Econ 2315 Ch 9

For constant​ output, if the real money supply exceeds the real quantity of money demanded at some initial real interest​ rate, A. people with excess money balances purchase non-monetary​ assets, thus increasing the market price of the non-monetary assets and reducing the real interest rate until an equilibrium is reached. B. people with excess money balances purchase non-monetary​ assets, thus increasing the market price of the non-monetary assets and increasing the real interest rate until an equilibrium is reached. C. the price level in the economy increases until a new equilibrium is reached. D. nothing happens until output adjusts.

A. people with excess money balances purchase non-monetary​ assets, thus increasing the market price of the non-monetary assets and reducing the real interest rate until an equilibrium is reached.

Which of the following best describes a general​ equilibrium? A. The asset market is in​ equilibrium, but the goods market might not be in equilibrium. B. All markets are simultaneously in equilibrium. C. The goods market is in​ equilibrium, but the asset market might not be in equilibrium. D. The level of output is equal to​ full-employment output. E. Aggregate supply is equal to aggregate demand.

B. All markets are simultaneously in equilibrium.

Is money neutral in the short run or the long​ run, according to the ​AD-AS​ model? A. In both the short run and the long​ run, money is not neutral B. In the short​ run, money is not​ neutral, but in the long run it is neutral C. In both the short run and the long​ run, money is neutral D. In the short​ run, money is​ neutral, but in the long run it is not neutral

B. In the short​ run, money is not​ neutral, but in the long run it is neutral

Which of the following best describes the FE​ line? A. The FE line slopes upward. B. The FE line slopes downward. C. The FE line is vertical at the​ full-employment level of output. D. The FE line is horizontal at the equilibrium real interest rate.

C. The FE line is vertical at the​ full-employment level of output.

In each of the following​ cases, what is the effect on the​ short-run aggregate supply ​(SRAS​) ​curve? An increase in firm costs A. does not shift the SRAS curve. B. shifts the SRAS curve downward. C. shifts the SRAS curve upward. An increase in the money supply A. shifts the SRAS curve downward. B. does not shift the SRAS curve. C.shifts the SRAS curve upward. An increase in consumption A. shifts the SRAS curve upward. B. does not shift the SRAS curve. C. shifts the SRAS curve downward.

C. shifts the SRAS curve upward. B. does not shift the SRAS curve. B. does not shift the SRAS curve.

The​ full-employment level of employment​ is: A. the level of employment where there is no structural or frictional unemployment. B. the level of employment when aggregate demand is equal to​ short-run aggregate supply. C. the equilibrium level of employment reached after all wages and prices have fully adjusted.

C. the equilibrium level of employment reached after all wages and prices have fully adjusted.

1.) The key factor influencing the effect of an oil price shock on the real interest rate is A. the size of the price shock. B. the time since the last oil price shock. C. whether the price shock is expected to be temporary or permanent. D. the direction of the oil price shock​ (whether prices rose or​ fell). ​ Specifically, A. a price shock expected to be temporary will result in a larger decrease in the real interest rate. B. a price shock expected to be permanent will result in a larger decrease in the real interest rate. C. a price shock expected to be temporary will result in a larger increase in the real interest rate. D. a price shock expected to be permanent will result in a larger increase in the real interest rate. ​ 2.) In 2008 there was an oil price shock resulting from a large increase in oil prices. Why was the negative impact on the economy after this shock much larger than​ usual? A. At the same time as the oil price shock the government began supplying more oil by releasing oil from the​ country's strategic reserves. B. Consumers did not react to the change in oil prices as predicted. Instead of demanding less oil the demand for oil rose significantly. C. The increase in oil prices that caused the shock was the largest in​ history, causing more negative impacts than normal. D. At the same time as the oil price shock there was a crisis in the housing and financial sectors. Of the oil price shocks​ mentioned, the real interest rate rose significantly A. after the shock of​ 1973-1974 only B. after the shock of​ 1979-1980 only C. after the shock of both​ 1973-1974 and​ 1979-1980 D. after the shock of neither​ 1973-1974 nor​ 1979-1980 ​ 3.) Working with the data given in the​ application, the model suggests that A. people expected only the​ 1979-1980 oil shock to be permanent B. people expected only the​ 1973-1974 oil shock to be permanent C. people expected both of the oil shocks to be permanent D. people expected neither of the oil shocks to be permanent If indeed this was their​ expectation, time has shown that they were correct.

C. whether the price shock is expected to be temporary or permanent. C. a price shock expected to be temporary will result in a larger increase in the real interest rate. D. At the same time as the oil price shock there was a crisis in the housing and financial sectors. B. after the shock of​ 1979-1980 only B. people expected only the​ 1973-1974 oil shock to be permanent

When economists say that money is​ neutral, this means​ that: A. a change in the money supply will stall the​ economy, preventing further growth. B. a change in the money supply has no effect on the economy. C. a change in the money supply changes real variables but not nominal variables. D. a change in the money supply changes nominal variables but not real variables.

