MyEconLab Chapter 21
Any factor that shifts the __________ curve shifts the __________ curve in the __________ direction. A) IS; AD; same B) MP; IS; same C) IS; AD; opposite D) MP; IS; opposite
A
Everything else held constant, an increase in government spending will cause ________. A) aggregate demand to increase B) the quantity of aggregate demand to decrease C) the quantity of aggregate demand to increase D) aggregate demand to decrease
A
The Taylor principle A) holds when lambda greater than 0. B) implies the IS curve is downward sloping. C) leads to higher real interest rates when inflation decreases. D) leads a raise of the nominal interest rate equal to the rise in inflation.
A
Everything else held constant, a decrease in autonomous consumer spending will cause the IS curve to shift to the ________ and aggregate demand will ________. A) left; increase B) left; decrease C) right; decrease D) right; increase
B
Everything else held constant, an appreciation of the domestic currency will cause the IS curve to shift to the ________ and aggregate demand will ________. A) right; decrease B) left; decrease C) left; increase D) right; increase
B
When r increases, this causes a movement along the________ curve, and shifts the _________ curve. A) MP; IS B) AD; MP C) IS; AD D) MP; AD
C
Which of the following causes the MP curve to shift down? A) a decrease in inflation B) an autonomous tightening of monetary policy C) an increase in inflation D) an autonomous easing of monetary policy
D
How do changes in planned expenditures affect the aggregate demand curve? A) The aggregate demand curve shifts to the right if autonomous consumption, autonomous investment, autonomous net exports, or government purchases increase, or if taxes decrease. B) The aggregate demand curve shifts to the right if autonomous consumption, autonomous investment, autonomous net exports, government purchases, or taxes increase. C) The aggregate demand curve shifts to the right if autonomous consumption, autonomous investment, autonomous net exports, government purchases, or taxes decrease. D) The aggregate demand curve shifts to the left if autonomous consumption, autonomous investment, autonomous net exports, or government purchases increase, or if taxes decrease.
A
How does an autonomous tightening or easing of monetary policy by the Fed affect the MP curve? A) When the Fed decides to raise the real interest rate at any given inflation rate, the MP curve shifts upward. Monetary policy easing, a decision to lower the real interest rate at any given inflation rate, shifts the MP curve downward. B) When the Fed decides to lower the real interest rate at any given inflation rate, the MP curve shifts upward. Monetary policy easing, a decision to raise the real interest rate at any given inflation rate, shifts the MP curve downward. C) When the Fed decides to raise the real interest rate at any given inflation rate, the MP curve shifts downward. Monetary policy easing, a decision to lower the real interest rate at any given inflation rate, shifts the MP curve upward. D) None of the above are correct.
A
How is an autonomous tightening or easing of monetary policy different than a change in the real interest rate due to a change in the current inflation rate? A) With a tightening or easing of monetary policy, some projected changes in monetary policy independent of the current inflation rate may occur. B) Autonomous tightening or easing of monetary policy is based on a change in the nominal interest rate, not the real interest rate. C) Tightening or easing of monetary policy is reflected as a movement along the monetary curve rather than an upward or downward shift of the curve. D) Tightening or easing of monetary policy may cause a change in the responsiveness of the real interest rate to the inflation rate, not in its autonomous component.
A
Which of the following represents a movement along a given AD curve? A) Inflation decreases, the real interest rate decreases, and aggregate output increases. B) Inflation decreases, the real interest rate decreases, and aggregate output decreases. C) Inflation increases, the real interest rate increases, and aggregate output increases. D) Inflation increases, the real interest rate decreases, and aggregate output increases.
A
A movement to the right along a given MP curve means A) the federal funds rate is held constant. B) inflation is increasing. C) an autonomous policy tightening has occurred. D) expected future inflation has increased.
B
Suppose that a new Fed chair is appointed, and his or her approach to monetary policy can be summarized by the following statement: "I care only about increasing employment; inflation has been at very low levels for quite some time; my priority is to ease monetary policy to promote employment." What would be the effect on the aggregate demand curve? A) The AD curve will not change. B) The AD curve will shift to the right. C) The slope of the AD curve will increase. D) The AD curve will shift to the left.
B
Suppose that a new Fed chair is appointed, and his or her approach to monetary policy can be summarized by the following statement: "I care only about increasing employment; inflation has been at very low levels for quite some time; my priority is to ease monetary policy to promote employment." How would you expect the monetary policy curve to be affected, if at all? A) The MP curve will shift downward because decreasing unemployment results in a tightening of monetary policy. B) The MP curve will shift upward because decreasing unemployment results in a tightening of monetary policy. C) The MP curve will shift downward because decreasing unemployment results in a loosening of monetary policy. D) The MP curve will shift upward because decreasing unemployment results in a loosening of monetary policy.
C
Suppose that taxes are decreased and the central bank conducts an autonomous easing of monetary policy. What will be the result? A) The IS curve shifts left, the MP curve shifts down, and the AD curve shifts right. B) The IS curve shifts right, the MP curve shifts up, and there is an ambiguous effect on the AD curve. C) The IS curve shifts right, the MP curve shifts down, and the AD curve shifts right. D) The IS curve shifts left, the MP curve shifts up, and the AD curve shifts left.
C
There is an increase in the current inflation rate: A) The IS curve is not affected, the MP curve becomes steeper, and the slope of the AD curve becomes flatter B) All the curves shift to the right. C) There is a movement along the MP curve, which increases the real interest rate, a movement along the IS curve to lower output, and a movement along the AD curve, reducing output D) There is a movement along the MP curve, which decreases the real interest rate, the IS curve shifts to the right, and there is a movement along the AD curve, increasing output E) The IS curve shifts to the right, the MP curve shifts to the left and there is a movement along it, and the AD curve does not shift
C
When the financial crisis started in August 2007, inflation was rising and the Fed began an aggressive easing lowering of the federal funds rate, which indicated that A) there was an upward movement along the monetary policy curve. B) the monetary policy curve shifted upward. C) the monetary policy curve shifted downward. D) there was a downward movement along the monetary policy curve.
C
Why is it necessary for the MP curve to have an upward slope? A) If the MP curve has an upward slope, it indicates an increase in output and a decrease in unemployment. B) If the MP curve has an upward slope, then more liquidity will occur in the banking system. C) An upward-sloping MP curve keeps inflation from spinning out of control. D) An upward-sloping MP curve encourages consumer and business spending.
C
The MP curve gives the relationship between the A) real interest rate and aggregate output. B) nominal interest rate and the inflation rate. C) nominal interest rate and aggregate output. D) real interest rate and the inflation rate.
D
