Econ 231 Final Exam Review

If the dollar appreciates, perhaps because of speculation or government policy, then U.S. net exports

Decrease which shifts aggregate demands left

According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what it produces had

Decreased, so it would decrease production

If the dollar depreciates because of speculation or government policy, U.S.

aggregate demand shifts right. U.S. aggregate demand shifts left if other countries experiences a decrease in real GDP

A decrease in government spending initially and primarily shifts

aggregate demand to the left

When the dollar depreciates, each dollar buys

less foreign currency, and so buys fewer foreign goods.

Other things the same, a decrease in the price level motivates people to hold

less money, so they lend more, and the interest rate falls

If the government repels an investment tax credit and increases income taxes

real GDP and the price level falls

When we say that economic fluctuations are "irregular and unpredictable" , we mean that

recessions do not occur at regular intervals

Graph: Which of the following events could explain a decrease in the equilibrium interest rate from r1 to r3

A decrease in price level

Which is an example of Crowding out?

An increase in government spending increases interest rates, causing investment to fall

In the long run, which of the following depends primarily on growth rate of the money supply?

The inflation rate but not the natural rate of Unemployment

The idea that expansionary fiscal policy has a positive affect on investment is known as

The investment accelerator

The multiplier effect is exemplified by the multiplied impact on

aggregate demand of a given increase in government purchases

Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, they can offset the initial shift by shifting

aggregate demand right

the process of the investment accelerator involves

positive feedback from aggregate demand to investment

If the MPC is 0.8 and there are no crowding out or accelerator effects, then an initial increase in aggregate demand of $120 Billion will eventually shift the aggregate demand curve to the right by

$600 Billion

Take the following information as given: * when income is $10,000, consumption spending is $6,500 * when income is $11,000, consumption spending is $7,250 The marginal propensity to consume for this economy is

0.750

Graph: There is an excess demand for money at an interest rate of

2 %

Suppose policymakers take actions that cause a contraction of aggregate demand. Which of the following is a short-run consequence of this contraction?

All are correct; The inflation rate decreases, the level of output decreases, the unemployment rate increases

Graph: Faced with the shift of the Phillips curve from PC1 to PC2, policymakers will

All the above;

Which of the following effects helps to explain the slope of the aggregate-demand curve

All the above; the exchange rate effect, the wealth effect, the interest rate effect

In 2009 Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand rights?

Both the increased funding for states and the tax cuts

Changes in the price level affect which components of aggregate demand?

Consumption, investment, and net exports

what actions could be taken to stabilize output in response to a large decrease in U.S. net exports

Decrease taxes or increase the money supply

In recent years, the federal Reserve has conducted policy by setting a target for the

Federal Funds rate

In inflation is less that expected , then the unemployment rate is

Greater than the natural rate. In the long run the short run Phillips curve will shift left.

If unemployment is above its natural rate, what happens to move the economy to Long run equilibrium

Inflation expectations fall which shifts the short run Phillips curve to the left

Which of the following is correct according to the long run Phillips cure?

Monetary policy cannot change the natural rate of unemployment, but other government policies can

Liquidity preference theory is the most relevant to the

Short run and supposes that the interest rate adjusts to bring money supply and money demand into balance

The government builds a new water-treatment plant. The owner of the company that builds the plant pays for her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

The multiplier effect

A policy that raised the natural rate of unemployment would shift

both the short run and the long run Phillips curves to the right

Other things the same, continued increases in the money supply lead to

continued increases in the price level but not continued increases in real GDP

Other things the same, if workers and firms expected prices to rise by 2% but instead rise by 3 %, then

employment and production rise

The long-run aggregate supply curve would shift left if the amount of labor available

decreased or Congress made a substantial increase in the minimum wage

the opportunity cost of holding money

decreases when the interest rate decreases, so people desire to hold more of it.

If policymakers accommodate an adverse supply shock, then in the short run the unemployment rate

falls and the inflation rate rises

When the price level falls

households want to lend more, so the interest rate falls, making the quantity of goods and services demanded rise

Macroeconomic forecasts are

imprecise; this makes policy lags more relevant

Most economists believe that classical macroeconomic theory is a good description of the economy

in the long run, but not in the short run

The Fed is concerned about stock market booms because booms

increase both consumption and investment spending

Which of the following shifts aggregate demand to the right?

increases in the profitability of capital due perhaps to technological process.

Aggregate demand shifts right when the Federal Reserve

increases the money supply

The position of the long run aggregate supply curve

is determined by resource usage and technology

According to the theory of liquidity preference, money demanded

is negatively related to the interest rate, while the money supply is independent of the interest rate

Graph: If the economy starts at A and moves to D in the short run, the economy

moves to C in the longrun

When the dollar depreciates, U.S.

next exports rise, which increases the aggregate quantity of goods and services demanded.

Which of the following can explain the upward slope of the short-run aggregate supply curve

nominal wages are slow to adjust to changing economic conditions

A decrease in the expected price level shifts

only the short-run aggregate supply curve right.

Monetary policy and fiscal policy influence

output in the short run only

Graph: Suppose the economy is currently at Point A. To restore Full employment, the federal reserve should

sell government bonds, which will reduce the money supply

In the long run, a decrease in the money supply growth rate

shifts the short run Phillips curve left so unemployment returns to its natural rate

Other things the same, as the price level falls,

the dollar depreciates

Liquidity preference refers directly to Keynes' theory concering

the effects of changes in money demand and supply on interest rates

The economy will move to a point on the short run Phillips curve where unemployment is higher if

the inflation rate decreases

To say that the natural rate of unemployment changes over time is to say that

the long run Phillips Curve shifts over time

In which of the following cases does the aggregate demand curve shift to the right?

the money supply increases, causing the interest rate to fall

The position of the long run Phillips curve and the long run aggregate supply cure both depend on

the natural rate of unemployment, but not monetary growth

The lag problem associated with fiscal policy is due mostly to

the political system of checks and balances that slows down the process of implementing fiscal policy

Keynes argued that aggregate demand is

unstable, because waves of pessimism and optimism create fluctuations in aggregate demand

If output is above its natural rate, then according to sticky-wage theory

workers and firms will strike bargains for higher wages. This increase in wages shifts the short run aggregate supply curve left