ch 20 econ

A financial shock is any change in:

borrowing conditions that charges the real interest rate at which people can borrow

The Fed model links the IS, MP, and Phillips curves. In the IS-MP analysis, an increase in exports will shift the:

IS Curve to the right

Once you have connected the output gaps from the IS-MP model and the Phillips curve, the next step is to identify the:

unexpected inflation from the Philips curve

Take a look at the IS-MP-PC model shown here. The equilibrium real interest rate is:

3%

When using the Fed model to diagnose the economy, if a shock causes the real interest rate to rise, then the economy has been hit by _____ shock.

a financial

If you see a newspaper headline that says "Steel prices rise sharply," this is an example of _____ shock.

a supply

You are an economic adviser using the Fed model to analyze the economy. Now suppose that manufacturers in China face rising costs of rubber as an input. What is the effect on the economy?

an unchanged real interest rate, an unchanged output gap, and unexpected inflation

In the IS-MP analysis in the Fed model, a decrease in the risk-free rate shifts the:

MP curve down

In the IS-MP analysis in the Fed model, the MP curve shows you the:

current real interest rate

When using the Fed model, the first step is to:

identify the shock and shift the curve

Tariffs on inputs lead to a _____ shock.

supply

The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:

unexpected inflation of 1%

In the IS-MP analysis in the Fed model, contractionary fiscal policy will shift the:

IS curve to the left

The Fed model combines the _____ curve, the _____ curve, and the ____ curve to link interest rates, the output gap, and inflation.

IS; MP; Philips

When a spending shock occurs, the IS curve shifts by the:

change in spending times the multiplier

A supply shock is any change in:

production costs that leads suppliers to change the prices they charge at any given level of output

In the IS-MP analysis in the Fed model, a fall in the interest rate causes a:

movement to the right along the IS curve

Once you have identified the point of equilibrium in the IS-MP graph in the Fed model, the horizontal axis will show you the:

output gap

If a spending shock increases aggregate expenditure by $35 billion and the multiplier is 2.5, then the IS curve will shift:

right by 87.5 billion (multiply)