D. a change in the money supply changes nominal variables but not real variables.

1.) An economist studies the effect of changes in tax laws on​ consumption, assuming that the average household spends about​ $800 of every additional​ $1,000 earned. In this​ study, the tax laws are acting as A. a parameter. B. an endogenous variable. C. an MPS variable. D. an exogenous variable. In the above​ study, the amount the average household spends of additional income is acting as A. an MPS variable. B. a parameter. C. an exogenous variable. D. an endogenous variable. ​ 2.) One of the differences between the​ FRB/US model and its predecessor the MPS is that A. the MPS model is better at incorporating​ people's expectations. B. the MPS model is better at showing how economic agents react to shocks. C. the​ FRB/US model uses newer statistical techniques than the MPS did. D. the​ FRB/US model, unlike the MPS​ model, was developed from the theoretical ​IS-LM model. ​ 3.) The​ FRB/US model's forecasts A. are reviewed and often modified by the staff of the Federal Reserve​ Board, and the forecasts made using the model have been found to be superior to private sector forecasts. B. do not involve any review or modification by members of the Federal Reserve​ Board, and yet the forecasts made using the model have been found to be superior to private sector forecasts. C. are reviewed and often modified by the staff of the Federal Reserve​ Board, but private sector forecasts have been found to be superior to those made with the​ FRB/US model. D. do not involve any review or modification by members of the Federal Reserve​ Board, and private sector forecasts have been found to be superior to those made with the​ FRB/US model.

D. an exogenous variable. B. a parameter. C. the​ FRB/US model uses newer statistical techniques than the MPS did. A. are reviewed and often modified by the staff of the Federal Reserve​ Board, and the forecasts made using the model have been found to be superior to private sector forecasts.

In each of the following​ cases, what is the effect on the IS​ curve? An increase in the effective tax rate on capital A. shifts the IS curve down and to the left. B. does not change the IS curve. C. shifts the IS curve up and to the right. An increase in the money supply A. shifts the IS curve down and to the left. B. shifts the IS curve up and to the right. C. does not change the IS curve. A temporary increase in government spending A. shifts the IS curve down and to the left. B. shifts the IS curve up and to the right. C. does not change the IS curve.

A. shifts the IS curve down and to the left. C. does not change the IS curve. B. shifts the IS curve up and to the right.

In each of the following​ cases, what is the effect on the LM​ curve? An increase in the expected inflation rate A. shifts the LM curve down and to the right. B. does not shift the LM curve. C. shifts the LM curve up and to the left. An increase in government spending A. shifts the LM curve up and to the left. B. shifts the LM curve down and to the right. C. does not shift the LM curve. An increase in the price level A. shifts the LM curve down and to the right. B. shifts the LM curve up and to the left. C. does not shift the LM curve.

A. shifts the LM curve down and to the right. C. does not shift the LM curve. B. shifts the LM curve up and to the left.

Describe the​ short-run aggregate supply ​(SRAS​) curve and the​ long-run aggregate supply ​(LRAS​) curve. A. the SRAS curve is horizontal and the LRAS curve is vertical B. the SRAS curve is vertical and the LRAS curve is horizontal C. the SRAS curve is vertical and the LRAS curve is upward sloping D. the SRAS curve is horizontal and the LRAS curve is upward sloping Why is the​ short-run aggregate supply curve​ horizontal? A. because prices remain fixed in the short run B. because capital is fixed in the short run C. because the real interest rate is fixed in the short run D. because output is fixed in the short run Why is the​ long-run aggregate supply curve​ vertical? A. because the price level depends on the amount of output B. because the capital stock changes to produce the fixed amount of output in the long run C. because the aggregate amount of output supplied is the​ full-employment level, regardless of the price level D. because prices are fixed in the long run

A. the SRAS curve is horizontal and the LRAS curve is vertical A. because prices remain fixed in the short run C. because the aggregate amount of output supplied is the​ full-employment level, regardless of the price level

According to the classical​ model, after an economic​ disturbance, which of the following is​ true? A. Price adjustment will eventually return the economy to general​ equilibrium, but this may take several years. B. The economy will rapidly return to general equilibrium as prices adjust quickly. C. The economy will be unable to return to general equilibrium without government intervention. D. The economy will be unable to return to general equilibrium without intervention by the Federal Reserve. According to the Keynesian​ model, after an economic​ disturbance, which of the following is​ true? A. The economy will be unable to return to general equilibrium without intervention by the Federal Reserve. B. Price adjustment will eventually return the economy to general​ equilibrium, but this may take several years. C. The economy will be unable to return to general equilibrium without government intervention. D. The economy will rapidly return to general equilibrium as prices adjust quickly.

