exam 3

Assume that the economy is at a long run equilibrium and oil prices rise. As a result, the ________ shifts ________.

SAS; leftward

In 2008, the dollar appreciated relative to the euro. This appreciation caused ________ and a ________.

a decrease in U.S. exports to Europe; leftward shift in the U.S. aggregate demand curve

Which of the following policies shifts the AD curve the farthest leftward?

a decrease in government expenditure of $10 billion

In the long-run equilibrium, an increase in the quantity of capital leads to

a decrease in the equilibrium price level and an increase in equilibrium real GDP

A lower price level combined with a decrease in real GDP occurs when the

aggregate demand curve shifts leftward

The country of Stanley is at an above-full-employment equilibrium. Which of the following events will return Stanley to full employment?

an increase in the nominal wage rate

Federal Reserve open market operations directly influence

banks

The Keynesian model of aggregate expenditure assumes that

both individual firms' prices and the price level are fixed

The cyclical deficit is the portion of the deficit

created by fluctuations in real GDP

Within the market for reserves, an increase in the quantity of reserves results in a

fall in the equilibrium federal funds rate

The presence of income taxes and imports make the multiplier

fall in value but remain positive

Because of automatic fiscal policy, when real GDP decreases

government expenditures increase and tax revenues decrease

Long-term interest rates are ________ than short-term interest rates because long-term loans are ________ than short-term loans

higher; riskier

The multiplier measures the

horizontal shift in the aggregate demand curve from an increase in autonomous spending

If the Fed raises the federal funds rate so that the exchange rate rises, then imports ________ and exports ________.

increase; decrease

Using fiscal policy, to increase real GDP and employment the government could ________ government expenditure on goods and services or ________ taxes.

increase; decrease

Stagflation is the combination of

inflation and reccison wrong deflation with increasing real GDP

In the short run, the Federal Reserve faces a tradeoff between

inflation and unemployment

When the Fed raises the federal funds rate, other

interest rates rise, consumption, investment and net exports increase, and the aggregate demand curve shifts rightward wrong

A reason the government expenditure multiplier is larger than 1 is because

investment increases when government expenditure increases wrong government expenditure always increases

Economic growth

is an increase in potential GDP as the long-run aggregate supply curve shifts rightward

When the aggregate demand curve shifts, the steeper the SAS curve the ________ will be a change in the price level and the ________ will be the multiplier

larger; smaller

Which school of thought believes that real GDP always equals potential GDP?

only classical

The demand-side effect of a change in taxes is less than the same sized change in government expenditure because

only part of the increase in disposable income from the tax cut is spent

The federal funds rate is the interest rate

overnight

In the very short term, in the Keynesian model, which of the following is fixed and does not change when GDP changes?

planned investment

If the economy is in long run equilibrium and then aggregate demand increases, in the long run the increase in aggregate demand means that the

price level will be higher but real GDP will be unaffected

In the short run, an increase in the federal funds rate ________ the real interest rate and ________ investment

raises; decreases

In general, an increase in autonomous expenditure that is NOT created by a change in the price level results in a

rightward shift of the AD curve

Any change in the price level will result in a

shift in the AE curve and a movement along the AD curve

If the government's budget is in surplus even when the economy is at full employment, the surplus is said to be

structural

If a tax cut increases people's labor supply, then

tax cuts increase potential GDP

The Laffer curve is the relationship between

tax rates and tax revenue

Monetary policy is controlled by

the Federal Reserve

Monetary policy includes adjustments in ________ so as to change ________.

the federal funds rate; aggregate demand

The use of discretionary fiscal policy to end a recession is limited because

the legislative process is slow

An increase in ________ shifts the AE curve ________ and an increase in ________ shifts the aggregate demand curve ________.

the price level; downward; autonomous expenditure; rightward

In the aggregate expenditure model, when real GDP is greater than aggregate planned expenditure

unplanned inventories are being accumulated

A fall in the price level shifts the AE curve ________ and ________ equilibrium expenditure

upward; increases

In 2008, Japan's government approved a $1 trillion fiscal stimulus plan comprised of both tax cuts and government expenditure increases. As a result

wrong Japan's long-run aggregate supply curve shifted leftward Japan's aggregate supply curve shifted leftward