Ch 10
In the short run, a favorable supply shock causes:
prices to fall and output to rise.
If Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output at its natural level, then in response to an exogenous decrease in the velocity of money:
Both Central Bank A and Central Bank B should increases the quantity of money
In this graph, initially the economy is at point E, with price P0 and output Ȳ aggregate demand is given by curve AD0, and SRAS and LRAS represent, respectively, short-run and long-run aggregate supply. Now assume that the aggregate demand curve shifts so that it is represented by AD1. The economy moves first to point ______ and then, in the long run, to point ______.
C; B
Assuming velocity is constant, the aggregate demand curve tells us possible:
combinations of P and Y for a given value of M.
The version of Okun's law studied in Chapter 10 assumes that with no change in unemployment, real GDP normally grows by 3 percent over a year. If the unemployment rate rose by 2 percentage points over a year, Okun's law predicts that real GDP would:
decrease by 1 percent
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.
The short run refers to a period:
during which prices are sticky and cyclical unemployment may occur.
According to the quantity theory of money, when velocity is constant, if output is higher, ______ real balances are required, and for fixed M this means ______ P.
higher; lower
If the short-run aggregate supply curve is horizontal, an increase in union aggressiveness that pushes wages and prices up will result in ______ prices and ______ output in the short run.
higher; lower
If a change in government regulations allows banks to start paying interest on checking accounts, this will:
increase the demand for money.
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
Over the business cycle, investment spending ______ consumption spending
is more volatile than
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 ______ increase(s) in the short run, and ______ increase(s) in the long run.
output; prices
Which of the following is an example of a demand shock?
the introduction and greater availability of credit cards
The vertical long-run aggregate supply curve satisfies the classical dichotomy because the natural rate of output does not depend on:
the money supply.
Measures of average workweeks and of supplier deliveries (vendor performance) are included in the index of leading indicators, because shorter workweeks tend to indicate ______ future economic activity and slower deliveries tend to indicate ______ future economic activity.
weaker; stronger