B. The economy will rapidly return to general equilibrium as prices adjust quickly. B. Price adjustment will eventually return the economy to general​ equilibrium, but this may take several years.

How does the change in the​ money-demand equation affect the algebraic expression for the​ general-equilibrium value of​ employment? A. decreases employment B. no effect C. increases employment D. increases employment if i^m ​> 0; decreases employment if i^m ​< 0 How does the change in the​ money-demand equation affect the algebraic expression for the​ general-equilibrium value of the real​ wage? A. increases the real wage B. increases the real wage if i^m ​> 0; decreases the real wage if i^m ​< 0 C. decreases the real wage D. no effect How does the change in the​ money-demand equation affect the algebraic expression for the​ general-equilibrium value of​ output? A. no effect B. increases output C. increases output if i^m ​> 0; decreases output if i^m ​< 0 D. decreases output How does the change in the​ money-demand equation affect the algebraic expression for the​ general-equilibrium value of the real interest​ rate? A. increases the real interest rate B. no effect C. decreases the real interest rate D. increases the real interest rate if i^m ​> 0; decreases the real interest rate if i^m ​< 0 The algebraic expression for the price level in general equilibrium is now...... sorry no answer for this one bc I can't type equations Given the equation for the price​ level, the equilibrium value of the price level is now​ _____ it was​ before, assuming that i^m ​> 0. A. higher than B. the same as C. lower than D. ambiguous compared with what

B. no effect D. no effect A. no effect B. no effect C. lower than

In each of the following​ cases, what is the effect on the AD​ curve? An increase in the effective tax rate on capital A. shifts the AD curve up and to the right. B. shifts the AD curve down and to the left. C. does not shift the AD curve. An increase in the money supply A. does not shift the AD curve. B. shifts the AD curve down and to the left. C. shifts the AD curve up and to the right. An increase in the price level A. shifts the AD curve down and to the left. B. does not shift the AD curve. C. shifts the AD curve up and to the right.

B. shifts the AD curve down and to the left. C. shifts the AD curve up and to the right. B. does not shift the AD curve.

In each of the following​ cases, what is the effect on the FE​ line? An adverse supply shock A. does not change the FE line. B. shifts the FE line leftward. C. shifts the FE line rightward. An increase in the labor supply A. shifts the FE line leftward. B. does not change the FE line. C. shifts the FE line rightward. An increase in the money supply A. does not change the FE line. B. shifts the FE line leftward. C. shifts the FE line rightward.

B. shifts the FE line leftward. C. shifts the FE line rightward. A. does not change the FE line.

The IS curve​ represents: A. combinations of output and the real interest rate such that the real interest rate is equal to the​ full-employment interest rate. B. combinations of output and the real interest rate such the output is equal to​ full-employment output. C. combinations of output and the real interest rate such that money demand is equal to money supply. D. combinations of output and the real interest rate such that desired national saving is equal to desired investment.

D. combinations of output and the real interest rate such that desired national saving is equal to desired investment.

Money is said to be neutral ​if: A. if a change in the money supply changes the price level and all real variables proportionately. B. if a change in the money supply does not change the level of​ full-employment output. C. if a change in the money supply does not change the price level or other nominal variables. D. if a change in the money supply changes the price level and other nominal variables but has no effect on real variables. After prices​ adjust, money is neutral in the ​IS-LM model​ because: A. when the economy returns to the​ full-employment level, there is no net change in the price level. B. the shift in the LM curve due to the change in the money supply is matched by an equal shift of the IS curve. C. any shift in the aggregate demand curve caused by the change in the money supply is offset by a shift of the aggregate supply curve. D. any change in money supply that shifts the LM curve is finally matched by a proportional change in the price level that shifts the LM curve to its original position. Regarding neutrality of​ money: A. classical economists believe that money is neutral in both the short run and the long​ run, but Keynesians believe that money is neutral only in the short run but not in the long run. B. Keynesian economists believe that money is neutral in both the short run and the long​ run, but classical economists believe that money is neutral only in the long run but not in the short run. C. both classical and Keynesian economists agree that money is neutral only in the long run but not in the short run. D. classical economists believe that money is neutral in both the short run and the long​ run, but Keynesians believe that money is neutral only in the long run but not in the short run due to sluggish adjustment of the price level in the short run.

D. if a change in the money supply changes the price level and other nominal variables but has no effect on real variables. D. any change in money supply that shifts the LM curve is finally matched by a proportional change in the price level that shifts the LM curve to its original position. D. classical economists believe that money is neutral in both the short run and the long​ run, but Keynesians believe that money is neutral only in the long run but not in the short run due to sluggish adjustment of the price level in the short run.

