Econ final exam questions pt 1
Which of the following claims concerning the importance of effects that explain the slope of the U.S aggregate demand curve is correct
The exchange rate effect is relatively small because exports and imports are a small part of real GDP
Optimism Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time. Refer to Optimism. How is the new long run equilibrium different from the original one
The price level is higher and the real GDP is the same
Refer to figure 34-4. Which of the following events could explain a shift of the money demand curve from MD1 to MD2
a decrease in the price level
An event that directly affects firms' costs of production and thus the prices they charge is called
a supply shock
In recent years, the Federal Reserve has conducted policy by setting a target for the
federal funds rate.
Which of the following would not be included in aggregate demand
government's tax collections
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 multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it
increases income and thereby increases consumer spending
An increase in the MPC
increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand
In the long run,
inflation depends primarily upon the money supply growth rate.
Refer to figure 34-3. For an economy such as the United States, what component of the demand for goods and service is most responsible for the decrease in output from Y1 to Y2
investment
Refer to figure 33-4. In the short run, a favorable shift in aggregate supply would move the economy from
A to B
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
When they are confronted with an adverse shock to aggregate supply, policymakers face a difficult choice in that
(All of the above) if they contract aggregate demand, the unemployment rate will increase further. if they expand aggregate demand, the inflation rate will increase further. they face a less favorable trade-off between inflation and unemployment than they did before the shock
Refer to Figure 34-1. There is an excess demand for money at an interest rate of
2 percent.
If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year, the sacrifice ratio is
5
Which of the following events would shift money demand to the right?
An increase in the price level
Refer to Figure 35-6. If the economy starts at C and the money supply growth rate decreases, in the short run the economy moves to
B
Refer to figure 33-10. If the economy starts at point C, stagflation would be consistent with point
D
Refer to figure 33-9. Suppose the economy starts where LRAS= AD1 = SRAS1. A decrease in the short run aggregate demand supply would be consistent with the movement to
P2 and Y1
Refer to figure 33-7. If the economy starts at Y, then a recession occurs at
W
Refer to figure 33-3. The natural rate of output occurs at
Y2
Economists who are skeptical about the relevance of "liquidity traps" argue that
a central bank continues to have tools to stimulate the economy, even after its interest rate target hits its lower bound of zero.
Refer to figure 34-7. The aggregate demand curve could shift from AD1 to AD2 as a result of
a decrease in net exports
Refer to figure 33-8. Suppose the economy starts at Z. If changes occur that move the economy to a new short run equilibrium of P1 and Y1, then it must be the cause that
aggregate demand has decreased
Other things the same, an increase in the amount of capital firms wish to purchase would initially shift
aggregate demand right
Automatic stabilizers
are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.
According to the Phillips curve, policymakers can reduce inflation by
contracting aggregate demand. This contraction results in a temporarily higher unemployment rate.
The wealth effect stems from the idea that a higher price level
decreases the real value of households' money holdings.
Changes in the interest rate bring the money market into equilibrium according to
liquidity preference theory, but not classical theory.
Which of the following is not an automatic stabilizer
minimum wage
One determinant of the natural rate of unemployment is the
minimum wage rate.
The theory of liquidity preference illustrates the principle that
monetary policy can be described in either terms of the money supply or in terms of the interest rate
Other things the same, an increase in the price level induces people to hold
more money, so they lend less, and the interest rate rises
Refer to figure 33-4. If the economy starts at A and moves to D in the short run, the economy
moves to C in the long run
According to the Phillips curve, unemployment and inflation are positively related in
neither the long run nor the short run.
The sacrifice ratio is the
number of percentage points annual output falls for each percentage point reduction in inflation.
The theory by which people optimally use all available information when forecasting the future is known as
rational expectations.
The aggregate quantity of goods and services demanded changes as the price level falls because
real wealth rises, interest rates fall, and the dollar depreciates
In 1968, economist Milton Friedman published a paper criticizing the Phillips curve on the grounds that
the Phillips curve did not apply in the long run.
If speculators gained greater confidence in foreign economies so that they wanted to buy more assets of foreign countries of fewer US bonds,
the dollar would depreciate, which would cause aggregate demand to shift right.
According to the long-run Phillips curve, in the long run monetary policy influences
the inflation rate but not the unemployment rate.
Critics of stabilization policy argue that
the lag problem ends up being a cause of economic fluctuations.
The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms from which the employees buy the goods and services pay their employees. This sequence of events illustrates
the multiplier effect.
The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if
the price level is higher than expected making production more profitable.
If the Federal Reserve decreases the rate at which it increases the money supply, then unemployment is higher in
the short run but not the long run.
Monetary Policy in Flosserland In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years. Refer to Monetary Policy in Flosserland. Suppose that the Flosserland Department of Finance undertakes a public relations campaign to convince people that it will soon change monetary policy to reduce inflation to 12.5%. If Flosserlanders believe their government then which, if any, curve(s) shift left?
the short-run but not the long run Phillips curve
The wealth effect, interest rate effect, and exchange rate effect are all explanations for
the slope of the aggregate-demand curve
As the aggregate demand curve shifts leftward along a given aggregate supply curve,
unemployment is higher and inflation is lower.
Suppose that as a result of a stock market boom, consumers become less concerned about saving for retirement and increase their current consumption expenditures. Which of the following would you expect to occur as a result of this change?
In the short run, unemployment will decrease and inflation will rise.
