Maceroe CH 5-6 Homework Question
The income velocity of money can be calculated using the following formula
V = (PY)/M
If nominal GDP is $12,600 billion and nominal money supply is $6,300 billion, then the velocity of money is
V = 2
Which of the following is NOT reflected in a shift of the AD-curve?
a change in real money balances due to a change in the price level
For many government decision makers, the original Phillips curve implied
a trade-off between lowering unemployment at the cost of higher inflation or lowering inflation at the cost of higher unemployment
The AS-curve is horizontal or very flat if
additional resources (especially labor) can be hired to produce additional output with little or no increase in existing prices
In the short run, a price increase combined with a decrease in the unemployment rate is most likely to be the result of
an adverse supply shock
The newer view of the Phillips curve implies that
an increase in monetary growth affects unemployment and inflation in the short run, but only affects inflation in the long run
Stagflation, that is, high unemployment combined with high inflation
cannot persist, since the economy eventually will return to full employment
The theory of aggregate supply is one of the most controversial in macroeconomics because
economists do not completely agree on the reasons for the slow adjustment of wages and prices after demand-side disturbances
The fact that nominal wages are fixed by a contract at the beginning of a period while the prices of goods may change within the period implies that
firms want to supply more output when prices increase since the real wage rate is lower
In the Keynesian aggregate supply curve case,
firms will always supply the amount of goods demanded at the existing price level
Expansionary fiscal policy is very effective in significantly increasing the level of output
if the economy is in a recession
In which of the following cases is expansionary fiscal policy LEAST effective in increasing output?
if wages adjust rapidly to maintain equilibrium in the labor market
In the Keynesian aggregate supply curve case, a fiscal expansion will
increase equilibrium income but have no impact on prices
Given the Keynesian AS-curve, expansionary monetary policy will
increase the level of output but leave the price level unchanged
The unemployment gap
none of the above
The level of GDP that corresponds to full employment in the labor market is called
potential GDP
Fiscal policy will affect prices and interest rates but not the level of output if
the AS-curve is vertical
If the labour market is in equilibrium with full employment of the labour force, then
the AS-curve would be vertical
The inverse relationship between inflation and unemployment is called
the Phillips curve
The original Phillips curve shows an inverse relationship between
the rate of change in money wages and the rate of unemployment
Restrictive monetary policy will eventually affect the upward-sloping AS-curve since
the resulting unemployment will cause downward pressure on nominal wages, so the cost of production will decrease
The natural rate of unemployment is
the unemployment rate that exists when output is assumed to be at its full-employment level
If output is at its full-employment level, then
there is still some positive level of unemployment due to frictions in the labor market
The Keynesian AS-curve differs from the classical AS-curve, since Keynes
thought that nominal wages were rigid even when there was unemployment
