Exam 5

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

the inflation rate, but not the natural rate of unemployment

A decrease in expected inflation shifts

the short-run Phillips curve left.

An increase in government spending shifts aggregate demand

to the right. The larger the multiplier is, the farther it shifts.

Which of the following shifts short-run aggregate supply right?

a decrease in the price of oil

A decrease in U.S. interest rates leads to

a depreciation of the dollar that leads to greater net exports.

Other things the same, as the price level rises, the real value of a dollar

falls, and interest rates rise.

If inflation is less than expected, then the unemployment rate is

greater than the natural rate. In the long run the short-run Phillips curve will shift left.

The long-run aggregate supply curve shifts right if

All of the above are correct.

Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in the money supply moves the economy to

D and 3.

If the stock market crashes, then

aggregate demand decreases, which the Fed could offset by increasing the money supply.

This sequence explains why the

aggregate-demand curve slopes downward.

If, at some interest rate, the quantity of money supplied is greater than the quantity of money demanded, people will desire to

buy interest-bearing assets, causing the interest rate to decrease.

In the long run, if the Fed decreases the rate at which it increases the money supply,

inflation will be lower.

When the money supply decreases

interest rates rise and so aggregate demand shifts left.

When the interest rate decreases, the opportunity cost of holding money

decreases, so the quantity of money demanded increases.

Most economists believe that money neutrality holds

in the long run but not the short run.

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

increase government expenditures or increase the money supply

If taxes

increase, then consumption decreases, and aggregate demand shifts leftward.

The most important reason for the slope of the aggregate-demand curve is that as the price level

increases, interest rates increase, and investment decreases.

Contractionary monetary policy

leads to disinflation and makes the short-run Phillips curve shift left.

If the Fed announced a policy to reduce inflation and people found it credible, the short-run Phillips curve would shift

left and the sacrifice ratio would fall.

Other things the same, an increase in the price level makes the dollars people hold worth

less, so they can buy less.

Other things the same, when the price level rises more than expected, some firms will have

lower than desired prices which increases their sales.

If policymakers increase aggregate demand, then in the short run the price level

rises and unemployment falls.

Aggregate demand shifts right if at a given price level

net exports rise and shifts right if the money supply increases.

According to classical macroeconomic theory, changes in the money supply affect

nominal variables, but not real variables.

The quantity of aggregate goods and service demanded rises when the

price level falls, because the interest rate falls.

From 2008-2009 the Federal Reserve created a very large increase in the money supply. According to the short-run Phillips curve this policy should have

raised inflation and reduced unemployment.

Which of the following would cause stagflation?

rising oil prices

The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected,

relative to prices wages are higher and employment falls.

Suppose that the MPC is 0.60; there is no investment accelerator; and there are no crowding-out effects. If government expenditures increase by $25 billion, then aggregate demand

shifts rightward by $62.5 billion.

Refer to Pessimism. In the long run, the change in price expectations created by pessimism shifts

short-run aggregate supply right.

Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity preference theory there is an excess

supply of money until the interest rate decreases.

A favorable supply shock will cause

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

Refer to Figure 35-6. 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 33-1. If the economy is in long-run equilibrium, then an adverse shift in aggregate supply would move the economy from

C to D.

Suppose expected inflation and actual inflation are both low, and unemployment is at its natural rate. If the Fed then pursues an expansionary monetary policy, which of the following results would be expected in the short run?

The economy would move up and to the left along a given short-run Phillips curve.

Samuelson and Solow argued that when unemployment is high,

aggregate demand is low, which puts downward pressure on wages and prices.

In the long run, which of the following would shift the long-run Phillips curve to the right?

an increase in the minimum wage

In the late 1960s, economist Edmund Phelps published a paper that

argued that there was no long-run tradeoff between inflation and unemployment.

Suppose a stock market crash makes people feel poorer. This decrease in wealth would induce people to

decrease consumption, which shifts aggregate demand left.

Other things the same, during recessions taxes tend to

fall. The fall in taxes stimulates aggregate demand.