Chapter 20 m/c and t/f
If policymakers choose to try to move the economy out of a recession, they should use their policy tools to decrease aggregate demand
False
If the Federal Reserve increases the money supply, the aggregate-demand curve shifts to the left.
False
If the economy is in a recession, the economy will adjust to long-run equilibrium on its own as wages and price expectations rise.
False
In the long run, an increase in government spending tends to increase output and prices
False
Over the last 50 years, U.S. real GDP has grown at about 5 percent per year
False
One reason aggregate demand slopes downward is the wealth effect: A decrease in the price level increases the value of money holdings and consumer spending rises
True
The short-run effect of an increase in aggregate demand is an increase in output and an increase in the price level.
True
The natural rate of output is the amount of real GDP produced
when the economy is at the natural rate of unemployment.
Which of the following statements about economic fluctuations istrue ?
A variety of spending, income, and output measures can be used to measure economic fluctuations because most macroeconomic quantities tend to fluctuate together.
The misperceptions theory explains why the long-run aggregate-supply curve is downward sloping.
False
Refer to Exhibit 4. Suppose the economy is operating in a recession such as point B in Exhibit 4. If policymakers allow the economy to adjust to the long-run natural rate on its own
people will reduce their price expectations and the short-run aggregate supply will shift right.
A rise in the price of oil tends to cause stagflation
True
Economists refer to fluctuations in output as the "business cycle" because movements in output are regular and predictable.
False
Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. If policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model of aggregate demand and aggregate supply, what happens to prices and output in thelong run ?
Output and the price level are unchanged from their initial values.
Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in military spending due to the end of the Cold War. According to the model of aggregate demand and aggregate supply, what happens to prices and output in theshort run ?
Prices fall; output falls.
Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in military spending due to the end of the Cold War. According to the model of aggregate demand and aggregate supply, what happens to prices and output in thelong run ?
Prices fall; output is unchanged from its initial value.
Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. According to the model of aggregate demand and aggregate supply, what happens to prices and output in theshort run ?
Prices rise; output falls.
A rise in price expectations that causes wages to rise causes the short-run aggregate-supply curve to shift left.
True
An increase in price expectations shifts the long-run aggregate-supply curve to the left.
True
If the classical dichotomy and monetary neutrality hold in the long run, then the long-run aggregate-supply curve should be vertical.
True
In the short run, if the government cuts back spending to balance its budget, it will likely cause a recession.
True
Investment is a particularly volatile component of spending across the business cycle
True
Which of the following events shifts the short-run aggregate-supply curve to the right?
a drop in oil prices
Which of the following wouldnot cause a shift in the long-run aggregate-supply curve?
an increase in price expectations
Which of the following statements is true regarding the long-run aggregate-supply curve? The long-run aggregate-supply curve
is vertical because an equal change in all prices and wages leaves output unaffected.
According to the wealth effect, aggregate demand slopes downward (negatively) because
lower prices increase the value of money holdings and consumer spending increases.
According to the interest-rate effect, aggregate demand slopes downward (negatively) because
lower prices reduce money holdings, increase lending, interest rates fall, and investment spending increases.
Suppose the price level falls but suppliers only notice that the price of their particular product has fallen. Thinking there has been a fall in the relative price of their product, they cut back on production. This is a demonstration of the
misperceptions theory of the short-run aggregate-supply curve.
According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause
prices to rise and output to remain unchanged.
Policymakers are said to "accommodate" an adverse supply shock if they
respond to the adverse supply shock by increasing aggregate demand, which further raises prices.
Stagflation occurs when the economy experiences
rising prices and falling output.
In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to
shift aggregate demand to the right.
Refer to Exhibit 4. Suppose the economy is operating in a recession such as point B in Exhibit 4. If policymakers wished to move output to its long-run natural rate, they should attempt to
shift aggregate demand to the right.
Suppose the price level falls. Because of fixed nominal wage contracts, firms become less profitable and they cut back on production. This is a demonstration of the
sticky-wage theory of the short-run aggregate-supply curve.
Which of the following isnot a reason why the aggregate-demand curve slopes downward?
the classical dichotomy/monetary neutrality effects
