Econ Chapter 20 Review

Take a look at the IS-MP-PC model shown here. The equilibrium real interest rate is: -1%. 5%. -4%. 3%.

3%

In the IS-MP analysis in the Fed model, contractionary fiscal policy will shift the: IS curve to the right. IS curve to the left. MP curve up. MP curve down.

IS curve to the left

The Fed model links the IS, MP, and Phillips curves. In the IS-MP analysis, an increase in exports will shift the: IS curve to the right. MP curve down. IS curve to the left. MP curve up.

IS curve to the right

The Fed model combines the _____ curve, the _____ curve, and the ____ curve to link interest rates, the output gap, and inflation. -IS; MP; Phillips -demand for loanable funds; supply of loanable funds; AD -AD; AS; Phillips -dollar demand; dollar supply; AS

IS; MP; Phillips

In the IS-MP analysis in the Fed model, a decrease in the risk-free rate shifts the: MP curve down. IS curve to the left. IS curve to the right. MP curve up.

MP curve down

If the U.S. dollar appreciates, which of the following graphs correctly represents the effect on the IS curve?

Real interest rate graph with decreased spending

Which of the following graphs correctly represents the effect of increased consumer confidence and spending on the IScurve?

Real interest rate graph with increased spending

Which of the following graphs correctly represents the effect on the Phillips curve in Ethiopia if the Ethiopian birr appreciates?

Unexpected inflation graph with falling costs

When using the Fed model to diagnose the economy, if a shock causes the real interest rate to rise, then the economy has been hit by _____ shock. a supply a financial a spending an inflation

a financial

If you see a newspaper headline that says "Steel prices rise sharply," this is an example of _____ shock. a supply an interest rate a spending a financial

a supply

You are an economic adviser using the Fed model to analyze the economy. Now suppose that manufacturers in China face rising costs of rubber as an input. What is the effect on the economy? -an unchanged real interest rate, an unchanged output gap, and unexpected inflation -a rise in the real interest rate, an unchanged output gap, and unexpected deflation -a rise in the real interest rate, rising output, and unexpected inflation -an unchanged real interest rate, falling output, and unexpected inflation

an unchanged real interest rate, an unchanged output gap, and unexpected inflation

A financial shock is any change in: -aggregate expenditure, at a given interest rate and level of income. -potential GDP in the economy. -borrowing conditions that changes the real interest rate at which people can borrow. -production costs that leads suppliers to change the prices they charge at any given level of output.

borrowing conditions that changes the real interest rate at which people can borrow

When a spending shock occurs, the IS curve shifts by the: -change in spending divided by the multiplier. -change in spending. -size of the multiplier. -change in spending times the multiplier.

change in spending times the multiplier

In the IS-MP analysis in the Fed model, the MP curve shows you the: -potential GDP level in the economy. -output level in the economy. -current real interest rate. -price level in the economy.

current real interest rate

When using the Fed model, the first step is to: -find the output gap. -assess inflation. -increase the federal funds rate. -identify the shock and shift the curve.

identify the shock and shift the curve

In the IS-MP analysis in the Fed model, a fall in the interest rate causes a: movement to the right along the IS curve. left shift of the IS curve. right shift of the IS curve. movement to the left along the IS curve.

movement to the right along the IS curve

Once you have identified the point of equilibrium in the IS-MP graph in the Fed model, the horizontal axis will show you the: -equilibrium real interest rate. -output gap. -unexpected inflation. -actual inflation.

output gap

A supply shock is any change in: - production costs that leads suppliers to change the prices they charge at any given level of output. - aggregate expenditure at a given interest rate and level of income. -potential GDP in the economy. -borrowing conditions that changes the real interest rate at which people can borrow.

production costs that leads suppliers to change the prices they charge at any given level of output.

If a spending shock increases aggregate expenditure by $35 billion and the multiplier is 2.5, then the IS curve will shift: right by $35 billion. left by $14 billion. left by $35 billion. right by $87.5 billion.

right by $87.5 billion

Tariffs on inputs lead to a _____ shock. financial supply spending deflation

supply

Once you have connected the output gaps from the IS-MP model and the Phillips curve, the next step is to identify the: -price level from the Phillips curve. -unexpected inflation from the Phillips curve. -potential GDP level. -unemployment rate from the labor market.

unexpected inflation from the Phillips curve

The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to: a new real interest rate of 4%. unexpected inflation of 1%. a new output gap of -6%. a new real interest rate of 0%.

unexpected inflation of 1%