Macroeconomics 1040 Final Exam pt.2

If output is above its natural rate, then according to sticky-wage theory

b. workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve left.

Which of the following effects helps to explain the slope of the aggregate-demand curve?

the exchange-rate effect the wealth effect the interest-rate effect

If the economy is at point b, a policy to restore full employment would be

a. an increase in the money supply.

People had been expecting the price level to be 120 but it turns out to be 122. In response Robinson Tire Company increases the number of workers it employs. What could explain this?

a. both sticky price theory and sticky wage theory

If money is neutral, then changes in the quantity of money

a. do not affect real output.

Other things the same, if the price level falls, people

a. increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases.

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

a. increase government expenditures or increase the money supply

Permanent tax cuts shift the AD curve

farther to the right than do temporary tax cuts

Most economists believe that classical theory describes the world

in the long run

Recessions in Canada and Mexico would cause

b. the U.S. price level and real GDP to fall.

Which of the following shifts both short-run and long-run aggregate supply left?

c. a decrease in the capital stock

The long-run aggregate supply curve shifts right if

a. technology improves.

If the MPC = 4/5, then the government purchases multiplier is

5

An increase in the money supply will

b. reduce interest rates, increasing investment and aggregate demand.

The aggregate-demand curve could shift from AD1 to AD2 as a result of

a decrease in net exports

Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire

a. increased consumption, which shifts the aggregate-demand curve right.

Other things the same, a decrease in the price level makes the dollars people hold worth

a. more, so they can buy more.

When the dollar depreciates, U.S.

a. net exports rise, which increases the aggregate quantity of goods and services demanded.

Most economists use the aggregate demand and aggregate supply model primarily to analyze

a. short-run fluctuations in the economy.

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

a. the equilibrium interest rate increases.

The model of short-run economic fluctuations focuses on

a. the price level and real GDP.

An example of an automatic stabilizer is

a. unemployment benefits.

Which of the following correctly explains the crowding-out effect?

b. An increase in government expenditures increases the interest rate and so reduces investment spending.

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

b. decrease consumption, which shifts aggregate demand left.

22. Suppose there is a tax increase. To stabilize output, the Federal Reserve will

b. increase the money supply.

Suppose the economy is currently at point A. To restore full employment, the appropriate fiscal response

b. is a reduction in government purchases.

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

b. nominal variables, but not real variables.

The goal of monetary policy and fiscal policy is to

b. offset shifts in aggregate demand and thereby stabilize the economy.

If the stock market crashes, then

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

If the stock market booms, then

c. aggregate demand increases, which the Fed could offset by decreasing the money supply.

According to the classical model, which of the following would double if the quantity of money doubled?

c. both prices and nominal income

People will want to hold more money if the price level

c. increases or if the interest rate decreases.

If the Fed conducts open-market purchases, then which of the following quantities increase(s)?

c. investment spending, but not interest rates

in the long run, the level of output

c. is determined by supply-side factors.

When there is an excess supply of money,

c. people will try to get rid of money causing interest rates to fall. Investment increases.

Which of the following Fed actions would both decrease the money supply?

c. sell bonds and raise the reserve requirement

If speculators gained greater confidence in foreign economies so that they wanted to buy more assets of foreign countries and fewer U.S. bonds,

c. the dollar would depreciate which would cause aggregate demand to shift right.

If output is above its natural rate, then according to sticky-wage theory

c. will strike bargains for higher wages. In response to the higher wages firms will produce less at any given price level.

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

d. decrease the money supply, which will increase interest rates.

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would

d. decrease the money supply.

if the Fed conducts open-market sales, the money supply

d. decreases and aggregate demand shifts left.

During a recession the economy experiences

d. falling employment and income.

In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases,

d. households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods.

When taxes decrease, consumption

d. increases as shown by a shift of the aggregate demand curve to the right.

When the money supply decreases

d. interest rates rise and so aggregate demand shifts left.

People had been expecting the price level to be 140 but it turns out to be 138. Johnson Family Restaurants increases the number of workers it employs. What could explain this?

d. neither sticky wage theory nor sticky price theory

Monetary policy and fiscal policy influence

d. output in the short run only.

As the price level rises

d. people are less willing to lend, so interest rates rise.

The classical dichotomy refers to the separation of

d. real and nominal variables.

Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

d. sell government bonds, which will reduce the money supply.

People choose to hold a larger quantity of money if

d. the interest rate falls, which causes the opportunity cost of holding money to fall.

in the long run, changes in the money supply affect

prices

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate- demand curve?

the interest rate effect

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates

the multiplier effect