In this​ problem, you will use the ​IS-LM model to analyze the​ general-equilibrium effects of a permanent increase in the price of oil​ (a permanent adverse supply​ shock) on macroeconomic variables. Assume​ that, besides reducing the current productivity of capital and​ labor, the permanent supply shock lowers both the expected future MPK and​ households' expected future incomes. The increase in the price of oil​ _____ the marginal product of​ labor, causing the labor demand curve to shift​ ____. A. increases; to the right B. ​increases; to the left C. reduces; to the right D. reduces; to the left Since​ households' expected future incomes​ ____, labor supply​ _____, shifting the labor supply curve​ _____. A. rise; increases; to the left B. decline; decreases; to the right C. decline; increases; to the left D. decline; increases; to the right Assume that the rightward shift in labor supply is smaller than the leftward shift in labor demand. In the new​ equilibrium, the real wage is​ ____ and the equilibrium amount of employment is​ _____, compared with the equilibrium before the productivity shock occurred. A. lower; higher B. higher; higher C. higher; lower D. ​lower; lower The FE curve shifts​ _____ and the IS curve shifts​ _____. A. left; up and to the right B. right; down and to the left C. left; down and to the left D. right; up and to the right In general​ equilibrium, the real interest rate is​ _____ and output is​ _____, compared with the equilibrium before the productivity shock. A. higher; lower B. ambiguous; higher C. ​lower; higher D. ambiguous; lower If the productivity shock were temporary rather than​ permanent, the main difference is that the​ _____ curve would not shift. A. LM curve B. Phillips curve C. IS curve D. FE line If the productivity shock were temporary rather than​ permanent, the main difference is that the real interest rate would​ _____ instead of being ambiguous and the price level would​ _____ instead of being ambiguous. A. increase; decrease B. ​increase; increase C. decrease; decrease D. decrease; increase

D. reduces; to the left D. decline; increases; to the right D. ​lower; lower C. left; down and to the left D. ambiguous; lower C. IS curve B. ​increase; increase

The LM curve shows A. the combinations of the price level and output such that both the goods market and the money market are in equilibrium. B. the combinations of the real interest rate and output such that the goods market is in equilibrium. C. the combinations of price level and output that maintain labor market equilibrium. D. the combinations of the real interest rate and output such that the asset market is in equilibrium. All of the following can shift the LM curve down and to the right except A. an increase in excepted inflation. B. a decrease in the risk of holding alternative assets relative to the risk of holding money. C. a reduction in price level. D. a reduction in money supply.

D. the combinations of the real interest rate and output such that the asset market is in equilibrium. D. a reduction in money supply.

The position of the FE line is determined​ by: A. the money supply and government purchases. B. consumption and investment. C. the price level and interest rate. D. the labor market and the production function. All of the following will shift the FE line​ except: A. an increase in labor supply. B. an increase in the price level. C. an increase in the capital stock. D. a beneficial supply shock.

D. the labor market and the production function. B. an increase in the price level.

General equilibrium occurs at which point in the IS−LM​ diagram? A. the point at which the FE line and the LM curve intersect B. the point at which the IS and LM curves intersect C. the point at which the FE line and the IS curve intersect D. the point at which the FE line and the IS and LM curves intersect If the economy​ isn't in general​ equilibrium, what determines output and the real interest​ rate? A. the point at which the IS and LM curves intersect B. the point at which the FE line and the IS curve intersect C. the point at which the FE line and the IS and LM curves intersect D. the point at which the FE line and the LM curve intersect What economic forces act to bring the economy back to general​ equilibrium? A. adjustment of the price level moves the LM curve B. adjustment of output moves the LM curve C. adjustment of the real interest rate moves the IS curve D. adjustment of future income moves the IS curve

D. the point at which the FE line and the IS and LM curves intersect A. the point at which the IS and LM curves intersect A. adjustment of the price level moves the LM curve

In the ​AD-AS​ model, the​ short-run effect of a decrease in the money supply is A. a shift up and to the right of the AD ​curve, causing output to rise at an unchanged price level. B. a shift down and to the left of the AD curve and a shift down of the SRAS ​curve, causing output and the price level to fall. C. a shift up and to the right of the AD curve and a shift up of the SRAS ​curve, causing output and the price level to rise. D. no​ change, because money is neutral in the short run. E. a shift down and to the left of the AD ​curve, causing output to fall at an unchanged price level. In the ​AD-AS​ model, the​ long-run effect of a decrease in the money supply is A. a proportionate increase in the price​ level, but no changes to real variables such as output. B. a proportionate increase in the price level and in output. C. a proportionate fall in the price level and in output. D. no change at​ all, because money is neutral in the long run. E. a proportionate fall in the price​ level, but no changes to real variables such as output.

E. a shift down and to the left of the AD ​curve, causing output to fall at an unchanged price level. E. a proportionate fall in the price​ level, but no changes to real variables such as output.