Macro Chapter 3 Supplementary questions
When the money market is drawn with the value of money on the left vertical axis, if the Federal Reserve decreases the discount rate, then the money supply curve
shifts right, causing the price level to rise
Suppose the MPC is .60 and there are no crowding-out effects. if the government expenditures increase by $25 billion, then the aggregate demand
shifts rightward by $62.5 billion
When the money market is drawn with the value of money on the left vertical is, an increase in the money supply creates and excess
supply of money, causing people to spend money
The long-run response to a decrease in the money supply growth rate is shown by shifting
only the short-run phillips curves left
If the MPC is .75 and there are no crowding-out effects, then an initial increase in aggregate demand of $100billion will eventually shift the AD curve to the right by
$400 billion
If the economy is initially at long-run equilibrium and aggregate demand increases, then in the SHORT-RUN price level
And output is higher than in the original long-run equilibrium
A favorable supply shock will cause inflation to
Fall and shift the SRPC left
If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium
Inflation expectations fall which shifts the SRPC to the left
If unemployment is below its natural rate, what happens to move the economy to long-run equilibrium?
Inflation expectations rise which shifts the SRPC curve to the right
If the economy is initially at long-run equilibrium and aggregate supply decreases, then in the SHORT-RUN the price level
Is higher and output is the lower than the original long-run equilibrium
If the economy is initially at long-run equilibrium and aggregate demand increases, then in the LONG-RUN the price level
Is higher and output is the same as the original long-run equilibrium
Assume the MPC is .75. Assume there is a multiplier effect and that the total crowding-out effect is $6 Billion. An increase in government purchases of $10 billion will shift aggregate demand to the
Right by $24 billion
An adverse supply shock causes inflation to
Rise and the SRPC to shift right
When the money market is drawn with the value of money on the left vertical axis, if the Federal Reserve sells bonds, then the money supply curve
Shifts left, causing the price level to fall
When the money market is drawn with the value of money on the left vertical axis, if the Federal Reserve buys bonds, then the money supply curve
Shifts right, causing the price level to rise
If the economy is initially at long-run equilibrium and aggregate demand declines then in the SHORT-RUN the price level
and output are lower than in the original long-run equilibrium
When the money market is drawn with the value of money on the left vertical axis, if the money demand shifts leftward, then initially there is an
excess supply of money which causes the price level to rise
If the economy is initially at long-run equilibrium and aggregate demand declines, then in the new LONG-RUN the price level
is lower and output is the same as the original long-run equilibrium
Assume the multiplier is 5 and the crowding-out effect is $20 billion. An increase in government purchases of $10 billion will shift the AD curve to the
right by $30
If there is an adverse supply shock, then
unemployment rises and the SRPC shifts right
