UNIT 5 Macro

Assume an economy is in long-run equilibrium and the central bank engages in an expansionary monetary policy for a prolonged time period. If the velocity of money is constant, which of the following is true according to the quantity theory of money?

(B) Price level will increase at the same rate as the money supply.

Use the graph below of the long-run Philips Curve (LRPC) and the short-run Phillips Curve (SRPC) to answer the question. What would happen if an economy was in recession and the government decreased tax rates?

(C) There will be movement from point C to point B.

Which of the following describes a surplus in the government budget?

(D) Tax revenues exceed government purchases plus transfer payments.

If real GDP per capita grows at a rate of 10% per year, then we can expect the standard of living to double in

7 years

An economy is in short-run equilibrium as illustrated by the graph above. Which of the following combinations of policy actions would definitely move the economy toward long-run equilibrium?

A decrease in income taxes and an increase in the money supply

An increase in the expected inflation rate will cause which of the following?

A rightward shift in the short-run Phillips curve

Country X's economy is in an inflationary gap. Which of the following combinations of fiscal and monetary policy actions would restore full employment in the short run?

An increase in income taxes and an open-market sale of government bonds by the country's central bank

The graph that shows different possible tax rates and revenues collected by the government at those rates is called the __________ curve

Laffer

Which of the following will most likely occur if a country's government is continuously borrowing to finance its spending without changing taxes?

Private investment in plant and equipment will decrease, resulting in a lower rate of economic growth in the long run growth in

Which of the following will promote economic growth?

a new technique that lowers costs

Which of the following will produce economic growth?

an increase in the amount of capital

To determine the change in the capital stock, the level of gross investment must be adjusted for Depreciation because some new investment

b. Replaces existing, worn out, capital

The crowding-out effect from government borrowing is best described as

b. the leftward shift of AD in response to the rising interest rates from expansionary fiscal policy

The name for inflation that derives from rising costs is called

cost push inflation

In order to separate the effects of the business cycle from the effects of discretionary fiscal policy, governments estimate the

cyclically adjusted budget balance

The process of bringing higher rates of inflation back down is called

disinflation

The belief that GDP will grow steadily if the money supply grows steadily is called

monetarism

The belief that monetary policy has no real consequential long term effects on the economy is called

monetary neutrality

The natural rate of unemployment is also known as the

non accelerating inflation rate of unemployment (NAIRU)

Human capital consists of

worker's education and skills