EC FINAL
When the dollar depreciates, each dollar buys
less foreign currency, and so buys fewer foreign goods.
When we say that economic fluctuations are "irregular and unpredictable," we mean that
recessions do not occur at regular intervals.
Which of the following is an example of crowding out?
An increase in government spending increases interest rates, causing investment to fall.
The position of the long-run aggregate supply curve
a. is determined by resource usage and technology.
39. Which of the following can explain the upward slope of the short-run aggregate supply curve?
a. nominal wages are slow to adjust to changing economic conditions
The opportunity cost of holding money
a. decreases when the interest rate decreases, so people desire to hold more of it.
57. Other things the same, if workers and firms expected prices to rise by 2 percent but instead they rise by 3 percent, then
a. employment and production rise.
. The multiplier effect is exemplified by the multiplied impact on
aggregate demand of a given increase in government purchases.
Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, they can offset the initial shift by shifting
aggregate demand right.
If the dollar depreciates because of speculation or government policy, U.S.
aggregate demand shifts right. U.S. aggregate demand shifts left if other countries experience a decrease in real GDP.
Other things the same, continued increases in the money supply lead to
b. continued increases in the price level but not continued increases in real GDP.
59. The lag problem associated with fiscal policy is due mostly to
b. the political system of checks and balances that slows down the process of implementing fiscal policy.
If the government repeals an investment tax credit and increases income taxes,
real GDP and the price level fall.
34. If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by
$600 billion.
Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short-run consequence of this contraction?
. The inflation rate decreases. b. The level of output decreases. c. The unemployment rate increases. d. All of the above are correct.
60. If output is above its natural rate, then according to sticky-wage theory
. workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve left.
27. If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium?
Inflation expectations fall which shifts the short-run Phillips curve to the left.
The process of the investment accelerator involves
a. positive feedback from aggregate demand to investment.
Other things the same, as the price level falls,
a. the dollar depreciates.
Liquidity preference refers directly to Keynes' theory concerning
a. the effects of changes in money demand and supply on interest rates.
Which of the following effects helps to explain the slope of the aggregate-demand curve?
a. the exchange-rate effect b. the wealth effect c. the interest-rate effect d. All of the above are correct.
The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates
a. the multiplier effect.
58. A decrease in government spending initially and primarily shifts
b. aggregate demand to the left.
When the price level falls
b. households want to lend more, so the interest rate falls, making the quantity of goods and services demanded rise.
Which of the following shifts aggregate demand to the right?
b. increases in the profitability of capital due perhaps to technological progress.
Aggregate demand shifts right when the Federal Reserve
b. increases the money supply.
Other things the same, a decrease in the price level motivates people to hold
b. less money, so they lend more, and the interest rate falls.
A decrease in the expected price level shifts
b. only the short-run aggregate supply curve right.
In the long run, a decrease in the money supply growth rate
b. shifts the short-run Phillips curve left so unemployment returns to its natural rate.
A policy that raised the natural rate of unemployment would shift
both the short-run and the long-run Phillips curves to the right.
Which of the following is correct according to the long-run Phillips curve?
c. Monetary policy cannot change the natural rate of unemployment, but other government policies can.
In which of the following cases does the aggregate-demand curve shift to the right?
c. The money supply increases, causing the interest rate to fall.
In 2009 Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right?
c. both the increased funding for states and the tax cuts
The Fed is concerned about stock market booms because the booms
c. increase both consumption and investment spending.
In the long run, which of the following depends primarily on the growth rate of the money supply?
c. the inflation rate but not the natural rate of unemployment
Changes in the price level affect which components of aggregate demand?
d. consumption, investment, and net exports
If the dollar appreciates, perhaps because of speculation or government policy, then U.S. net exports
d. decrease which shifts aggregate demand left.
Most economists believe that classical macroeconomic theory is a good description of the economy
d. in the long run, but not in the short run.
What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?
decrease taxes or increase the money supply
The long-run aggregate supply curve would shift left if the amount of labor available
decreased or Congress made a substantial increase in the minimum wage.
According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what it produces had
decreased, so it would decrease production.
If policymakers accommodate an adverse supply shock, then in the short run the unemployment rate
falls and the inflation rate rises.
In recent years, the Federal Reserve has conducted policy by setting a target for the
federal funds rate.
If inflation is less than expected, then the unemployment rate is
greater than the natural rate. In the long run the short-run Phillips curve will shift left.
The idea that expansionary fiscal policy has a positive affect on investment is known as
he investment accelerator.
Macroeconomic forecasts are
imprecise; this makes policy lags more relevant.
According to the theory of liquidity preference, money demand
is negatively related to the interest rate, while the money supply is independent of the interest rate.
When the dollar depreciates, U.S.
net exports rise, which increases the aggregate quantity of goods and services demanded.
Monetary policy and fiscal policy influence
output in the short run only
Liquidity preference theory is most relevant to the
short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
The economy will move to a point on the short-run Phillips curve where unemployment is higher if
the inflation rate decreases.
. To say that the natural rate of unemployment changes over time is to say that
the long-run Phillips curve shifts over time.
The position of the long-run Phillips curve and the long-run aggregate supply curve both depend on
the natural rate of unemployment, but not monetary growth.
Keynes argued that aggregate demand is
unstable, because waves of pessimism and optimism create fluctuations in aggregate demand.