chapter 10
The short run refers to a period:
during which prices are sticky and unemployment may occur.
Which of the following is an example of a demand shock?
the introduction and greater availability of credit cards
The natural level of output is:
the level of output at which the unemployment rate is at its natural level.
Recessions typically, but not always, include at least ______ consecutive quarters of declining real GDP.
two
When the Federal Reserve increases the money supply, at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______.
greater; outward
The dilemma facing the Federal Reserve in the event that an unfavorable supply shock moves the economy away from the natural rate of output is that monetary policy can either return output to the natural rate, but with a ______ price level, or allow the price level to return to its original level, but with a ______ level of output in the short run.
higher; lower
Most economists believe that the classical dichotomy:
holds approximately in the long run but not at all in the short run.
Starting from long-run equilibrium, if a drought pushes up food prices throughout the economy, the Fed could move the economy more rapidly back to full employment output by:
increasing the money supply, but at the cost of permanently higher prices.
Business cycles are:
irregular and unpredictable.
The aggregate demand curve is the ______ relationship between the quantity of output demanded and the ______.
negative; price level
Okun's law is the ______ relationship between real GDP and the ______.
negative; unemployment rate
If the short-run aggregate supply curve is horizontal, and, if each member of the general public chooses to hold a larger fraction of his or her income as cash balances, then:
output and employment will decrease in the short run.
If the Fed reduces the money supply by 5 percent and the quantity theory of money is true, then output will fall 5 percent in the short run and:
prices will fall 5 percent in the long run.
