Macro Test
If the consumer price index (CPI) were 131 at year-end 1999 and 125 at year-end 1998, then inflation during 1999 was
4.8%
What will an expansionary monetary policy over the short run and long run do to the short-run aggregate supply curve, long-run aggregate supply curve, and/or aggregate demand curve?
Aggregate demand increases in the short run; long-run aggregate supply increases in the long run
Which of the following is most likely to cause an increase in the long run aggregate supply curve?
An increase in literacy levels of the population.
The crowding-out effect of expansionary fiscal policy suggests that
Increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.
Result of govt trying to reduce unemployment associated with cost push inflation thru stimulative fiscal policy or monetary policy is
Inflation
monetary policy
OMOs, Reserve Requirements, Discount rate IROB
A graphical representation with unemployment on the horizontal axis and inflation on the vertical axis is known as:
Phillips curve
What will an increase in overall productivity do to the short-run aggregate supply curve, long-run aggregate supply curve, and/or aggregate demand curve?
Short-run and long-run aggregate supply increase
cost-push inflation
When prices rise due to an increase in the cost of production. (SRAS Left)
If inflation is 4% and your boss gives you a 2% raise, which of the following is TRUE?
Your purchasing power decreased
The equation of exchange suggests that, if the supply and velocity of money remain unchanged, an increase in the physical volume of goods and services produced will cause
a decline in PL
stagflation
a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)
Short-run aggregate supply curves reflect an inverse relationship between the price level and the level of real output.
false
The long-run aggregate supply curve assumes that nominal wages are fixed.
false
Which of the following combinations of policy moves would be recommended for an economy experiencing an annual increase in the inflation rate of 6% and an unemployment rate of 5%
increase income tax rates and sell bonds
demand-pull inflation
inflation that is caused by an increase in aggregate demand
A firm considering whether to borrow money to purchase a capital good will compare the rate of interest for the loan with the
rate of return on the investment
In terms of aggregate supply, a period in which nominal wages and other resource prices are unresponsive to price-level changes is called the
short run
fiscal policy
taxing and spending
In the long run, an increase in the price level will result in an increase in nominal wages.
true, Workers will demand higher nominal wages in order to keep their real wages the same.
If an economy is suffering from inflation, what fiscal policy measure could be taken to help alleviate the problem?
Increase taxes
The SRPC suggest that if the govt uses expansionary fiscal policy to stimulate output and employment...
Inflation increases in SR
In the equation of exchange, the level of aggregate expenditures is indicated by
MV
Equation of Exchange
MV=PQ - in which M is the supply of money, V is the velocity of money, P is the price level, and Q is the physical volume of final goods and services produced
nominal IR
Nominal interest rate = real interest rate + anticipated inflation.
Suppose that AD and AS intersect at an output level that is higher than the full-employment output level. After the economy adjusts back to equilibrium in the long run, the price level and the nominal wage will change in which way?
Nominal wage and the price level will each be higher.
What will happen if there is expansionary monetary policy
Short run: Ad increases (right) Long run: SRAS shifts in the long run (left)
What will happen if there is an increase in overall productivity?
Short run: SRAS increases Long run: LRAS moves to the right as more output is possible with same resources
Construction spending on new homes rises dramatically, greatly increasing total U.S. investment spending.
Short run: The aggregate demand curve shifts to the right, and both the price level and real output increase. Long run: The ag gregate supply curve shifts to the left (due to higher nominal wages), the price level rises, and real output declines.
Because of a war abroad, the oil supply to the United States is disrupted, sending oil prices rocketing upward.
Short run: The aggregate supply curve shifts to the left, the price level rises, and real output declines. Long run: The aggregate supply curve shifts back rightward (due to declining nominal wages), the price level falls, and real output increases.
The total amount of debt owed by the Federal government is represented by the total value of the outstanding
U.S. government securities.
How is the public debt calculated?
by cumulating the annual difference between tax revenues and government spending over the years
A major adverse (decrease in) aggregate supply shock:
causes the Phillips Curve to shift rightward and upward.
Which of the following would be hurt the most by unanticipated inflation?
creditors (banks holding loans)
The crowding-out effect suggests that
government borrowing to finance the public debt increases the real interest rate and reduces private investment.
The short-run Phillips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment:
inflation will increase in the short run.
In terms of aggregate supply, a period in which nominal wages and other resource prices are fully responsive to price-level changes is called the
long run
Assuming that the velocity of money is stable, an increase in the money supply:
must increase nominal GDP
The velocity of money is equal to
nominal GDP/money supply
The velocity of money is the
number of times per year the average dollar is spent on final goods and services.
In the extended analysis of aggregate supply, the long-run aggregate supply curve is:
vertical, and the short-run aggregate supply curve is upward sloping.
