Econ 510 Final
When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift
downward and to the left
In the IS-LM model when taxation increases, in short-run equilibrium, the interest rate ____ and output ___
falls; falls
In the IS-LM model when M rises but P remains constant, in short-run equilibrium, in the usual case the interest rate ____ and output ___
falls; rises
The government purchases multiplier indicates how much ___ change in response to a $1 change in government purchases
income
If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will ___ and output will ___
increase; decrease
According to the theory of liquidity preference, the supply of real money balances
is fixed
When a long-term aggregate supply curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, this curve
is vertical
If the short-run aggregate supply curve is horizontal, then changes in aggregate demand affect
level of output but not prices
Planned expenditure is a function of
national income and planned investment, government spending, and taxes
The aggregate demand curve is the ___ relationship between the quantity of output demanded and the ___
negative; price level
If the short-run aggregate supply curve is horizontal and the long run aggregate supply curve is vertical, then a change in the money supply will change ___ in the short run and change ___ in the long run
only output; only prices
If the short-run aggregate supply curve is horizontal and the Fed increases the money supply, then
output and employment will increase in the short run
Assume that the economy starts from long-run equilibrium. If the Federal Reserve increases the money supply, then ____ increases in the short run and ____ increases in the long run
output; prices
Aggregate supply is the relationship between the quantity of goods and services supplied and the
price level
In the short run an adverse supply shock causes
prices to rise and output to fall
A short-run aggregate supply curve shows fixed ___, and a long run aggregate supply curve shows fixed ___,
prices; output
The intersection of the IS and LM curve determines the values of
r and Y, given G, T, M, and P
In the IS-LM model when government spending rises, in short-run equilibrium, in the usual case the interest rate __ and output___
rises; rises
The LM curve, in the usual case
slopes up to the right
The interaction of the IS curve and the LM curve together determine
the equilibrium level of interest rate and output
The LM curve shows combinations of ____ that are consistent with equilibrium in the market for real money balances
the interest rate and the level of income
Along an aggregate demand curve, which of the following are held constant?
the money supply and velocity
A decrease in the real money supply, other things being equal, will shift the LM curve
upward and to the left
An increase in government spending generally shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis
upward and to the right
If consumption is given by C=200+0.75(Y-T) and investment is given by I=200-25r, then the formula for the IS curve is
Y=1,600 - 3T - 100r- 4G
In the aggregate demand-aggregate supply model, short-run equilibrium occurs at the combination of output and prices where
aggregate demand equals short-run aggregate supply
In the aggregate demand-aggregate supply model, long-run equilibrium occurs at the combination of output and prices where
aggregate demand equals short-run and long-run aggregate supply
In the long run, the level of output is determined by the
amounts of capital and labor and the available technology
Along any given IS curve
both government spending and tax rates are fixed
In the Keynesian cross model, if the MPC equals 0.75, then a $1 billion increase in government spending increases planned expenditures by ___ and increases the equilibrium level of income by ____
$1 Billion; more than $1 billion
Changes in monetary policy shift the
LM curve
If the money supply increases, then in the IS-LM analysis the ___ curve shifts to the ____
LM; right
A difference between the economic long run and the short run is that
Demand can affect output and employment in the short run, whereas supply is the ruling force in the long run
