil prices rise. As a result, the ________ shifts ________.
SAS; leftward
In 2008, the dollar appreciated relative to the euro. This appreciation caused ________ and a ________.
a decrease in U.S. exports to Europe; leftward shift in the U.S. aggregate demand curve
Which of the following policies shifts the AD curve the farthest leftward?
a decrease in government expenditure of $10 billion
In the long-run equilibrium, an increase in the quantity of capital leads to
a decrease in the equilibrium price level and an increase in equilibrium real GDP
A lower price level combined with a decrease in real GDP occurs when the
aggregate demand curve shifts leftward
The country of Stanley is at an above-full-employment equilibrium. Which of the following events will return Stanley to full employment?
an increase in the nominal wage rate
Federal Reserve open market operations directly influence
banks
The Keynesian model of aggregate expenditure assumes that
both individual firms' prices and the price level are fixed
The cyclical deficit is the portion of the deficit
created by fluctuations in real GDP
Within the market for reserves, an increase in the quantity of reserves results in a
fall in the equilibrium federal funds rate
The presence of income taxes and imports make the multiplier
fall in value but remain positive
Because of automatic fiscal policy, when real GDP decreases
government expenditures increase and tax revenues decrease
Long-term interest rates are ________ than short-term interest rates because long-term loans are ________ than short-term loans
higher; riskier
The multiplier measures the
horizontal shift in the aggregate demand curve from an increase in autonomous spending
If the Fed raises the federal funds rate so that the exchange rate rises, then imports ________ and exports ________.
increase; decrease
Using fiscal policy, to increase real GDP and employment the government could ________ government expenditure on goods and services or ________ taxes.
increase; decrease
Stagflation is the combination of
inflation and reccison wrong deflation with increasing real GDP
In the short run, the Federal Reserve faces a tradeoff between
inflation and unemployment
When the Fed raises the federal funds rate, other
interest rates rise, consumption, investment and net exports increase, and the aggregate demand curve shifts rightward wrong
A reason the government expenditure multiplier is larger than 1 is because
investment increases when government expenditure increases wrong government expenditure always increases
Economic growth
is an increase in potential GDP as the long-run aggregate supply curve shifts rightward
When the aggregate demand curve shifts, the steeper the SAS curve the ________ will be a change in the price level and the ________ will be the multiplier
larger; smaller
Which school of thought believes that real GDP always equals potential GDP?
only classical
The demand-side effect of a change in taxes is less than the same sized change in government expenditure because
only part of the increase in disposable income from the tax cut is spent
The federal funds rate is the interest rate
overnight
In the very short term, in the Keynesian model, which of the following is fixed and does not change when GDP changes?
planned investment
If the economy is in long run equilibrium and then aggregate demand increases, in the long run the increase in aggregate demand means that the
price level will be higher but real GDP will be unaffected
In the short run, an increase in the federal funds rate ________ the real interest rate and ________ investment
raises; decreases
In general, an increase in autonomous expenditure that is NOT created by a change in the price level results in a
rightward shift of the AD curve
Any change in the price level will result in a
shift in the AE curve and a movement along the AD curve
If the government's budget is in surplus even when the economy is at full employment, the surplus is said to be
structural
If a tax cut increases people's labor supply, then
tax cuts increase potential GDP
The Laffer curve is the relationship between
tax rates and tax revenue
Monetary policy is controlled by
the Federal Reserve
Monetary policy includes adjustments in ________ so as to change ________.
the federal funds rate; aggregate demand
The use of discretionary fiscal policy to end a recession is limited because
the legislative process is slow
An increase in ________ shifts the AE curve ________ and an increase in ________ shifts the aggregate demand curve ________.
the price level; downward; autonomous expenditure; rightward
In the aggregate expenditure model, when real GDP is greater than aggregate planned expenditure
unplanned inventories are being accumulated
A fall in the price level shifts the AE curve ________ and ________ equilibrium expenditure
upward; increases
In 2008, Japan's government approved a $1 trillion fiscal stimulus plan comprised of both tax cuts and government expenditure increases. As a result
wrong Japan's long-run aggregate supply curve shifted leftward Japan's aggregate supply curve shifted leftward